Nigeria’s foreign exchange reserves have recently come into the limelight when the Central Bank of Nigeria (CBN) adjusted the exchange of naira from the old official rate of N379 / $ to the new exchange rate of N410.25 / $. The move was made by national financial authorities with the aim of bridging the gap between official exchange rates and black market rates.
As expected, public discourse focused on why CBN shouldn’t have followed that path. It is recorded that Nigeria has witnessed the devaluation of Naira several times and the number of citizens has decreased. This policy infiltrated our consciousness in 1986 when then-military president Ibrahim Babangida Bangida (IBB) accepted an IMF package specially designed to free Nigeria from economic turmoil. ..
IBB left the country’s exchange rate at N17 / $. Since then, Naira has fallen to the latest N410.25 / $. Other currencies are also affected. British pounds are currently being exchanged for the N700. Euro exchange with N600. Since May 2020, Nigeria’s foreign exchange reserves have averaged $ 35 billion and may not be able to provide import coverage for more than six months.
The challenge facing all Nigerians today is not to continue attacking the CBN, but to contribute even a little to address the root cause of the ongoing devaluation of naira.
Foreign exchange reserves have numerous reasons, including maintaining the value of a country’s currency at a constant rate, maintaining liquidity in the event of an economic crisis, stabilizing markets, and increasing confidence in the economy. It is held at. Supports the provision of infrastructure.
The root cause of Naira’s continued devaluation is none other than the collapse of the actual sector of the Nigerian economy. Decades ago, Nigeria exported refined petroleum products. This means that the country’s refineries were in good condition. After that, most of the vehicles on the roads in Nigeria were assembled by either Peugeot in Kaduna, Volkswagen in Lagos, Rayland in Ibadan, or ANAMCO in Enugu.
In addition, home appliances such as radios and televisions were assembled in Ibadan. In addition to the freezer assembled in Lagos, clothing manufactured in the textile factories of Lagos and Kaduna. Please note that other items such as shoes and sandals are made equally by Nigerian Bata and Leonard. All of this saved the country huge amounts of foreign exchange. In other words, unlike today, foreign exchange reserves were not under undue pressure.
Now the opposite is true. As of the end of the first quarter of 2021, crude oil from petroleum and bitumen minerals accounted for 66.38 percent of Nigeria’s exports. On the import side, the motor spirit typically accounted for 10.04 percent of Nigeria’s imports.
Based on the above, Nigeria’s foreign exchange reserves depend on the strength of Nigeria’s business world. Therefore, we now need to revive the real sector of the country. One way to get out of this log jam is to increase local procurement of raw materials. Nigerian companies import virtually all the raw materials used to make their products. This call has been made several times, but the question remains as to why this policy is not so successful.
If this issue needs to be addressed, Nigerians need to patronize Nigerian merchandise. If Nigerians continue to buy foreign goods, we sacrifice local manufacturers to create the jobs we want and pay taxes that empower the government to perform their basic functions. And will continue to empower foreign producers.
Need to address the root cause of ongoing drawdowns in foreign exchange reserves
https://businessday.ng/editorial/article/need-to-address-the-root-cause-of-continuous-drawdown-on-external-reserves/ Need to address the root cause of ongoing drawdowns in foreign exchange reserves