Since the onset of the novel Coronavirus (COVID-19) pandemic about one year ago, Nigeria’s monetary and fiscal authorities have been churning out a potpourri of policies to deal with the dreaded pestilence and its impact, just like all other nations of the world. Unsurprisingly, some of the policy measures have been ill-digested, experimental, and hasty; again, just like in many other climes.
Yet, certain obvious peculiarities of Nigeria usually make its own challenges more telling and lingering. By default or outright mismanagement of resources, Nigeria has remained a mono-product economy, largely import-dependent and perpetually vulnerable to the vagaries and vicissitudes of crude oil market and its politics in the global arena. Economy diversification has remained a mere mantra or sing-song of successive governments in the country. Now we’re talking about effective diversification; that is, sectors of the economy other than crude oil and gas operating in ways that the export of their products substantially improve foreign exchange inflow into the Nigerian economy. It means having a ‘portfolio’ of exports that do not just augment inflow from oil sales but readily can sustain the economy even without oil.
At present, there is no effective diversification; and so, the health of the Nigerian economy still precariously hangs on oil price movement. So, with the crash of the price of crude oil owing to the virtual shutdown of the global economy ravaged by COVID-19, by second quarter 2020, Nigeria’s foreign exchange (forex) inflow almost dried up. Again, unsurprisingly, due to the economy shutdowns and collapse of supply chains, Nigeria and most countries of the world went into deep recession by the third quarter 2020.
The concomitants of this have been high and rising inflation rate (standing at over 16 per cent by February 2021, from about 11 percent a year ago); collapsed Gross Domestic Product (GDP) growth rate that is practically at zero level; sharply dwindling forex reserves as well as deteriorating exchange rate of the Naira against major currencies across the globe. Indeed, the monetary authorities had to ‘unofficially’ devalue the Naira twice in 2020; and within this first quarter 2021, the official exchange rate has been put at around #410/$1. Even at this rate the pressure on the local currency has been enormous and persistent, such that at the ‘parallel’ and ‘black’ markets, the exchange rate is fast inching towards #500/$1: meaning that, with one thousand Naira, you can at best, get only two US dollar!
Apparently alarmed at this pace of loss in value of the local currency vis-a-vis the dollar and others, the Central Bank of Nigeria late last year came up with a policy to encourage forex remittances to Nigeria from the Diaspora. The policy allows the beneficiaries of remittances the choice to be paid in dollar or the Naira equivalent (at the point of collection). For some reasons, the expected upsurge in forex inflow via remittances, courtesy of the new policy was not happening. Rather, the pressure on the local currency kept heightening, even, when, owing to the obviously unexpected rise in crude oil price since the dawn of 2021and forex inflow therefrom, some accretion to the external reserves was recorded.