Naira's Free Fall
Shifting focus to Nigeria, in an attempt to drive economic development, the Central Bank of Nigeria (CBN) adopted a free-floating policy for the Naira against international currencies on June 14, 2023.
This move, aimed at letting market forces determine the Naira's value, has resulted in a substantial devaluation of the currency, with significant implications for the Nigerian economy.
The Naira's devaluation, observed in both parallel and official market exchange rates, has raised concerns.
In the parallel market, the Naira plummeted from 754.03 Naira to 1,408.36 Naira against the dollar in just eight months, indicating an 86% increase.
The official market exchange rate witnessed a similar trend, escalating from N770.38 to N1417.64 per dollar within the same period, marking an 84% increase and a 647 Naira surge.
Cardoso’s POV
Governor Yemi Cardoso of the CBN on Tuesday, February 6, 2024, during his appearance before members of the House of Representatives, attributed Naira depreciation to the rising demand for foreign goods and a simultaneous decline in the supply of US dollars.
He explained that imports requiring dollars amounted to $16.65 billion in 1980 but noted that by 2014, the annual import expenditure had significantly surged to $67.05 billion. However, it gradually decreased to $54.71 billion as of last year. Food imports also escalated from $2.63 billion in 1980 to $14.84 billion in 2019.
He also held that in the 1980s and 1990s, the need for US Dollars for their living expenses was minimal. The governor pointed out that the number of Nigerian students studying abroad had increased dramatically.
He emphasised the need for Nigerians to support local content, shift their mindset towards imported goods, and advocate for increased export revenue to stabilise the economy and strengthen the Naira.
Contrary POVs
In contrast, market intelligence firm SBM Intelligence attributed the Naira's decline to insufficient foreign reserves, compelling the CBN to permit significant currency depreciation, thereby contradicting its official policy.
Flitch Ratings pointed at the CBN's high-interest payment-to-revenue ratio and struggles with foreign cash shortages areas detrimental to the country's sovereign credit grade.
In its own piece, Reuters held that the central bank's unsettled sums in forward trades contributed to the Naira's official exchange rate aligning with the parallel market, worsening the foreign currency shortage.
Stears partly agreed with Cardoso and identified two primary causes for the Naira's decline: ongoing issues with foreign exchange supply and a significant backlog of demand. Both official and illegal markets have pressured the currency, resulting in its downward spiral.
In all, there is a need for extensive economic interventions to correct supply-demand imbalances, foster local support, and stabilise the currency to promote long-term economic progress.
5G Network: Slow and Steady Growth
Despite an eightfold increase in 5G technology usage within the Nigerian telecom sector from May 2023 to November 2023, its adoption remains significantly lower compared to the entrenched 2G, 3G, and 4G networks.
The 5G network is significantly faster than every other network generation and is designed to support a hundred times increase in traffic capacity and efficiency.
The number of Nigerians using 5G subscriptions in Nigeria increased by eight times, but about 60% of Nigerians still use the 2G network despite the availability of 5G services. This is due in part to the high cost of 4G and 5G devices, which makes it difficult for many people to upgrade.
Operators have explicitly stated that they have no intentions to phase out 2G and 3G networks, recognizing that discontinuation would leave a substantial number of people without service.
The dominance of these older networks is evident, with 2G leading the market at 59.32% as of November 23, followed by 4G at 29.91%, and 3G at 9.81%. In stark contrast, 5G trails far behind at a mere 0.96%.
Examining the trend from May 23 to November 23 reveals a gradual increase in 5G subscriptions during the initial three months, starting at 0.12% in May and reaching 0.13% by July.
However, a noteworthy surge is observed in the subsequent four months, with August 2023 at 0.83%, September 2023 rising to 0.88%, October 2023 at 0.90%, and November 2023 peaking at 0.96%.
This rise indicates a slight shift in customer preferences towards 5G, though challenges persist.
The International Telecommunications Union (ITU), a specialized UN body, highlights that Africa, encompassing Nigeria, has the world's lowest 5G coverage at only 6% as of December 2023.
Despite the recent surge in subscribers in Nigeria, older mobile technologies like 2G and 3G remain crucial in Africa, contributing to the slow uptake of 5G.
While 5G technically began operations in 2019 globally, it was introduced in Nigeria in September 2022, with approximately thirty towns now covered by the 5G network, according to the Nigerian Communications Commission (NCC).
This scenario poses both possibilities and challenges for the telecom sector. The continued low adoption of 5G, despite its global rise, highlights obstacles that need to be addressed for widespread acceptance.
Overcoming issues such as limited range of coverage, device incompatibility, and pricing concerns is pivotal to unlocking the full potential of 5G in Nigeria's telecom landscape.
Defiance, Suspension and Exits
ECOWAS suspended the trio of Niger, Mali, and Burkina Faso after the countries defied the orders of the regional group to revert to civilian governance.
In a surprising move, Niger, Mali, and Burkina Faso declared they were exiting the ECOWAS sub-regional grouping in January 2024, intensifying tensions with junta-led nations.
They alleged that fellow ECOWAS countries meted out unlawful punishments on them due to military coups that ousted elected leaders in the 3 countries. They also alleged that ECOWAS had departed from Pan-Africanism and formed the 3-member "Alliance of Sahel States" (ASS).
Following the recent coup in Niger, the three nations are now united against potential military intervention and signed a defensive agreement to protect themselves from the regional intervention force, the ECOWAS Monitoring Group.
The reasons for their exit highlight deeper disagreements with ECOWAS’ time-honoured principles.
Nigeria plays a key role in sub-region’s’ geopolitics, with President Tinubu of Nigeria the incumbent Chairman of ECOWAS.
These developments will test ECOWAS’ resilience and the strength of Nigeria’s foreign policy.
Economy: ASS Vs ECOWAS
Mali, Burkina Faso, and Niger are among the 10 countries with the lowest GDPs in West Africa, indicating specific economic difficulties these countries are facing.
According to the United Nations Conference on Trade and Development (UNCTAD), factors such as heavy reliance on agriculture, landlocked geography, susceptibility to external shocks, limited industrialisation, fast population growth, and dependence on foreign aid contribute to the economic struggles of these three countries.
In a broader context, Burkina Faso, Niger, and Mali rank among the nations with the lowest GDP per capita within ECOWAS. Placed ninth, tenth, and fourteenth, respectively, out of the 15 West African countries, these rankings underscore the economic disparities within the union.
Geopolitics: Article 91 Vs ECOWAS
The Economic Community of West African Nations (ECOWAS) aims to foster economic development, collaboration, and integration among its member nations.
Despite the legal provision for departure in Article 91, which states that a member state may only leave the ECOWAS Treaty by giving a one-year written notice and abiding by its regulations during that period, the move could have serious consequences, surpassing perceived advantages for these economies.
According to Ryan Cummings of Signal Risk, he held that “There will be political and economic ramifications,” He stated that the main questions at this point are whether the departing nations would still be permitted to utilise the West African bank and enable financial transactions within the West African monetary union.
A report by Businessday also held that “the potential exit of these nations from ECOWAS could harm their fragile economies and exacerbate food insecurity. Withdrawal might disrupt ECOWAS trade protocols, risking access to a $702 billion market and weakening $277.22 billion global trade.”
The need to remain in ECOWAS is emphasised, with strategic alliances being more critical for long-term development and stability than the advantages of leaving.
Drawing parallels with Brexit, the UK's departure from the European Union offers insight into the complexities of leaving a union.
Despite the UK not being a low-income nation, the process significantly impacted politics and the economy, involving trade interruptions, regulatory changes, difficulties in forming new trade deals, currency volatility, and economic uncertainty.
It's critical to understand that every case is different and that the effects of leaving a union vary depending on several variables, such as the terms of the exit, the status of the economy in the nation in question and the nature of its ties with other member nations.
Thank you for reading.
This edition of Marina and Maitama was composed by Khadijat Kareem.