MAN’s naira warning, alarming job losses

The alarm over impending massive job losses raised by the Manufacturers Association of Nigeria over the acute shortage of foreign exchange to import critical raw materials and spare parts for machinery paints a chilling picture of the state of the industry. ‘economy. Brutally candid, MAN Managing Director Segun Ajayi-Kadir lamented that the shortage of foreign currency and the high cost of diesel had dramatically increased the cost of production, leaving employers no choice but to lay off some workers. This should shake the federal and state governments into emergency mode to save the economy.

Severe headwinds are battering Nigeria’s economy, putting its unfortunate population under massive pressure. Without a doubt, the situation is risky. Unfortunately, the President, Major General Muhammadu Buhari (Retired), his team and all 36 state governors have failed in series to stop the plunge with realistic and creative measures targeted at key sectors.

The currency crisis is one of them. Forex scarcity continued to worsen with the naira approaching N590 at US$1. Financial watchers predict it will depreciate further as politicians flood the market with liquidity ahead of the 2023 general election. Over the past few weeks, the naira has been trading for 585 naira to the dollar in the parallel market, where around 90% of end-users source forex.

The naira has been in freefall since 2015. From N198.9 to $1 in 2018, the naira had fallen to 306.08/$1; and N360/$1 in 2019. Despite halting the direct sale of foreign exchange to currency exchange operators in July 2021 as part of desperate efforts to stop the slide, it had reached N585/$1 by the end of March.

Businesses have been hit hard. Racketeering, illegal arbitration, cronyism and “grand corruption” reign in the market where the Central Bank of Nigeria is the main source of foreign currency. Legitimate trading operators and financial institutions are in dire need of foreign currency for their customers. It’s so bad that some deposit money banks are now imposing a $20 per month cap on online transactions. Unemployment is 33.3%; it is 53.4% ​​among young people, according to Trading Economics. It’s potentially explosive.

Frustrated manufacturers and travelers are forced to patronize BDC operators to keep factories and other businesses running. According to analysts, banks are only able to respond to around 30% of customer requests.

The COO of a manufacturing company lamented that the company was billed $425,000 to import materials but only received $210 from the CBN! Like others, the company is grappling with escalating energy costs to power plants amid power shortages and skyrocketing diesel prices at the pump.

Buhari and his lackluster cabinet need to come out of their reverie. Beneath them, Nigeria falters. He and the governors continue to misinterpret the dire situation, perpetually viewing economic adversity solely as a revenue issue. This explains why they borrow so recklessly. Public debt reached N39.55 trillion in December 2021, the Debt Management Office said. Outrageously, the country now devotes more than 90% of its income to servicing the debt!

To revive the economy, it must retain and attract investment by improving the business environment. In this, Buhari failed miserably. While it has “improved” from 145th in 2019 to 131st in 2020 in the World Bank’s Ease of Doing Business ranking, evidence on the ground shows otherwise. As a result, foreign direct investment has declined, depriving the economy of the vital boost needed to fill infrastructure and job gaps. FDI fell by $1.2 billion in 2019, UNCTAD said, and by 48.9% between 2019 and 2021 according to the National Bureau of Statistics.

In addition to the desperate electricity supply crisis which adds more than 40% to operating costs with the reliance on alternative energy sources, insecurity has reached the proportions of a failed state. The tax system is chaotic, public infrastructure is patchy and dilapidated; borrowing rates exclude SMEs and start-ups, mining and agriculture. The non-oil export sector is weak, although growing marginally. Together, all categories still account for less than 6.0% of total exports, depriving businesses of much-needed sources of independent foreign exchange.

Already, the prices of locally produced products have risen astronomically, while the quality is falling dangerously. Household expenditure on basic items such as food and consumer goods has increased exponentially without a commensurate increase in income. Indeed, Nigerians are groaning but those running the economy seem confused and indifferent.

Quartz Africa put the dire situation in perspective, saying the country earns next to nothing from crude oil, despite the price rising during the Russian-Ukrainian war due to the massive theft of crude oil. Quartz analysts said the CBN’s foreign exchange policies directly help some people “make their fortunes through confusion and arbitrage.”

There are signs that things will get worse. The country is in an election campaign period and politicians will attack the currency by frantically stockpiling dollars to pursue their respective ambitions.

No economy can grow in this type of arrangement. Buhari’s regime desperately needs a holistic economic program. The adoption of sound foreign exchange, infrastructure and energy policies has enabled the Egyptian manufacturing sector to post seven consecutive years of growth despite strong internal and external adversities.

But the federal government alone cannot permanently save the economy; states must have job creation and economic programs and compete for investment. Local governments should also have similar programs.

The CBN is expected to focus on its core mandate of stabilizing the economy by arresting the naira’s freefall. Obviously, his current efforts are not yielding results. Therefore, the government and the CBN must harmonize fiscal and monetary policies to control inflation, exchange rates and interest rates.

The government can also raise funds to fund critical infrastructure by selling non-performing assets. Borrow to build airport terminals, ports, etc. which should have been privatized or given away to private investors is reckless. It should strive to broaden the tax base and eradicate corruption.

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