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Naira and the exchange rates

In exchange rate, when Nigeria sells oil, she is paid in dollars, but when Nigeria imports, she spends those dollars also.



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So, picture an account, call it Current Account, and one side of the Current Account label “Debit”, on the other side of the scale, label “Credit.”

Debits are Imports and payments made with foreign currency, Credits are Exports and Payments received in foreign currency. When Nigeria sells crude oil, it’s an export, and a $ payment is received. When Nigeria imports cars, $ payments are made. Get the picture?


FG moves to capture 80% of Nigerians in formal financial services sector 

Here is the relationship, when you import or make a foreign currency payment like Joint Venture cash calls, you debit your Current account, however when you export or earn/receive foreign payments like Petroleum taxes, you credit your Current account.

Let’s assume Nigeria has a net credit or current account surplus. That Current Account surplus flows into Nigeria’s foreign reserves at the CBN. Remember, we sell oil in US Dollars and pay for car imports also in US dollars, thus what hits the reserves are dollars.

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Now, the Central Bank of Nigeria (CBN), as the Federation’s bankers, manages the foreign reserves account. The Federation i.e. the Federal, State and Local Governments retain a sharing formula for the US Dollar in the foreign reserves, i.e., the net of exports and imports.

When Nigeria makes export earnings in USD, the CBN exchanges the US Dollars for Naira and retains the US Dollars. Thus, the dollars are owned by the CBN, the Federal and States Naira allocation and is shared via the Consolidated Revenue Fund (colloquially referred to as FAAC).

So, as you can deduce, if exports or forex taxes go up, foreign reserves go up, if imports or forex payments go up, foreign reserves go down (I am being simplistic).

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Now to exchange rate, when Nigeria sells oil, she is paid in dollars, but when Nigeria imports, she spends those dollars also. If Nigeria exports more, and earns more US Dollars, there is less pressure on the CBN to supply USD to the market, but if Nigeria imports more, she needs more US Dollars, which puts pressure on the dollars reserves.

Imports mean more US Dollars is needed to fund payments for import. To make Naira rise in value, one way is to reduce imports (or increase exports), because that means fewer dollar requests, making the Naira stronger. Got it?

  • We now see a relationship developing…
  • More exports mean US Dollar reserves rise, the US Dollar falls, and Naira rises.
  • More imports mean US Dollar reserves fall, the US Dollar rises, and Naira falls.
  • So, does Nigeria export more than she imports?

[READ MORE: Ghana’s Cedi becomes investors’ delight ahead Nigeria’s Naira)

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The answer is Nigeria has net export position, according to the National Bureau of Statistics, as at Q3 2019, Nigeria’s Export-Import figures in N’billion is N5,2885 to N3,8991. However, Nigeria has had a positive current account for years because of overreliance on one main export commodity, crude oil. Yes, non-oil exports are rising but crude oil has guaranteed a positive balance of trade.

So, remember our relationship, “More (oil) exports means US Dollar reserves rise, the US Dollar falls, and Naira rises.”

What happens if oil prices fall or imports rise? Then Nigeria’s revenues from crude oil will shrink. With less US Dollars in the Foreign Reserves, the US Dollar demand rises and Naira will weaken….which is exactly what has been happening recently.


Latest: his is why the CBN is seeking to curb a fall in the foreign reserves and subsequently, a fall in Naira by banning many items from the CBN funded US Dollar market.

Central Bank Continues intervention in Forex market to stabilize Naira


What should Nigeria do?

  • Speed up reducing petrol imports by local refining PMS and saving forex used in imports of PMS. The available data from the Bureau of Statistics indicates that fuel accounts for over 40% of Nigeria’s total foreign exchange expenditure on imports annually. One commodity, 40%! We have not added rice yet.
  • Pass the PIB so that more investors can enter the downstream sectors, build small modular refineries to refine petrol locally. The problem with the petrol subsidy is that petrol is imported, not the subsidy itself. If Nigeria stops importing PMS or scraps PMS subsidy, the value of her currency will rise in relation to the US dollar.
  • Don’t just ban imports, go to the local manufactures of soaps, food, textiles, etc. and introduce incentives to drop their costs of production to enable them to compete with foreign imports. E.g., pay them 100% rebate for their cost of diesel, offer them Export Expansion Grants. The goal is to make a locally made bar of soap, for instance, half the price of an imported one.
  • Push non-oil exports aggressively, especially agriculture proceeds. It’s not easy but it’s necessary.
  • Expand the tax base, diversify government revenues away from sharing oil income.
  • Make it far easier for Nigerians to receive remittances from abroad. This will reduce pressure on CBN funds. Remittances to Nigeria from abroad in 2019 was about $25b, far more than FDI and what the Federation shares from oil sales.
  • Attract more Foreign Direct Investment and Foreign Portfolio Investment. We have the market, we speak English, we are nearer to Europe and America than Asia. We need to be aggressive and offer incentives to companies to come to Nigeria and invest. One way is to progressively work to improve our score on the “Doing Business in Nigeria” index and eliminating multiple taxation. A company like MTN pays “levies” to Local, state government and Federal governments plus two competing regulators just to set up a telecom mast. Don’t ignore devaluation as a strategy

In Summary, Nigeria is simply paying the price for over-dependence on one main forex generating export. The policy of “get oil, sell oil, and share oil” must stop.

Nigeria should replace it with “get oil, sell oil, pay 10% of gross sales to Sovereign Wealth Fund, then share oil money.” Any future drop in oil prices will create a large deficit because Nigeria has no other savings or forex generator.

It’s our problem, we can fix it.



  1. Oreoluwa

    February 25, 2020 at 8:29 am

    I like the way you explained it all. All the foreign reserve thingy used to sound foreign to me. Now I understand better.

  2. Gbemz

    February 25, 2020 at 11:24 am

    You really simplified the explanation. Kudos

  3. Peter Iteka

    February 25, 2020 at 12:12 pm

    This is easy to understand.. Thank you for breaking it down. This over reliance on Oil is very irritating. Makes us look lazy in our thinking for other source of income.

  4. Ajibola Joel victor

    February 25, 2020 at 1:24 pm

    What a good expkanation

  5. Rilwan

    February 25, 2020 at 1:48 pm

    Very elaborate and detailed piece. Well done.

  6. Rilwan

    February 25, 2020 at 1:49 pm

    Very detailed explanation. Well done and thank you.

  7. Idowu

    February 25, 2020 at 6:58 pm

    If truly Nigerian government is serious about exporting, it shouldn’t narrow everything on crude oil. Where I work is a private organization that’s into processing of Shea nuts to Shea butter in very large quantity. The company has made over 1000 tonnes of Shea butter and unable to export it due to seaport congestion and this has really affected the company in many ways. If exporting is the major thing that makes our currency to have value, the federal government should encourage the private sectors that’s into production of different things

  8. Michael

    February 26, 2020 at 8:52 am

    What a good article. I learnt a lot.
    Thank you.
    Diversification in economy is the way out. Once this happen, our currency will be more valuable.

  9. Evangelist Adepoju Zacheaus

    February 26, 2020 at 9:33 am

    Please don’t save any 10% or more of Oil money in SWF because history has proofed AREWA Nigerians will wake up one day and waste it on one civil unrest or religious chaos!
    Let every state share use it either to develop their state or squander it on pilgrimage!

    • I. S.

      July 10, 2020 at 8:53 am

      As a foreigner with many years of doing business in Nigeria, I find the Nigerian people are charmingand resourceful. Work ethic could be better, but that requires a fair sharing of profits with them as better pay and training, and fewer fat cats forming a nexus that supports each other but ignores the people actually producing value.
      This last is where corruption and nepotism play a huge part in damaging the economy. This is for the government to control, without killing capitalism at the same time. Not easy, but that is the leadership which is needed.

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Analysis: CBN bans maize importers from accessing FX

CBN noted that the ban was necessitated in order to protect local production of maize.



Nestle partners USAID to improve quality of Nigerian grain 

Yesterday, the Central Bank of Nigeria (CBN) released a circular banning importers of maize from accessing forex from the apex bank. This implies importers would have to rely on supply from the parallel market to carry out their transactions. According to the circular, the CBN noted that the ban was necessitated in order to protect local production of maize, stimulate rapid economic recovery, safeguard rural livelihoods and increase job creation.

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Recall that in May 2015, the CBN announced the ban on importers of 41 items from accessing FX from official sources including items such as rice, cement, palm products etc. Since then, the CBN has increased the list by adding items like dairy products, textile, fertilizers etc. Indeed, the CBN governor, Godwin Emefiele had in 2019 guided that the list would be extended to cover some other items as the President Buhari-led administration aims to drive Nigeria towards food sufficiency. However, critics of the policy have always highlighted that the CBN only makes such moves in times of scarce FX rather than a deliberate attempt to stimulate food production.

READ MORE: FG asks UK court for more time to appeal $9.6 billion arbitration judgement

The Naira has come under severe pressure in recent months following the hit to global crude oil prices and demand. This has forced the CBN to devalue the currency and indications point to further devaluations, evidenced in the quotations from the FX futures market with the 1-year N/US$ quotation at N410.60 (as at 13 Jul 2020).

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According to data from the United States Department of Agriculture (USDA), Nigeria’s corn production for the 2019/2020 planting and market season stood at 10.5 MMT while consumption stood at 10.7 MMT. Nigeria imported 0.4 MMT of corn in 2019/2020 market season according to the data from USDA. Considering the low quantum of imports that would be disrupted relative to market size, we don’t expect any major shock to prices, though the recent decline in maize production creates some concern.

READ ALSO: This is what Ngozi Okonjo-Iweala is up against

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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E-payments ecosystem continues to show promise

We expect the e-payments industry to continue to record significant growth even beyond the pandemic.




The payments industry in Nigeria continues to demonstrate its promising growth with the recent data from the Nigeria Inter-Bank Settlement System (NIBSS) showing solid growth across the various e-payments mechanisms in the first 5 months of 2020 (January – May 2020). NIBSS Instant Payment (NIP) transactions recorded a healthy 17.3% y/y and 47.7% y/y growth in transaction value and volume to N48.7tn and 615.3m respectively. For POS transactions, total transaction value and volume grew 44.0% y/y and 50.0% y/y respectively to N1.6tn and 228.9m respectively. The most impressive growth was recorded in Mobile transactions category where transaction volume and value grew 567.5% y/y and 364.7% y/y to 41.1m and N853.7bn respectively.

Explore Economic Research Data From Nairametrics on Nairalytics


The sustained growth in e-payments transaction volume and value in Nigeria evidences increased adoption of technology in payments and cash transfers by the Nigerian populace. This is driven by increasing internet & mobile penetration as well as investment by banks and other payment-based fintechs investment in payment technology infrastructure. Furthermore, we note that the Central Bank of Nigeria (CBN) announced reduction to the fees payable on mobile and internet payments/transfers. We think this has had a mild impact on increased usage of these platforms. In addition, with the onset of the pandemic the use of physical cash in settling payments and bills has been discouraged. Thus, we think e-payments benefitted from significantly from this.

Going forward, we expect the e-payments industry to continue to record significant growth even beyond the pandemic as many of the new methods of transacting will be sustained in our view. In our opinion, the e-payments sector of the fintech ecosystem is expected to serve as the growth frontier of the new decade in Nigeria as highlighted in our 2020 Nigeria Fintech Sector Report (See CSL_Nigeria’s Fintech Industry 2020; Growth Frontier of the New Decade). Consequently, we expect banks and payment fintechs like Interswitch & Paga to benefit significantly from the e-payments revolution.

READ MORE: Nigeria’s fintech industry 2020: The growth frontier of the new decade

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Avoiding or mitigating recession in post COVID Nigeria – Olisa Agbakoba

How do we avoid and or minimize the impact of inevitable recession on our economy?




The massive macro-financial shock caused by Covid-19 has continued to ravage the global economy putting all systems and nations under severe financial instability never seen in history. Stock Markets around the world have been pounded and ravaged, and oil prices have fallen to an all-time low. Nigeria is not spared from this crisis.  Total revenue expected to be realised from the 2020 National budget was N8.42trillion. However, following the Covid-19 pandemic, revenue projection was reduced to N5.16trillion. This represents a drop of close to 40% or N3.26trillion. Key sectors like manufacturing, maritime, aviation, hospitability and the creative industry, collapsed resulting in huge financial and job losses. The World Bank 2020, Global Economic Prospects, June 2020, forecast that the Covid -19 pandemic will plunge all countries into the worst recession in history.  GDP of advanced economies are projected to shrink by 7 percent. The outlook for emerging market and developing economies is bleak as they are forecast to contract by 2.5 percent. This would represent the weakest showing by this group of economies in at least sixty years. The crucial issue is – How do we avoid and or minimize the impact of inevitable recession on our economy?

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The first and critical policy action is to harmonize fiscal and monetary policy.  Fiscal policy must be expansionary. In other words, big spending is required to massively stimulate the economy. This is called Keynesian economics named after the economist John Maynard Keynes.  Keynesian economics served as the standard economic model in the developed nations during the latter part of the Great Depression, World War II, and the post-war economic expansion (1945–1973). American President, Franklin Delano Roosevelt used the Keynesian economic model by spending massively on public works programs to get America out of the great depression. The mantra for Nigeria is to spend big to get out of recession. We acknowledge the government has adopted an expansionary policy by borrowing massively but we must have a clear strategy. First, we must determine our Public Sector Borrowing Requirements (PSBR). Additionally, we will need to identify an inventory of Public Sector Spending Requirements (PSSR). The PSBR and the PSSR should be indexed to identify funding gaps. Additionally, an inventory of government assets should be created as we have many wasting assets that can be converted to cash. Using the abandoned Federal Government Secretariat in Lagos as the index case, informed valuers believe it has a forced market value of N100 Billion. This can build the East-West Road. Abandoned projects abound, Ajaokuta Steel, Aladja Steel, the Newsprint at Iwopin, the various steel rolling mills around the country, the Onitsha Port, etc. It is believed these assets are worth at least N15, trillion yet untapped. These wasting assets, if sold will boost fiscal policy immensely. Turning to Monetary Policy, we clearly need a very flexible monetary policy with interest rates pegged at no more than 5% (Single-digit) to create a framework for quantitative easing and open market operation (OMO).

READ ALSO: Dark Clouds loom for investors as stocks fall 8% in first half of 2020

Quantitative easing (QE) makes borrowing easy for business. QE makes burden on business lighter. OMO flood the economy with liquidity.  A harmonized fiscal and monetary policy will lay the foundation to rebuild the economy.  Three requirements to avoid a recession are Job creation, revenue mobilization and control of cost of governance.  If we get the macroeconomic environment right, which is the alignment of fiscal and monetary policy, it will release economic energy to create Jobs estimated at between 5 and 6 Million, year on year. With respect to revenue generation with the right framework, massive funds can be generated and pumped into the economy. With respect to cost of governance, everybody knows it is far too high. In the revised 2020 budget, 73.5% of total expenditure are for salaries and debt servicing, while only 26.5% are for capital expenditure.  This is unsustainable. We cannot continue to borrow to pay high recurrent bills. Rather we must invest in capital expenses to reflate the economy. The Government has taken steps to implement the Orosanye report but there needs to be a timeline for implementation. Corruption is a leading cause of high cost of governance. It is important to review anti-corruption strategies to reduce public corruption. Tackling the menace of big government and public corruption will give us more balanced revenue to debt profile. With the macroeconomic framework highlighted above, we can now review some critical factors that can help grow the economy and avoid recession.

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READ ALSO: Top 10 risks Nigerian businesses will face in 2020/2021 – Report 

Diversification of the Economy

This is one area government needs to urgently activate because of the massive budget deficit. Nigeria runs a mono –cultural economy as 85% of her revenue is derived from crude oil exports.  As a result of the price shocks occasioned by COVID -19, crude oil receipts have gone down and are no longer able to sustain the economy. The total revenue expected to be realised as stated in the 2020 budget is N8.42trillion, including a deficit of N2.17t. However, following the COVID -19 pandemic, fiscal deficit has grown from N2.17t to N5.37t, which must expectedly be financed by fresh borrowing. We are now running a deficit budget and borrowing massively. Unless we diversify the economy, we will continue to borrow to the point where it becomes unsustainable. Many governments have paid lip service to diversification, but this is the time to develop a very strong policy on diversification. We must follow the example of the United Arab Emirates which diversified its economy by reducing dependence on oil receipts from 100% to only 35% by going into service and smart industries.  Some of the sectors to diversify our economy into are Agriculture, Transportation, Aviation/Space, Rail and road transportation, Maritime, Hydrocarbons, solid minerals, information technology and entertainment.

Trade policy

Nigeria has no trade policy which is why it is a major dumping ground for foreign goods. We spend billions of dollars importing basic food commodities that can grow locally. We must grow what we eat.  We need to reverse this with a robust trade policy. Trade policy refers to the rules and regulations on imports, exports, tariffs, duty etc. Trade policy rests on a tripod of critical factors – import substitution, tariffs, border enforcement and compliance.  We need to enact trade remedies legislation and a trade Expansion Act.  These legislations will impose anti-dumping duties on non-essential products. There are also special duties and measures we can impose on exports into Nigeria which are subsidized by a foreign country. The trade remedies legislation will prohibit imports if it is adjudged that they will cause material injury to local industries, for example by impeding local growth.  It is also important to enact legislation that will support the recently established Nigerian Office for trade negotiation (NOTN). It is crucial that the office is elevated to ministerial level.  We need to establish a National Customs and Border Enforcement Services. This Border Enforcement Services will need new legislation to merge immigration and customs services. The Border Enforcement Service will replicate the US Customs and Border Enforcement Agency. The merged service will reduce duplication and proliferation of agencies at the borders. To comply with ECOWAS protocol and the African Continental Free Trade Agreement (AfCFTA), the border closure policy should be replaced by a border enforcement policy. A strong trade policy will help create millions of jobs, grow local industries and expand the economy.

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READ MORE: COVID-19 Intervention Fund: CBN disburses N107.45 billion to successful beneficiaries

Access to Capital

Capital is the oxygen and lifeblood of the economy. One of the areas where we can tap into capital is the Housing/property market. Eighty percent (80%) of Nigeria’s businesses rely on land and housing as collateral. Unfortunately, the slow administration of the Land Use Act in terms of consents and permits has meant that the banks have not accepted untitled property as collateral. This has caused incalculable damage to businesses in need of capital. A recent study shows that the housing inventory of Nigerian property exceeds six trillion dollars. Nigerian property and housing market is dead capital because 80% of them have no title or bad title and therefore not good as collateral for bank loans.  So creating the proper legal framework to make dead capital fungible (easily transferable) will create an instant credit market and enable Nigerians to borrow on their property. A Land Use Administration Act will introduce new rules to make the consent process more efficient and give confidence to banks to accept title documents as collateral. This process will create an instant credit market to drive the economy and will easily contribute at least 5% to GDP.

READ ALSO: Reps to investigate alleged illegal withdrawal of $1.05 billion from NLNG account

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Government stimulus intervention

Because of COVID-19, the economy has taken a very big knock. It is the responsibility of government (like most western countries) to reboot the economy by supporting businesses with a business support fund of at least 50 trillion. We applaud the government for the injection of funds to support the economy. We note the following:

  • Nigeria Economic Sustainability Plan (NESP), 12-month, 2.3 Trillion Naira ‘Transit’ Plan between the Economic Recovery and Growth Plan (ERGP) and the successor plan to the ERGP
  • Ministry of Trade and Industry, MSME Survival Fund, The Guaranteed Off take Stimulus Scheme and the Credit Support to MSMEs and Priority Sector and
  • Central Bank of Nigeria N10 billion loans and grants approved for various groups and organisations for pharmaceutical and healthcare-related research, under the COVID-19 intervention scheme.
  • The Special Public Works programme expected to engage 774, 000 Nigerians to cushion the effect of COVID-19 pandemic.

It is a good start but not enough. The Government should look to ways and means by the CBN to inject at least 50 trillion into the economy. Government can intervene through a National Credit Guarantee Agency to support viable business proposals so they Business can easily access credit. Major economies of the world run on credit. The key is that the creditor is assured that he will be paid by government guarantee.  Another key institution is the Development Bank (DBN). Nigeria has a Development Bank, but unfortunately undercapitalized. The DBN needs to be properly capitalized to boost the economy.

Enabling Business Environment

The factors listed above will not work without an enabling business environment. The first step is to have an efficient legal and regulatory system.  For instance, the Nigerian judicature is based on the 1875 Judicature Act. The consequence is that cases take too long to resolve. It takes between 5 to 20 years to resolve simple contractual disputes. Investors, both local and international,  will not invest in a country where simple contractual disputes take between 5 to 20 years to resolve. We must give urgency to this sector and reverse legal failure. A speed of justice policy will reduce delays. In this regard, the National Assembly must consider enacting the Administration of Civil Justice Bill to ensure efficient administration of civil disputes.  Also, new methods of dispute resolution should be considered such as Alternative Dispute Resolutions, small claims courts, traditional and customary arbitration. Quasi-judicial administrative tribunals can be established for sectors, following the UK example. In England there are many administrative courts for Telecommunications, Taxation, Transportation, Insurance, Education, Financial Services, Trade, Investments, etc.


Discipline of Execution

Nigeria has a plethora of laws, regulations, guidelines and Executive Orders. The challenge is lack of implementation of these laws and regulations. Unless rules are enforced, Nigeria will not easily overcome recession. A vigorous government policy is needed to implement diversification, strong trade policy and access to credit etc. There needs to be timelines and harmonization of work of the various government agencies ministries.  Nigeria can generate 10 million Jobs and over N100 trillion with full compliance with policy implementation. This will help to mitigate the impact of the impending recession. The President must take charge and ensure vigorous implementation.


The story about diversification of the economy is an old argument going back 30 years and in fact, the Nigerian economy is actually diverse but the problem is lack of government consistency which has meant that although we have diversity, no revenue flows out.  We can only succeed if the twin administrative tools of power of focus and discipline of execution are applied. This presentation is made from the point of view of a development lawyer. It is up to the economists to draw what they can to mitigate the impending recession.





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