The Nigerian naira slumped to record low on Thursday, Dec. 17 after the Central Bank of Nigeria (CBN) directed commercial banks to limit how much customers can spend abroad using their debits cards. Under the new directive, individuals can only spend $100 to $150 abroad daily or $12,000 annually, down from the $50,000 set by the central bank in April and $150,000 before then. The CBN’s intention is to hold the naira’s value but if there is anything the new directive will do, it is discouraging foreigners from investing in the country.
Free the naira
The naira as it is, is overvalued. The currency closed at N270 at the parallel market while the interbank market rate was N199.15 to a dollar. No one wants an overvalued currency. If the status quo remains for long, foreign companies may start rejecting the naira for payments just like it happened in Argentina where American Airlines stopped accepting pesos. But the South American country has a new president now and he has delivered change in his first seven days in office. Nigeria’s President Buhari who won the Presidential election on the mantra of change, may have one or two things to learn from Mauricio Macri about making an impact early enough in a struggling economy.
First thing he needs to do is lift currency controls and allow the naira flow freely as advised by former CBN governor Mallam Sanusi Lamido Sanusi who is now the Emir of Kano, a city in Nigeria’s north. “It does not speak well of us to pretend that the naira is appropriately valued,” Sanusi had said.
“If we continue along this trajectory, with the weak balance sheet of government and a tight monetary policy, in the face of falling oil prices, we are setting the economy up for a long period of very low growth and we cannot afford that given our population and given our growth rate.”
Fire and Hire
Another lesson Mr Buhari should learn from Macri is how to fire. Although he came in at a really difficult time, CBN Governor Godwin Emefiele has not proven himself to be the right man for the job. Most of his policies have been questionable and their impacts almost insignificant. Emefiele may need a little nudge or a break. The president should do something. When Macri became Argentina’s president, he appointed a new president for the central bank.
Cristina Fernandez de Kirchner did not steer the Argentinian economy well and she paid for it — she was prohibited from serving three consecutive terms and her handpicked successor lost the election. But Macri is more focused on saving the economy than stressing Cristina Fernandez’s ineptitude or tolerance for corruption. President Buhari should do same.
Macri also cut personal income tax and increased export tax, sough loans to shore up reserves and made data more transparent. While it may be too early to say much about Macri, analysts think so far, he has started well. It’s been seven months since President Muahmmadu Buhari became Nigeria’s leader, Nigerians should be seeing good economic policies already. Low oil prices will make Nigeria struggle in 2016 but good decisions will minimize the effect.