For much of the past year, Nigeria’s economy, the largest on the continent, has been mired in a recession. Shocked mainly by a fall in the price of oil, the country’s biggest export
, and a resumption of militancy in the oil-rich Niger Delta region which hobbled oil production, Nigeria’s economy ended 2016 on course for a full year of negative growth.
A key feature of Nigeria’s struggles have been the questionable currency policies adopted by its central bank, leading some to question the apex bank’s independence. After insisting on a fixed exchange rate in a bid to manage depleting reserves, the Central Bank announced a policy to adopt more flexible rates determined by market forces in June. But despite its public proclamations, market trends suggested the currency was never fully floated. While the Nigerian naira’s official value has relatively held steady since the currency float, a true reflection of its value is seen on the parallel market.
What needs to be done
To ensure economic growth in 2017, analysts say the credibility of the Central Bank must be restored. One way to do that, is to fix the current foreign exchange regime. “Fiddling with the foreign exchange market is a recipe for economic collapse,” Nonso Obikili, research associate at Economic Research Southern Africa, tells Quartz. “The controls and multiple markets needs to go and a properly functioning market without price controls needs to be implemented.”
Tunji Andrews, a Lagos-based economist shares similar sentiments and says the losses as a result of capital controls will outweigh any benefits. “The federal government and the Central Bank of Nigeria are scared of a weaker currency and this is a valid fear but every form of capital control will only worsen the already bad situation.”
With confidence in the economy waning, Obikili says big-ticket reforms are necessary to regain trust. “The economy is at the lowest it has been in terms of confidence in a long time and needs something of a morale boost—a major reform in one of the sectors could be that boost.” Andrews particularly advocates business reforms starting with a “serious campaign to move Nigeria 10 steps higher on the ease of business list.”
Last year, World Bank’s Ease of Doing Business report ranked Nigeria at 169 out of 190 countries analyzed. Improving the ease of doing business, Andrews says, will send signals to reticent foreign investors that the country is “once again open for business.” Per the World Bank report, there is much to improve on: across ten business areas analyzed, Nigeria ranked in the bottom half in eight categories. Read the full report here.