By Marindoti Oludare
For the past eight years, Nigeria has been on a rollercoaster ride of economic uncertainty. Prices have risen astronomically and the people’s purchasing power had dipped dramatically. One should not be remiss to mention that owing to the COVID-19 pandemic and the Russian war of aggression in Ukraine, prices have significantly gone up globally.
However, this pales in comparison to the rate of hike in price in Nigeria since 2014. We all know that Nigeria has implemented some questionable economic policies since the oil price crash in the fourth quarter of 2014, which happened to coincide with the nascent ascension of Godwin Emefiele as the Governor of Central Bank of Nigeria (in office since 3rd June 2014). One may want to ask; what percentage of this hardship was as a direct result of his policies and what percentage were inevitable? Does Nigeria suffer from inflation or ‘Emefieletion’?
Like every doctor knows, there is no solving any problem without knowing its root cause. Any attempt to solve the problem by trial and error might significantly worsen the current condition, hence a doctor that knows his onions knows he is only paid to make a diagnosis and will investigate every condition thoroughly to arrive at one.
1 Thessalonians 5:21 in the Bible also says, “Prove all things and hold fast to that which is true”. This article aims to put the current situation into an historic perspective, examine global event at the genesis of this problem and analyse the response of the CBN and indeed the Nigerian government spanning two administrations (Goodluck Ebele Jonathan & Muhammadu Buhari) to this problem.
Nigeria is a one commodity nation. The value of our currency had always been sadly, very sensitive to the price of a barrel of oil, which reached a peak value of about $110/barrel in June 2014. However, due to global oil production exceeding demand, the price of oil fell precipitously in the global market to around approximately $60/ barrel, losing about 40% of its value.
Crude oil sales account for about 90% of our export (hence forex earning), so if it loses 40% of its value, this translates to a significant drop in our forex earnings. Exchange rate of a dollar hovered around ₦160 in mid-2014; by December 2014, it was around ₦220- ₦240 in the parallel market. However, the federal government chose to intervene at this point and under Emefiele’s guidance and Goodluck Jonathan’s government, introduced multiple exchange rate regime and propped up the Naira to ₦180 against the dollar at the behest of the federal government.
While one might think it is a patriotic move not to let the value of your currency fall, it is critical to ask ourselves the question; why did this occur? Why did the volume of oil suddenly exceed the demand for it? The answer lies in the perennial battle for oil supremacy between Saudi Arabia and the United States. A bit of historical perspective that will explain the déjà vu effect of the 2014 event.
Organisation of Petroleum Exporting Countries (OPEC), an organisation formed in 1960, was joined by Nigeria in 1971. Following the United States’ support for Israel during the six-day war of 1967 and the Yom Kippur War of 1973, Saudi Arabia decided to place an oil embargo on the United States and its western allies and also had started to significantly cut the supply of oil of OPEC countries on the world market. This is globally known as the FIRST OIL SHOCK, with an OPEC-induced global shortage of supply. Nigeria benefitted immensely from this situation to the point where an ex-Head of State once said, “Nigeria’s problem is not money but how to spend it”. Guess what year that statement was made? Your guess is right; it was in 1973.
Though the oil embargo lasted only a few months, prices remained high. Although in the 70s, Nigeria benefitted, celebrated prosperity in the form of the Festival of Arts and Culture (FESTAC), which was to be held in 1974 but was initially postponed to 1975 due to logistics, to 1976 due to Gowon’s overthrow before being finally held in 1977 under General Olusegun Obasanjo’s military regime.
The festival was a successful show or largesse: we splurged on the world. Unbeknownst to us, the world was reacting to the shortage and the western countries started exploration to keep their oil demands fed, invested in making fuel-efficient cars and cutting oil use. Saudi Arabia in an attempt not to lose its supply share in the oil market, started to pump more oil, bringing down the price and making expensive western oil producers less profitable. By the year 1979, the Iranian revolution resulted in the second oil shock which only marginally propped up oil prices. Saudi’s desire to cripple expensive western oil production has resulted in decreased oil demand globally due to its crippling effect on western economies and reduced demand. This resulted in the 1980 oil glut, with excess supply-to-demand drastically driving down the price of oil.
Adjusted for inflation, the price of oil fell from around $115/barrel in 1980 to around $80/barrel in 1983, falling from about $70 to $25 in 1986 alone. That was when Nigeria chose austerity measure in form of International Monetary Fund (IMF)/World Bank-induced Structural Adjustment Program (SAP). The oil price drop in the early 1980s was responsible for the economic downturn in Nigeria that culminated in the expulsions of Ghanaians (including a young Michael Blackson) in a Ghana-Must-Go Xenophobic rage and led to the demise of the Second Republic with the overthrow of the civilian regime of Shehu Shagari by General Muhammadu Buhari.
Fast forward to 2014, America had invested and revolutionised the shale gas exploration through a process called fracking (hydraulic fracturing). This meant that America was on track to overtake Saudi and Russia as the largest oil producers of petroleum in the world, buoyed by their cheap and highly efficient shale gas exploration. Saudi Arabia in a fit of pique, was not ready to let its oil supremacy over the US and the West slide without a fight. So they decided to flood the market with excess crude (in cahoots with other OPEC countries, including Nigeria). At the time, for fracking companies to break even, oil needed to trade at $88/barrel on the market. By flooding the market, OPEC had crashed the price of oil from around $110 in June 2014 to $60/barrel in December of the same year. This was genesis of the current Nigeria’s forex problem, as oil export accounts for 90% of our forex earnings.
At this juncture, the value of the Naira was still highly sensitive to the dollar. The standoff between the United States and Saudi Arabia lasted about four years with prices plummeting to about $40 in early 2016 but this was not sustainable for OPEC countries. The US fracking industry re-engineered and was able to withstand the sabotage effort of OPEC to become the highest producer of oil in the world. At the worst point of this crisis in 2016, one would have expected the Naira to lose about 60% of its June 2014 value and sell for around ₦276 but the CBN froze the rate at about ₦190 to a dollar while dollar sold for about ₦280 in the parallel market. By the end of 2016, with the frozen value of ₦190 being unsustainable, CBN has devalued the currency to about ₦305 to a dollar while the parallel market rate hovered around ₦495 (a 60% disparity).
An important factor in this occurrence is the fact that the CBN rate was only available to few. The CBN had made a reflexive decision that since we are not earning as much forex as we used to, we should not let forex out of the economy. They had instituted various restrictions on citizens and investors’ access to dollar in its supply management scheme. This is because the CBN under Godwin Emefiele interprets economy as a game of 2+2 without considering the factor X which is the wild card of what investors and consumers will do. This policy dried up foreign investment, billions of dollars were withdrawn by investment banks ahead of the announcement of this policy and this has further kept the Nigerian economy on its knees.
The naira that use to be sensitive to the price of oil now becomes inelastic to it. Currently, the value of the Naira which the common man can access is only responsive to the words that comes out of CBN Governor Emefiele’s mouth. You can see a direct trendline between policies coming out of the CBN and a market devaluation of Naira in the parallel market. When the CBN paused sale of forex to BDC, dollar went up; when the CBN announced purchasing dollar as a crime, the value of dollar went up; when the CBN announced a change of currency, the value of dollar went up.
In an adaptation of the Yoruba phrase “àjẹ́ ké láná; ọmọ kú léní” (the witch cried yesterday, the child died today), I guess it’s safe to say ‘Emefiele ké láná; Naira kú léní’ (Emefiele cried yesterday, Naira died today). While one might want to avoid a fallacy of causation, the persistent affinity of the economic degradation to the avaricious CBN directives has gone a long way to boost the confidence interval in that Yoruba adage adaptation.
There is a popular saying that “Insanity is doing the same thing over and over again and expecting a different result”. Another Yoruba adage says, “If you throw a cutlass in the air 200 times, it’ll always land on its flat surface”, I guess if the CBN Governor had been less egocentric and more introspective, he would have smelt the odour of his own fart and changed his diet, but NO; he is unaware that the stench is emanating from his own anus. He has pointed fingers at multiple external factors in order to deflect culpability and project responsibilities on everyone else, including Nigerians who import goods for sale in order to earn a living. He blamed Nigerians using imported goods, he blamed Abokifx, he blamed the BDC and commercial banks, he had blamed everyone but himself for the fails of the Nigerian currency and with it, its economy.
Nigeria being an import dependent country, cannot suffer the most for an highly devalued currency. This has made everything so expensive. While the dollar price of the base model iPhone 6 plus 16G (released September 2014) was $750 which was equivalent to ₦120,000, the price of base model iPhone 14 64G (released September 2022) is $800 which is equivalent to ₦580,000. The price of iPhone in dollars went up by 6.67% while the price in Naira went up by 383.33%. The average salary of a first-year medical doctor was N160,000 in 2014, that salary is still about the same now, but a phone that he would have bought out of his monthly salary in 2014 and still have 40,000 naira left to play with will now cost him almost his four months salary (Any wonder the rise in ‘japa’ amongst medical professionals).
Despite this reality, the governor of CBN still believes that the current inflation is due to excess currency being outside the bank vault. My question to him is that, if the rice that I use to buy for ₦8000 in 2015 now costs me ₦40,000, does that not explain why I do not have extra ₦32,000 to keep in my bank? If a taxi drop that use to cost ₦50 now costs ₦150, does that not explain why I have ₦100 less in my bank account? He said he needed to spend money to change the currency, he said because the British don’t carry more that £20, then Nigerians ₦1000 note is too much for Nigerians to carry. My question to him is, what determines value? The number in front of the currency or the value of that currency? Because while 20 is 50 times less than 1000, £20 (₦18,800) is over 18 times more than ₦1000.
While Nigerians may be suffering due to high prices of daily commodity, my summation is that this situation is 10% INFLATION, 90% EMEFIELATION.
*Dr. Oludare is a US-based Nigerian medical practitioner and Convener/National Coordinator, Social Rehabilitation Grace and Supportive Initiative (SRG).