Naira’s slide: Why reforms won’t reverse the tide

By Hauwawu Ibrahim Sanda

the naira’s value will only reflect Nigeria’s economy being solid. Foreign reserves and policies can purchase a reprieve in the short term, but with no structural adjustment and actual accountability, the naira will never be stronger, and the dollar will continue to rule supreme.. If necessary, I am open to revisions to align with your editorial guidelines. Please let me know if you require any additional information.

Despite the serial policy adjustments and economic reforms, including the so-called de-subsidization of fuel, the naira continues to depreciate against the dollar. Regardless of the opinion of some experts like Prof. Uche Uwaleke that the Net Foreign Exchange Reserves position of over $23 billion held by Nigeria should be enough to maintain the stability of the currency, reality on ground is starkly different. The average Nigerian is living in an economy of rising prices, diminishing purchasing power, and rising living costs.

One of the largest factors that the naira still struggles is Nigeria’s excessive import dependency. The nation depends greatly on foreign goods, from foodstuffs and domestic supplies to automobiles, electronics, and machinery. Such reliance equates to a perpetually required dollar, while Nigeria earns relatively small returns in return, primarily through crude oil. However, even the oil revenues are plagued by internal issues like theft, pipeline vandalism, irregular world prices, and lack of refining capacity because some refineries have been shut down. These issues reduce the country’s capacity to generate sufficient foreign exchange, thereby exerting more pressure on the naira.

Meanwhile, systemic corruption continues to erode economic growth. Billions of dollars are taken in loans for the sake of development, yet citizens barely notice the supporting infrastructure or growth. Instead, the money disappears in circles of embezzlement and financial mismanagement, deteriorating the economy.

Further, past border closure policies aimed at raising local production and reducing imports were counter-productive. Without support to manufacturers, farmers, and local businesses, the policy only worsened scarcity and boosted food inflation. The majority of local producers could not supply demand or access inputs and therefore the intended benefits of the policy were unsustainable. Naira continued to depreciate in value, which shows that policy direction without implementation and support is not enough.

The dollar, nonetheless, is strong because of global confidence in the American economy, its political stability, and global demand for the currency for global trade. In contrast to naira, which is backed by a sick economy, the dollar benefits from being the world’s dominant reserve currency. As long as Nigeria does not strengthen its economic fundamentals like industrial production, infrastructure, and transparency, the demand for dollars will still exceed supply, and its rate relative to the naira will be high.

To reverse this trend, Nigeria must invest specially in agriculture, manufacturing, mining, and information technology. All these industries hold the promise to increase domestic productivity, reduce imports dependence, and earn foreign exchange. The borrowings must be linked strictly with measurable development objectives with complete transparency.

No less important is the war against corruption. Recovery will remain a mirage until recovered funds are recovered and guilty parties brought to court. Legal processes must rise above press statements to deliver real punishment and asset repatriation.

In addition, small and medium-sized businesses (SMEs) must be supported with access to credit, electricity, internet, and business-friendly policies. Such businesses can create jobs, assist in poverty alleviation, and become drivers for export growth.

Finally, the naira’s value will only reflect Nigeria’s economy being solid. Foreign reserves and policies can purchase a reprieve in the short term, but with no structural adjustment and actual accountability, the naira will never be stronger, and the dollar will continue to rule supreme. If necessary, I am open to revisions to align with your editorial guidelines. Please let me know if you require any additional information.

Hauwawu Ibrahim Sanda is a Public Affairs Analyst.