Understanding the Naira's Real Value

In the past, I have talked about how much we focus on ‘the true value of the Naira’. Every expert on our popular TV channels goes on about this true value. Many present their opinions as if they were facts, like the tablets that God gave to Moses. They often claim that the naira is overvalued and that we need to devalue it quickly, only for the naira to gain strength later. Some have used academic formulas to analyze the naira's value. Some suggest a yearly devaluation based on the difference between inflation rates in the US and Nigeria. This could lead to endless devaluation because a developing country like Nigeria is not expected to maintain a 2 percent inflation rate. Too low inflation would discourage local industries that need to adjust prices due to rising costs from imports. If inflation in Nigeria were around 2 percent, it would be too close to deflation, which could hurt industries and the economy. Pakistan faced similar issues just two years ago.

Recently, the International Monetary Fund (IMF) released its latest Article IV report on Nigeria. They stated that the Naira is undervalued. The IMF believes the Naira should not be worth more than ₦1,142 to the US Dollar. Some experts, like Professor Uche Uwaleke, argue that the Naira should be even stronger, trading below ₦1,000 to the dollar. The IMF used the Real Effective Exchange Rate (REER) formula. This formula compares a currency's value to other major currencies. A rising REER means a country’s currency is strengthening, which is bad for exports. A falling REER means a currency is weakening, which is good for exports. The IMF's analysis shows that the naira is weakening, which has led to an increase in Nigeria’s exports, not just oil and gas. Under President Tinubu, Nigeria has seen three years of strong Trade Surpluses. The question now is whether we should keep this trend or stop it. I believe we should continue on this path.

Hearing that the naira is undervalued is encouraging. It shows that the economy is being managed better. We are saving for future challenges. Nigeria seems to have moved away from the time when we thought we could spend freely since ‘we were Nigeria’, with oil resources at our disposal. This attitude made us very dependent on imports. With over 200 million people, the largest population in Africa, we found ourselves stuck in a tough spot. We are not completely free yet, but with President Tinubu's reforms, it seems we are no longer digging ourselves into a deeper hole. This news is also rare. It marks a change from years of being told we must devalue the currency. Governor Cardoso at the CBN is doing a great job, ensuring the naira does not lose value completely while also maintaining transparency in the market. Currently, the market is stable, trading around ₦1,350 to ₦1,380, and even the parallel market is sometimes lower than the official rate. The 60 percent FX premium has mostly disappeared.

Our past mistakes still affect us. Much of this is due to history and some self-inflicted issues. Nigeria became the world’s biggest importer of French Champagne and Toyota Landcruisers. The Lekki area became famous for luxury cars like Mercedes Benz G-Wagons. We imported everything, even sand for building luxury homes, eggs, and toothpicks. We also ranked third in foreign students, behind China and India, as many Nigerians traveled abroad for medical care while neglecting our own health facilities. These oddities contribute to the narrative that Nigeria is defined by poverty. I believe we all share the blame for hurting our local industries. But it seems like we are starting to turn things around for those who notice.

Yet, there is a lot of noise in parts of the economy, especially where people mix economics with politics. Some Nigerians think the CBN should just cut rates and let the naira strengthen because ‘people are suffering’. They point to the naira’s value in May 2023, when it was ₦470 officially and ₦800 unofficially. These claims led to this article. The main reason for the naira's adjustment in 2023 was to close the gap between the official and unofficial rates. A former CBN Governor mentioned how some people made billions just by knowing someone in the central bank. They bought dollars at ₦470 and sold them at ₦800. These insiders profited at the expense of everyone else. Legitimate businesses struggled to get foreign currency for imports, and students had a hard time sending money for school fees. Over 6,000 official Bureaux de Change existed, with many more operating without licenses. Former bankers carried multiple BDC licenses to get cheaper dollars for the black market. We should remember this.

When we call for a stronger naira, we yearn for the old days of waste. We risk losing the discipline established in our forex market over the last three years. Nigeria is at a turning point. We are seeing necessary changes. Some of us have been trying to show people the benefits of the Tinubu reforms. We should not be careless. We must not want to return to the past when we made bad decisions for our country. Like Apostle Paul asked in Romans 6:1, ‘Shall we continue in sin and expect grace to abound?’ He answered in Romans 6:2, ‘God forbid’. I urge Nigerians to think beyond personal benefits and consider the future of Nigeria.

There is an Economic theory called the ‘Marshall-Lerner Condition’. It says that for a country to gain from a weaker currency, its exports must be price-sensitive. This means that when the currency weakens, other countries should buy more exports. Nigeria's exports have grown by over 30 percent in non-oil exports for two consecutive years because this theory is currently working for us. We have reached a turning point, and our export customers are taking notice. We are not only exporting raw materials. Nigeria exports solar panels, ATM cards, cars from Innoson, belts and shoes from Ariaria, leather from Kano, technology from our startups, and consumer goods from companies like Daily Needs and Indomie. We must respect these industries. Running a factory takes a lot of effort, sacrifice, and smart management.

I asked for a list of Nigerian companies that export to other African nations and beyond. We need to support them and counter the negative stories about the Nigerian economy. We should highlight those working hard to improve the economy. Here are some of the companies I found:

1. Dangote Group: Exports sugar, pasta, and seasoning across West and Central Africa.
2. Nestlé Nigeria Plc: Exports popular brands like Milo and Maggi.
3. BUA Foods Plc: Exports refined sugar and pasta.
4. Nigerian Breweries Plc: Exports malt and alcoholic drinks.
5. Unilever Nigeria Plc: Exports personal care and food brands.
6. Guinness Nigeria Plc: Exports its stout and beer to African markets.
7. Cadbury Nigeria Plc: Exports beverages like Bournvita.
8. Flour Mills of Nigeria: Exports packaged foods and pasta.
9. PZ Cussons Nigeria Plc: Exports soaps and baby care products.
10. NASCON Allied Industries: Exports refined salt and consumer goods.
11. Nasco Plc: Exports cornflakes and biscuits.
12. Dufil Prima Foods: Exports Indomie noodles.
13. Promasidor Nigeria Limited: Exports milk powder and beverages.
14. Chi Limited: Exports fruit juices and dairy products.
15. Seven-Up Bottling Company: Exports soft drinks.
16. FrieslandCampina WAMCO: Exports dairy products like Peak Milk.
17. UAC of Nigeria Plc: Exports snacks and ice cream.
18. Rite Foods Limited: Exports carbonated drinks and sausages.
19. Elafoods: Exports breakfast brands and beverages.
20. Feco Foods Industries: Exports packaged staple foods.
21. Ghadco Nigeria Limited: Supplies FMCG goods to Africa.
22. Daily Need Industries: Exports hygiene products.
23. Emzor Plc: Exports pharmaceuticals to over 27 countries.
24. Wemy Industries: Exports diapers and sanitary products.
25. Daraju Industries Limited: Exports toothpaste variants.
26. Colgate-Palmolive: Uses Nigeria as a hub for distribution.
27. African Consumer Care Limited: Produces toothpaste for the African market.
28. Aspira Nigeria Limited: Exports personal care products.
29. Z-Tannery Limited: Exports high-quality leather.
30. Mamuda Foods Nigeria Limited: Exports biscuits and confectionery.
31. Gongoni Company Limited: Manufactures household products.
32. Innoson (IVM): Exports vehicles to Mali, Ghana, and Senegal.
33. Proforce Limited: Exports armored vehicles to Chad and Ghana.
34. Levene Photovoltaic Technologies: Exports solar panels.
35. SecureID Limited: Exports smart cards to over 20 African countries.
36. CardCentre Nigeria Limited: Exports ATM and debit cards.
37. Electronic Payplus Limited: Provides payment solutions.

Some of these companies are large groups while others are fully local. For the sake of these companies and many others employing millions of Nigerians, we should stick to current policies. Current reforms have helped many Nigerians do business successfully. The truth is that those who say Nigeria has collapsed are wrong. The facts show otherwise.

So, instead of searching for the ‘true value’ of the naira, let’s focus on its ‘productive value’. This value keeps us engaged and focused on our economy. It helps us avoid being just another import-heavy country. We have the population to support our industries. The African Continental Free Trade Agreement (AfCFTA) is also boosting us, perhaps as a reaction to previous protectionist policies. We must remind ourselves of the World Bank’s push for industrialization in African countries. We should accept the temporary difficulty of higher prices for imported goods while we have local alternatives.

Finally, I want to share what could happen if the naira suddenly strengthened overnight. Here is a summary from a post I made:

1. We will import more, travel abroad, go to school overseas, and seek healthcare outside Nigeria.
2. We will ignore local products we’ve started buying.
3. Small companies that are now getting attention will lose customers and shut down.
4. Beneficiaries of Tinubu’s reforms will find their voices if the current advantages disappear.
5. Nigerian exports, which have grown by 40 percent, will slow down as they become more expensive.
6. UK universities planning branches in Nigeria will have no reason to stay as we start sending money abroad again.
7. Our imports, which have dropped 30 percent, will rise again, leading to wasted resources.
8. Our positive Balance of Payments will turn negative again.

So, let’s keep building our economy. The naira may strengthen gradually based on our progress. In time, we can achieve ₦500 to $1, but we must continue building our economic strengths.