Unifying the exchange rate, Nigeria’s Courageous Journey is challenging but necessary task that requires courage and a market-driven approach, according to Oluseye Olusoga, the Managing Director/CEO of Parthian Partners Limited.
In a recently released report, Olusoga highlighted that unifying the exchange rates would involve some level of official devaluation but would also bring several benefits, such as improved money flow and reduced arbitrage concerns.
To accomplish this goal, Olusoga emphasized the need for Nigeria to increase its daily oil production for exports and diversify into sectors like mining to generate foreign exchange. He suggested that the Central Bank could play a role as a regular market participant, trading excess dollar supply to meet demand. By allowing the laws of supply and demand to stabilize the market, the unification process could be facilitated.
Olusoga argued that a swift unification process is more effective than a gradual one, citing the pushback and vested interests that often hinder slow unification attempts. Although a rapid unification might be initially painful, the actual impact may not be as severe as anticipated.
Olusoga gave an example where announcing a free-float exchange rate of N780 or N760 per dollar could quickly lead to a drop in the rate to around N700 as people would stop hoarding.
Addressing concerns about limited access to dollars at the current rate, Olusoga highlighted the importance of accurately determining prices through supply and demand. This, in turn, in Nigeria’s Courageous Journey would help stabilize the market and shift the focus towards real production and functioning markets, creating opportunities for everyone.
Olusoga acknowledged the progress made since the allocation of funds to Bureau de Change operators in July 2021. However, he stressed the need to address rumors and encourage open discussions. As positive changes in the market, such as the appreciation of the Naira during oil price drops, become evident, people will gain confidence in the market’s functionality. Imposing restrictions or defending the currency through measures like tightening the number of items or maintaining subsidies hampers market efficiency and fair resource distribution.
Olusoga argued that subsidies primarily benefit the wealthy rather than the average person. By eliminating subsidies, individuals can make more informed decisions and optimize their resources, leading to better outcomes. For instance, families with multiple cars for routine tasks within a small radius could consolidate their transportation, reducing traffic and expenses.
Olusoga emphasized that unifying the exchange rate in Nigeria is a challenging but necessary step towards unlocking the country’s full potential. A market-driven approach, coupled with increased oil production, diversification, and the elimination of subsidies, can contribute to a more stable and efficient exchange rate market.
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