In the last couple of months to date, the Naira (NGN) exchange rate to the United States Dollar (USD) in the parallel market has been a subject of discussion amongst economists, financial experts and applied mathematicians. Because the Dollar gains tremendously over the Naira recently, some analysts are quick to point in the direction of devaluation as a strategy for strengthening the Naira and bettering the economy. More positively, others believed that tightening energy given policies that weakened the Naira in the first place is the optimal strategy.
In Naira Slump: What it represents [Daily Trust Vol. 39(14), 2016], we argued that one of the many reasons why the slump experienced nowadays appears continuous and insensitive to the retracting policies of the Central Bank of Nigeria (CBN) is sequel to certain policies developed by previous administrations to which the Naira and the economy are feeling the impact today. A significant policy in this direction is that which engages expatriates into the economy. The policy in itself is not a problem rather, its inability to align positively over happenings within the economy and for the economy. This inability is not created by the expatriates essentially, but by their attitude of spending their derived proceeds outside the Naira domain. The aim of this piece is to state the implication of such behaviors (not the expatriates) on the Naira trend and the economy in order that corrections be taken for better.
A look at the spending pattern of expatriates residing in the Naira economy shows that the pattern does not assist the bid to strengthen the country’s currency and the economy. The pattern is such that whenever a Naira mass is acquired by elements within the expatriate category, it is most often converted onto the Dollar directly or indirectly for use by others outside the economy. The rate of hunting exchanges in this regard is significant owing to the magnitude of expatriates in the economy coupled with the huge income garnered.
A look at Nigerian Universities for instance shows that the tail of expatriate appointments and contract renewals are increasing even with the gloomy nature of the economy at present. Most surprisingly, the expatriate engagement function keeps transcending the economy even in the presence of localized duals that can alternate effectively for the University system. It appears there are no well-defined policy maps that determine when to hire or not hire elements within the expatriate category for the Universities in consonant with the health and stability of the economy.
Similarly, it seems there no policies on bounds and controls involving where to spend proceeds derived from the economy. In addition, where such fundamental maps exist, the necessary economic equations and balancing required to maximize the overall objective of expatriate hires are lacking or not put to proper use. This can be seen in the continuous time renewals and appointments of expatriates in many sectors of the economy without minding the impact such engagements will have on the Naira and the economy. There are two consequences of continuing such policies at present.
In the first place, since in reality the crop of expatriates presently in the economy do not dwell herein owing to the fact that the bulk of their proceeds is transformed to the US Dollar for use by their families abroad and for safe keeping, the thirst for the Dollar will keep increasing in time. Consequently, this will have a weakening effect on the Naira leading to continuous-time Naira slump especially in the parallel market where the elements of the expatriate category derive the bulk of their exchanges.
Secondly, the expatriate spending pattern depletes the country’s foreign reserves and constantly creates tail imbalances. This is sequel to the fact that majority of expatriates residing within the Naira economy possess multiple Nigerian ATM cards for use by their families outside the country. This way, the country’s reserves keep depleting due to such draining processes. Thus, apart from exerting unnecessary pressure on the Naira in the parallel market, the expatriate category also drains a significant proportion of the country’s hard earned foreign reserves going by their spending pattern.
There are two ways to curb these effects on the Naira. First, a specific solution is to send certain categories of the expatriate function (the least required in the economy) into the kernel. For instance, where there are localized duals that can transcend over the work function of expatriates effectively, such cases should be substituted and replaced forthwith. This way, the effect of hunting exchanges and depleting the country’s foreign reserves are both minimized since duals spend in the Naira economy.
Secondly, it is very imperative to design new policies and strategies that encourage expatriates spend in the Naira economy henceforth. This will significantly reduce the hunt for foreign exchange that slumps the Naira and degrade the economy. Similarly, it will control the tail elongation effects seen in both markets today. It is most imperative to regulate exchanges and international transfers via ATM transactions outside the economy to a value that least affects the strength of the Naira. The effort of the CBN in this regard is commendable. There are countries even here in Africa where such policies have long been implemented.
Thirdly, there is the need to harmonize government policies at all levels especially those related to expatriate employment strategies. The harmonized policies must align with the economy so that the overall benefit goes inward. This way, the health and stability of the Naira and the economy are guaranteed. The country may borrow from the Botswana expatriate model where an arbitrary expatriate engagement is discontinued (at its expiration time) whenever there is a qualified Motswana in place.
Also, as a policy, an expatriate could only be allowed to transfer a given amount derived within the Botswana economy outside. This way, he is forced to spend within the economy. The policy harmonization process should be carried out by an economic committee consisting of various stakeholders and technocrats for better brainstorming, innovations and results in line with national objectives; both economic and social.
Dr Sulaiman Sani, Department of Mathematics & Computer Science, Umaru Musa Yar’Adua University Katsina-Nigeria; firstname.lastname@example.org; +2349037834473
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