Nigeria’s Depleting External Reserve; How BAT Administration Can Make the Difference.

Nigeria’s external #reserve was reported to have fallen by about $2.8 billion in the first half of 2023 according to a #CBN report. Since the new administration, analysts say that the nation’s foreign reserve has continued on a free fall down the reserve benchmark curve.

Less than one month in office, the administration of President Bola Tinubu took some decisions which it felt would lead to economic recovery and improve the Nation’s economy. These include the removal of petroleum subsidies, the unification of the naira rate, and the introduction of a managed exchange rate float. Despite these strategic policies by the new administration, the Nation’s external reserves have continued to deep.

Nigeria opened the year 2023 with $37 billion in external reserves. However, according to the CBN at the end of Q1’3, the Nation’s external reserve dropped to about $34.1 billion.

As Nigeria continues to grapple with low crude oil production and a lack of foreign investor participation in the capital market, experts say the decrease in reserves can be attributed to costly projects embarked on by the Nigerian government in the last 6 months. One of such according to experts was the huge funds expended on the just concluded #2023 election, the relatively less productive currency redesign, and recent policy changes.

What is Foreign Exchange Reserves?

Foreign exchange reserves according to the CBN are assets held on reserve by a monetary authority in foreign currencies. Foreign reserves can be informed of foreign banknotes, deposits, bonds, treasury bills, and other foreign government securities used to back liabilities and influence monetary policy.

While foreign reserves serve other purposes, one of their important purposes is to ensure that a government has backup funds to fall back on if the national currency rapidly devalues.

Has the CBN Failed Nigerians?

One of the core mandates of the Central Bank of Nigeria CBN is the management of the nation’s External Reserves as stipulated in Section 2 (c) of the CBN Act of 2007. The Act vested the maintenance and management of Nigeria’s external reserves on the CBN in order to safeguard the international value of the Naira. While the CBN has continued to hold monitory policy meetings in addition to other strategic policies aimed at strengthening the nation’s economy, experts say that the management of the CBN failed to warn the past administration on strategic steps taken by the administration which are now impacting negatively on the nation’s foreign exchange reserve.

Way out for Nigeria’s Dwindling Foreign Reserve

In line with Economists’ and experts’ suggestions, Nigeria should borrow a leaf from the Vietnamese model as a way out of the nation’s declining Foreign Reserve. Analysts at World Bank and Brookings Institute noted three key steps that the Vietnamese government took to achieve success. The Vietnamese model involved trade liberalization, implementation of external liberalization with domestic reforms leveraging deregulation, and lowering the cost of doing business in the country. And thirdly, investing heavily in human and physical capital, predominantly through public investments.

The administration of President Bola Tinubu should as a matter of urgency embrace the Vietnamese model to save the nation’s external reserve from total collapse.

The BAT-led administration should as a matter of urgency prioritize opening all windows and doors for a breath of fresh air of foreign investment into the nation’s economy. This it should do by providing incentives for foreign companies willing to invest in Nigeria. Raw materials should be made available, while taxes, and tariffs on foreign investment into Nigeria show be at a minimal level. License for businesses coming into the country should be made relatively low with strict punishments officials who may pose restrictions inform of demanding for bribes from investors.

In addition, basic infrastructures like roads, power supply, and security should be made a priority as these would go a long way in encouraging investors into the nation’s economy.

The local manufacturing sector too should receive great attention and boost. In the case of Vietnam, local manufacturers were encouraged with incentives to march the export market for foreign exchange earnings.

With these in place, investors definitely would perceive Nigeria as a low-risk country to push in their dollars. These definitely would grow Nigeria’s economy and impact positively on Nigeria’s reserve growth.