Thread by @FinPlanKaluAja1

Let me share this i wrote in 2016....the lessons are still relevant

Nigeria in a recession....

why?

No....it's not because of a fall in oil prices..but due largely in part to a lack of dollars in CBN to fund imports

There are dollars aplenty in Nigeria....but CBN does not have enough. (that's why it banned 41 items from the interbank market)

So why are we fixated only on oil earnings? It is not the only way to get foreign cash

other ways?

1..Foreign Portfolio Investments FPI
2. Foreign Direct Investment FDI
3. Non oil exports

Under the past administration, we had macroeconomic stability..thus FPI and FDI flowed into Nigeria...we were listed on the JP Morgan and Barclay Bond index etc.

CNN Money ranked Nigeria as at 2015 as the 3rd fastest economy ...

What happened?

Oil prices fell? Yes Oil fell but thats not the full story...

As oil fell...Nigeria refused to devalue the Naira...or even defend the Naira properly.

Nigeria's idea of "defending" the naira was administrative measures like Capital Controls (restrictions on fx cash you could spend, banning dommicilary accounts, remember?) and of course cutting trees...literally.

What happened?

the FPI and FDI Investors left....JP Morgan took Nigeria off bond index...that made a bad problem (lack of fx earning) worse.

Since then the economy has not produced growth because there is no foreign exchange to pay for imported inputs for manufacting..

The imported inputs are expensive..so noone buys. Business lay off staff to save cost, thus a viscous cycle develops

The problem is NOT a fall in oil or even NO saving but a lack of a coherent policy to replace foreign exchange earning from oil with non oil exports, FDIs & FPIs

Solution?

Spending to reflate the economy but where will the cash come from? will Nigeria keep borrowing at double digit rates to pay salaries? is that stimulative?

Spend but also pass policies to attract investors back to Nigeria especially the foreign currency investors.

Not just that, also attract remittances from the diaspora.

Nigerians send up to $30b annually back home via remittances. That why the CBN finally got the President approval to devalue the Naira...so fx can flow back in.

That's one necessary step....

Others?

Make it easy to do business in Nigeria

1..offer "free" gas
2..reduce port charges
3..build infrastructure
4..security
5. digitize all Nollywood movies...export them via a digital market exchange.

6. make it seemless and "free" to remit cash to Nigeria...if Western Union and others won't transfer cash to Nigeria for a very modest free...allow the SWF invest in a Competitor who will.

etc etc there are lots more to add

The point is really not the solutions but a lack of appreciation of what is causing the recession. If Nigeria does not fix forex earnings, she cant fix the economy.

It's rather easy....if you appreciate the problem properly....

it's our problem....we can fix it

Graph below shows how we held the naira at N197 to $1...and spent scarce forex to defend that rate...in an effort in futility.

Posted 2016.

Post script: Year 2020, CBN devalues Naira. All that "defending" with scarce dollars was a waste.