Why Nigeria’s Forex Dilemma Deepens Despite Assurances from President Tinubu

In a recent report by Daily Trust on Sunday, Nigeria’s foreign exchange crisis is expected to persist due to factors such as low crude oil production and limited inflows. Despite President Bola Ahmed Tinubu’s assurances of a business-friendly environment, the country grapples with financial challenges impacting its global standing.

President Tinubu highlighted the importance of seamless repatriation to boost investor confidence, emphasizing the connection between investment inflows and contract sanctity. However, foreign businesses are reported to have lost over N900 billion in 2023 due to the depreciation of the naira.

The forex crisis has particularly affected the airline industry, with Nigeria earning the undesirable reputation of blocking the largest chunk of airlines’ $1.6 billion blocked funds in Africa. The International Air Transport Association (IATA) has criticized Nigeria for this, attributing the surge in airfares to anticipatory forex rates adopted by airlines.

Local carriers, like Azman Air, face challenges with stranded aircraft abroad, while manufacturers struggle to access foreign exchange for importing raw materials. The pharmaceutical sector, represented by the Pharmaceutical Society of Nigeria (PSN), reports increased drug prices due to high forex costs for importing Active Pharmaceutical Ingredients (APIs).

An analyst, Babatunde Adeniji, highlighted the devaluation of Nigeria’s Letters of Credit, emphasizing the impact on foreign business transactions. The National Security Adviser, Mallam Nuhu Ribadu, acknowledged the administration’s inherited financial challenges, revealing a serious budgetary constraint and a significant increase in public debt.

The Debt Management Office (DMO) reported that Nigeria’s public debt rose to N87.38 trillion in the second quarter of 2023, reflecting a 75.29% increase. Analysts express concern over the proposed 2024 budget parameters, citing inconsistencies with current macroeconomic realities such as inflation exceeding 27%, lower oil production, and a depreciating exchange rate.

The report delves into the issue of crude oil swap deals, revealing Nigeria’s entry into billion-dollar deals in previous governments. Despite promises to terminate such deals, concerns arise about Nigeria’s ability to meet OPEC quotas and boost domestic refineries’ production.

Oil and gas experts, including Jasper Nwachukwu and Dr. Garuba Dauda, highlight mismanagement, corruption, and excessive debt servicing as contributors to the forex shortage. Nwachukwu emphasizes the need to reduce government spending and address corruption, while Dauda suggests adopting strategies similar to Singapore to combat artificial scarcity caused by hoarding.

Financial risk expert Olabode Afolayan calls for a change in citizens’ mindset, urging them to prioritize locally made products to reduce import pressure on the naira. He emphasizes the government’s role in clamping down on dollar hoarders to support efforts to strengthen the naira.

Despite these challenges, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, expressed optimism, noting improvements in forex market liquidity. However, analysts remain cautious, emphasizing the need for disciplined efforts to rebuild foreign exchange reserves and restore economic stability.