Naira's Drastic Fall: The Imperative of Full Privatization for Nigeria's Future

 

The naira's condition is a clear reflection of Nigeria's underlying economic issues, underscoring that President Tinubu's floating exchange rate policy, while necessary, is not sufficient in isolation. The critical solution lies in decisively privatizing key government corporations and implementing an all-encompassing strategy to stimulate local production, minimize government expenses, and better the business ecosystem, paving the way for the naira's recovery and Nigeria's long-term economic prosperity.

In recent times, the Nigerian economy has faced daunting challenges, chief among them being the precipitous decline of the naira against major global currencies. This situation, characterized by a continuous fall in the value of the naira, reached a critical point last week (on January 23, 2024), with the exchange rate spiraling to between N1,355 and N1,360 against the US dollar in the parallel market, while the official rate stood at N900.26/$1 as per the Central Bank of Nigeria (CBN) website. Such a drastic depreciation not only exacerbates the misery of citizens but also injects profound uncertainty into the business environment.

President Bola Tinubu, alongside the Minister of Finance, Wale Edun, and CBN Governor Olayemi Cardoso, are at the helm of addressing these economic woes. Last June, under Tinubu's directive, the CBN initiated the unification of the naira rates, marking an end to its prolonged control over the forex market. This policy change, intended to synchronize the parallel and official market rates, ironically resulted in a rapid devaluation of the naira. Such a reaction is typically anticipated in the early stages of transitioning to a floating exchange rate system. Nonetheless, this strategy alone is not sufficient to stabilize and strengthen the naira.

Despite receiving substantial support, including a $2.25 billion aid from AfreximBank, and claims of improved forex obligations clearing by the CBN, the naira's value continues to plummet. This persistent devaluation is in stark contrast to earlier forecasts by authoritative economic analysts. The Economist Intelligence Unit, for instance, had envisaged a regime of more robust exchange-rate management post-floatation, while consultancy firms like KPMG had anticipated a forex rate stabilizing in the range of N650/$1 to N750/$1. The disparity between these predictions and the reality of the naira's continued slump not only highlights the shortcomings of the measures employed so far but also underscores the pressing necessity for a more comprehensive and bold overhaul of the nation's economic policies. This scenario paints a clear picture: piecemeal solutions and tentative steps are inadequate in addressing the complexities of the current economic crisis.

In light of these challenges, President Tinubu's administration must take bold steps beyond the current policy measures. A vital aspect of this strategic realignment ought to be the comprehensive privatization of key state-owned enterprises that have, for decades, been constricting Nigeria's economic progress. This bold move would encompass a wide array of pivotal entities, including but not limited to, the Nigerian National Petroleum Corporation(NNPC), Delta Steel, the Nigerian Ports Authority, Nigeria Railway Corporation, and the Transmission Company of Nigeria (TCN). The scope of this privatization drive would encompass more than a hundred other government-run corporations, known for their chronic inefficiency and notorious as conduits for corruption and money laundering among political figures. By transitioning these entities from public to private hands, the Tinubu administration can infuse efficiency, foster competitiveness, and attract both domestic and international investments. This strategy is not just about divesting state ownership but is a transformative step towards revitalizing the economy, enhancing productivity, and ultimately stabilizing and strengthening the Nigerian currency in the global market.

It is worth pointing out that the strategy of partial privatization, which has been employed in the past, has consistently fallen short in sparking the required economic revival. A vivid illustration of the efficacy of a more comprehensive approach can be seen in the telecommunications sector, which experienced a remarkable transformation following its complete privatization during former President Obasanjo's tenure. This success story serves as a powerful indicator of the substantial benefits that can be reaped from fully privatizing key sectors. By fully divesting these industries from state control, it opens the doors to increased domestic and international investments, bringing a new dynamism and competitiveness to the market. Furthermore, such a move would be a significant catalyst for job creation and the expansion of export capacities, factors that are essential in driving economic growth. In addition, the influx of investment and the boost in exports and employment that full privatization promises would play a pivotal role in stabilizing and gradually enhancing the value of the naira over the long term. The cumulative impact of these changes would not only rejuvenate the economy but also lay a solid foundation for sustained economic health and currency stability.

While full privatization is critical, it must be part of a broader strategy to revitalize Nigeria's economy. This includes cutting the cost of governance, properly utilizing monetary policy instruments, and making the country more attractive to investors. Addressing the perennial electricity crisis, halting excessive government borrowing, and intensifying efforts in local food production and the development of Small and Medium Scale Enterprises are also imperative.

The current state of the naira is a clear indicator of the underlying economic challenges facing Nigeria. President Tinubu's floating exchange rate policy, while a step in the right direction, is insufficient on its own. The need of the hour is a bold move towards the full privatization of key government corporations, coupled with a comprehensive strategy to boost local production, reduce government expenditure, and enhance the business environment. Only through such decisive actions can Nigeria hope to restore the value of its currency and set the stage for sustained economic growth and prosperity.