The Independent National Electoral Commission (INEC) on March 1st declared Bola Ahmed Tinubu as Nigeria’s President-elect.
The declaration came three full days after the elections took place, even as controversies and complaints of rigging trailed the entire process. The President-elect accepted the results and immediately read out a statement thanking his supporters and extending an olive branch to the losers of the election, Atiku Abubakar and Peter Obi, and their respective supporters.
As Nigerians continue to grapple with the aftermath of the election, attention is now being turned to what Tinubu’s election could portent for the Nigerian economy, especially forex. According to Nairametrics research, the exchange rate between the naira and dollar is currently N750/$1 worse than the N297/$1 that the current APC government met in 2015 when they came into power.
Whilst President Buhari will point to several challenges beyond his control as one of the reasons for Nigeria’s exchange rate travails, President-elect Tinubu will need to show Nigerians a solution to a crisis that has contributed to rising inflation rate and increased poverty across the country.
Agreed, it is too early to determine what Tinubu will do as president. But one can, in the heat of the moment, refer to his campaign manifesto to understand his initial thought around fixing Nigeria’s forex situation.
Tinubu’s Manifesto on Forex
In his manifesto, Tinubu highlights the importance of a more effective exchange rate regime that aligns with the goals of optimal growth and job creation, driven by industrial, agricultural, and infrastructural expansion.
He also recognizes that the current regime of multiple exchange rates is ineffective, leading to financial dislocation and currency speculation, which divert much-needed funds away from productive endeavours.
“The recent dip in our exchange rate is primarily due to global supply and production shortfalls caused by global factors well beyond the scope of our control. Our diminished levels of oil production and the modest capacity of our manufacturing sector to expand production both serve to compound the pressure on the naira.”
To address the issue, Tinubu proposes working with the Central Bank and the financial sector to carefully review and optimize the exchange rate regime. This, he believes, will help ensure that exchange rate policy is better aligned with the goals of optimal growth and job creation.
“To ensure that exchange rate policy harmonises with our goals of optimal growth and job creation driven by industrial, agricultural and infrastructural expansion, we will work with the Central Bank and the financial sector to carefully review and better optimise the exchange rate regime.”
Tinubu also emphasizes the need for a stronger and more stable Naira, founded upon a vibrant and productive real economy. This would require Nigeria to move away from its dependence on oil production and expand its manufacturing and agricultural sectors. By doing so, the country would be better equipped to weather global supply and production shortfalls that are beyond its control.
“Our economic policies shall be guided by our desire for a stronger, more stable Naira founded upon a vibrant and productive real economy.”
Questions Tinubu needs to answer
Nigeria’s exchange rate situation has been a long-standing issue that has affected the country’s economy and its citizens. It is clear to anyone who read the manifesto that Tinubu’s plan does not address the challenges of Nigeria’s exchange rate situation in a comprehensive manner.
His proposal to review and optimize the exchange rate regime lack specificity and do not address the challenges of corruption, political interference, and weak institutions that have hindered Nigeria’s exchange rate management in the past.
Whilst we understand that he may have decided to play safe in his manifesto, the world awaits more details on what he will do to address Nigeria’s forex quagmire. And as his economic teams start to knit together a more comprehensive economic plan, these are some of the challenges and questions we believe President-Elect Tinubu will need to provide in more detail in the next coming weeks.
Firstly, what specific policies will his government need to put in place to address the challenges of meeting Nigeria’s export needs? While the recently signed Omnibus Business Facilitation bill does help address some of these challenges with export competitiveness, the major hurdle will be implementing the same.
Tinubu’s plan also proposes implementing policies that would attract foreign direct investment, encourage domestic investment, and promote small and medium-sized enterprises.
While these policies are important, the plan does not address the structural challenges that have hindered Nigeria’s investment environment in the past, such as corruption, political instability, weak institutions, and inadequate infrastructure.
Will he float the naira?
Foreign investors are looking for tangible solutions to Nigeria’s multiple exchange rate regimes.
They also want to know if the next government will be disposed to introducing a flexible exchange rate regime or if it will continue with the capital controls currently being experienced by Nigerians.
The closest Nigeria has even gotten to with the exchange rate is a managed float.
However, a move to introduce a free float will likely be welcomed by foreign investors but may temporarily increase hardship among Nigerians.
Will he devalue the naira and unify the multiple exchange rate?
More importantly, will the president-elect push for a devaluation of the naira in the official market thus leading to a collapse of the multiple exchange rate regime Nigeria is currently experiencing?
Nigeria operates several exchange rate regimes and most critics of this policy have called for unification. Doing this means, there will only be one rate which could mean a devaluation of the naira in the official market.
This means buying PTA required for travelling may be more expensive than it currently is.
Can foreign investors repatriate forex freely?
They also want to know how the next government will address the issues of foreign currency repatriation and if foreign businesses operating in Nigeria will be able to take their money out of the country.
Currently, most foreign businesses operating in Nigeria find it hard to get forex from the apex bank to fund the repatriation of the sales or even investment proceeds.
To mitigate these challenges some of them deliberately increase prices to augment the opportunity cost of money.
The current CBN has avoided this route choosing to jealously guard the $36 billion in reserves that are remaining.
Will it continue current CBN Policies?
They will also be curious to know if the government will continue to support the incentives the central has put forward to encourage exports such as the RT 200, naira 4 dollars, etc.
These policies, though unpopular have been identified by the central bank as critical to addressing Nigeria’s foreign currency export challenges.
Despite the push by the apex bank for its adoption, it has failed to stop the depreciation of the exchange rate in the black market.
Will they sack Emefiele?
Perhaps the most important clarity will be whether the incoming president will want to retain the current CBN Governor and crop of deputy governors that have presided over what can arguably be characterized as one of the most controversial and challenging forex policies of a generation.
Many suggest Emefiele’s days as CBN Governor may be numbered but Bola Tinubu is known for his unpredictability and ability to cut deals even with people perceived as his enemies.
The challenge a Tinubu president might face with this decision will be the message it will be sent to foreign investors.
If it decided to sack or negotiate a resignation of the currency CBN Governor before his tenure ends next year, then that might send a wrong message to foreign investors that the independence of the apex back is questionable.
Should he allow Emefiele to remain, then this could also suggest the government is a continuity.
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