Some three and half years ago, right in the crescendo of COVID-19, I wrote the first Diaspora Despatch essay titled “Petrodollar, not our manifest destiny” See: https://kaftanpost.com/petrodollar-not-our-manifest-destiny/?amp=1
In that expose`, I attempted to draw a correlation between a warped government policy and a potential economic collapse due to the effects of the coronavirus pandemic.
The underlying corollary is the inevitable social and economic decline if Nigeria refuses to restructure and/or diversify. I posited a superfluous consequence of a protracted recession spanning a decade, culminating in a total economic wreck synonymous with the period after the civil war of the late 1960s. More jarring was my extrapolation of 1200 Nigerian Naira for 1U.S. dollar when the Naira traded at N390 to $1.
Critics quickly labeled my piece melodramatic, doomsayer, and pessimistic, claiming that it is highly improbable that the dollar will get that expensive. My detractors wittingly ignore the glaring impending signs of economic disaster unfolding before everyone’s eyes if salvage measures were not in place.
Three years later, I was right—my “pessimistic prognosis” was proven faster than I expected. The U.S. 1 dollar today exchanges for a startling eye-popping N1280 at the parallel market. The irony is that this was not unexpected, but to our unscrupulous handlers, who, like an ostrich, buried their heads in the relativistic sands to avoid facing the evil quanta, it was business as usual as they ignored all the signs and fundamentals.
The Naira started its precipitous fall in June 2023 when the central bank lifted its currency restriction, allowing the Naira to trade freely. For years, the country’s apex bank restricted the Naira laissez-faire in the forex market, pegging it at a determined rate. This interference created a false illusion of a stable currency. However, when supply and demand were allowed to determine rates, a gusting economic tsunami was unleashed, exposing the shenanigan covering up a failed and faltering economy that sent the Naira in a sudden nosedive.
Disturbing, predictable, and avoidable economic factors triggered wild currency speculation, ultimately leading to a deep slump and further economic pain for the Nigerian people.
As the blowback continues, access to basic necessities for support of life is increasingly out of reach. Unfortunately, the agony has only just begun.
As this deluge of bad news continues, the country undoubtedly would experience a sustained decline troubling enough to put it on the path of economic depression.
The seeming absurdity of the continent’s oil giant with all the impetus to expand and transform, but yet fails to diversity, is most remarkable and puzzling. They are all self-inflicted. For example, an opportunity presented itself in the spring of 2022 when Ukraine was invaded by an oil-producing belligerent Russia, causing a shortage of petrol products; Nigeria failed to take advantage of the high crude price to invest locally and develop. Instead, it squandered the windfall, behaving like an ostrich whose head is buried in the sands, hoping its problem will disappear.
I warned in a piece in this column in March 2022 titled “Will Nigeria leverage the rising crude price to self-develop?” See https://kaftanpost.com/will-nigeria-leverage-the-rising-crude-price-to-self-develop/. Stating if Nigeria doesn’t kick-start itself from the softening of the oil supply chain and use the influx of dollars to transform from a developing oil-dependent economy to a developed diversified one with multiple sources of a growing range of sectors and markets, it will indeed repeat the mistake of the past and further impoverished its people. Eighteen months later, the policymakers did not disappoint with higher pump prices, stymied investment, incessant union strikes, and an economy in reverse. Many have been hollowed out, and many more have slid into unbearable poverty as they cut down on food and other social safety nets.
Although the rigidity of putting undue stress on the Naira has left the country in perpetual ruin, with widespread unemployment, soaring prices, food shortages, and ballooning national debt, it is evident that this current administration will not be able to ameliorate the damages. It continues to use the prescription from prior administrations to erect a flimsy structure and govern on the most fatuous, wrongheaded, and vile precept.
The consequences from this point on will be hyperinflation for a period followed by a “dramatic and sustained downturn in economic activity, with symptoms including a sharp fall in economic growth, employment, and what’s left of production.” lasting three years or more.
As the Naira continues to plummet, seeing that the country is over-dependent on foreign products, food prices, essential commodities, and other consumables will become extreme and uncontrollable, medicines and medical supplies will be elusive, and pervasive hunger and diseases nationwide will be inescapable.
Only strict, frugal economic policies will be able to prevent Nigeria from being classified as a failed state. To ease this impending disaster, a bold, dramatic intervention such as an ironclad austerity measure must be in place to pull Nigeria from the economic sinkhole it plunged into.
Such as:
- Drastically reducing recurrent and mostly meaningless expenditures, “including the overblown executive/legislative salaries and non-essential allowances.”
- Promote local production by imposing harsh import duties on foreign goods—exceptions for medicines and medical supplies. If more goods are produced locally, thirst and the demand for the U.S. dollar will be depressed.
- Shore up and invest in institutions that protect citizens, investors, and businesses, e.g., infrastructure, courts, schools, banks, etc.
- Innovate the ministries, cut out and clamp down on waste and abuse in all government agencies.
- Downsize State allocations and mandate that States look inward for alternative revenue sources, including agro and manufacturing.
And then invest in alternative sources of income away from petrol.
Assuming the above remedies are implemented, Nigeria may be able to plug the hole of economic depression and reverse the tide. However, I must stress that even if the current hyperinflation stops due to these interventions, the damage will have already been done to the economy. Recovery is possible, but it will take years for people to see any tangible changes.
Email: JlaBode74@gmail.com
Twitter: @Obanor
