Before we take naira off list of weak currencies

By Lawal Nasir
The editorial of a newspaper of November 1, 2024, titled ‘Taking naira off poorly performing currencies list’ was well received and circulated widely [I first read it in a Whatsapp group I belong to], particularly by patriotic Nigerians who were understandably hurt by the state of the nation’s currency.

The newspaper premised its editorial on the listing of the Nigerian currency among the worst-performing currencies in Sub-Saharan Africa in 2024 as captured in the latest edition of Africa’s Pulse, a new report by the World Bank. In the said report, the naira was placed alongside the Ethiopian birr and South Sudanese pound.

The newspaper also cited Bloomberg’s recent ranking of the naira among the world’s 10 weakest currencies. The Nigeria naira, Zambian kwacha and Angolan kwanza, which made the infamous list, are from Africa.
While the World Bank said “surges in demand for US dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the Central Bank explain the weakening of the naira”, Bloomberg attributed the weakness of the naira and others to “unstable commodity prices, inflationary pressures, and lack of dollar liquidity, a point of view that enables Euro-American metropolitan economies to prey on Third World economies.”
But, as they say, “when life gives you lemons, make lemonade”. And as true economists will tell you, a weak currency – despite its negativity – is not the end of the world. Rather, it comes with its own opportunities, ceteris paribus.
This is what the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, explained to Nigerians while responding to the World Bank report at the platform of the Nigerian Economic Summit (NES) in Abuja. He simply told the country to “make lemonade” from its “lemons” even as the country continued with positive reforms to change the tide.

According to Cardoso, the challenges posed by a depreciating currency notwithstanding, there are considerable opportunities for investment. He said “In terms of persuasion, what we need now is to ensure that investments are here. Take, for example, now it may seem like a threat in the sense that the exchange rate has come down so low. But that also is an opportunity because what that means is that it can help to boost your exports. This will make Nigeria to become a lot more competitive in the export trade.”

He went further to urge investors from within and outside Nigeria to recognise the potential in the current situation by ensuring that things are recalibrating in a particular direction. “It’s not perfect, but definitely there are opportunities for people to single out and invest,” he said, adding that “By the time you are exporting out to other countries. I see it happening. Others are doing it, and the interest is growing in leaps and bounds.”
There are examples across the globe to back what the CBN boss said. Take Japan, for instance, where the weakness of the yen was recently in the spotlight after the currency sank to 160.17 against the US dollar, its lowest since April 1990. While reasons have been adduced as to why the yen was falling, it didn’t help when investors were being driven to offload the yen because the more investors sold the yen, the more it declined in value. Indeed, over the last three years, the yen lost more than one-third of its value.

However, despite these negative economic indices, the Japanese authorities stayed the course because they understood very well that a weak currency is a mixed bag for the economy. Rather than lament, Japan decided to turn its ‘lemons’ into ‘lemonade’.

Today, as captured in Al Jazeera’s ‘Financial Markets’, Japan’s weakening yen has helped boost exporters’ profits by making their products cheaper to buyers overseas. The slide has also encouraged a record influx of foreign tourists – there were 3.1 million visitors to the country in March alone – whose spending helps support local businesses.
Some countries are even accused of weakening their currencies for economic gains. This was the case when the People’s Bank of China (PBOC), in August 2015, decided to knock off over 3% of the Chinese yuan renminbi (CNY) value. The move was described by many economists as a desperate attempt by China to boost exports in support of its economy which was growing at its slowest rate in decades at the time.

This is why Nigerians, especially exporters, must listen to Mr. Cardoso and appreciate the real import of his message, which is in a way similar to the arguments in the editorial. And as both the World Bank and other financial institutions have recognised, “To fully reap the benefits of the policies set in motion, the bank [CBN] needs to stay on course.”
Lekan Sote, the respected columnist, in his October 31, 2024 piece titled “Advantages of a weak naira”, puts it succinctly when he argued that “a weak naira needn’t be a disadvantage if President Bola Tinubu’s economic managers can flip things around, and take advantage of economies of large-scale production by getting the real sector, especially, to produce, for export, goods for which Nigeria has a comparative advantage.
So, therefore, governments at all levels should make the country attractive to investors and boost the ease of business, as advocated. There is indeed the need to fix the perennial electricity crises in the country, reduce borrowing and make deliberate, commensurate efforts to intensify local food production and Small and Medium Scale Enterprises. We can’t remain an import-dependent country and expect things to change.
The Nigerian government should support the CBN chief’s vision of achieving financial stability and sustainability by encouraging local production so that what we lost as a result of our weak currency can be regained through exports. If we do this, our naira will not only be taken off the list of poorly performing currencies, it will witness steady appreciation and our economy will be the better for it.
– Nasir writes from Abuja