Expert pushes for Naira as West Africa’s reserve currency

• But analysts say it’s a tough nut to crack‭  ‬

A London based derivative expert is pushing for Nigeria to use the enormous market intelligence provided by the prolonged closure of its land borders, as well as the opportunity offered by the outbreak of the coronavirus pandemic to push the country’s currency, the Naira, as the reserve currency for regional trade across West Africa.

In an Op-Ed piece, Make the Naira Great Again, sent to Business A.M. and published in this edition, John Kavvouras, director at GTI London Limited, the international investment banking operations of Nigeria’s GTI Capital Group, who has extensive experience in dealing with OTC derivative instruments in Europe and North America, warned that Nigeria will never fully realize its potential as the regional economic powerhouse in West Africa as long as the petroleum market and the US petrodollar enjoys overwhelming dominance even in intra-regional transactions.

Many previous governments in Nigeria have had the goal of developing non-petroleum based indigenous industry for both domestic consumption as well as for exports, Kavvouras wrote, adding that it was also for this same reason that government closed land borders to trade in August, 2019, ostensibly to halt smuggling and the bleeding of foreign exchange reserves.

“This objective seems to have had some success, but it is now time to begin looking at easing restrictions and for Nigeria to become the leader in intra-regional trade. The regional dominance of the Nigerian economy presents an opportunity for Nigeria to contingent the opening of cross border trade with the condition that the Naira is the sole medium of exchange, requiring traders to hold Naira, and ultimately supporting the currency,” he further stated.

Kavvouras explained that prior to the Covid-19 lockdown countries bordering Nigeria were being squeezed by the loss of their largest regional market, but that with the addition of the massive contraction in global trade, these countries are “now in dire need of trade and would be susceptible to accepting additional requirements such as transactions with Nigeria be conducted in Naira.” He said such a move would additionally increase demand for the Naira, and that with all the economic benefits associated with a stable and liquid currency, the Nigerian financial services industry would also see a tremendous opportunity for growth.

He called for Nigeria to take a firm position in its approach to trade in the region, adding that rather than reluctantly paying lip service to intergration, Nigeria can become a driving force behind regional trade in line with the principle of AfCFTA.

“As Nigeria comprises two thirds of the entire regional economy, the Naira is the natural reserve currency for West Africa. The Nigerian Government should begin to allow cross border trade, initially in stages. The trade blockade could be lifted on a commodity by commodity basis, where the Nigerian government would permit the buying and selling of specific commodities on the proviso that all transactions be conducted in Naira rather than using one of the “hard” currencies such as Euros or US dollars. Because other West African countries will be required to purchase and hold Naira in reserve for use in regional transactions, there would not be an issue of the draining of foreign exchange reserves,” he wrote.

Kavvouras stated that the Central Bank of Nigeria (CBN) has limited access to dollars for the import of more than 40 different goods in the government’s quest to become self-sufficient in the production of staples such as rice, adding that “as currency is at the heart of the problem, it is there where the solution lies.”

Kavvouras position appears to favour Nigeria and should be a position government’s fiscal and monetary policy experts would think long and hard about, say economists and financial analysts Business A.M. spoke to about this proposition.

Tope Fasua, a popular economist and a candidate in the 2019 presidential election said he is in support of the suggestion for a gradual reopening of the borders by Kavvouras, but thinks that the Naira as reserve currency is a hot potato issue.

“I support the gradual reopening of cross border trade and it is high time… as soon as they start lifting interstate travels. However, the idea of Naira as a regional currency is a hot potato issue,” Fasua told Business A.M.

He said he believes the only way that can work is if it comes in surreptitiously as a natural progression of deeper interregional trade. “I mean if we deepen trade and Nigeria allows some concessions then we can begin to pull in other countries into the idea.  It will be arduous.  Ordinarily, I could tell you it will never fly, given the distrust of Nigeria by these countries.  Large nations like the USA are also very interested when a nation starts to push for regional currency. That currency intends to compete with the world reserve currency. France is not happy at being forced to unshackle Francophone West African countries, financially speaking. So we need serious diplomacy and a sound strategy.  Some of the plans need to also be taken off the public table for intelligence reasons. This goal could never be achieved through the usual Nigerian braggadocio,” Fasua explained.

Uche Uwaleke, professor of finance and capital markets at the Nasarawa State University, and former commissioner for finance, Imo State, spoke about many hurdles to see such an initiative come to be, notwithstanding the greatness of the idea.

“Great idea but has a number of roadblocks,” he told Business A.M.

“First, it complicates the single currency arrangement in which Nigeria is a signatory and in respect of which the WAEMU countries have even gone ahead to launch the ‘eco’ with the support of France. Given Nigeria’s mono-product economy, the vulnerability of the country’s foreign reserves to oil price shocks, the huge fiscal deficit and double-digit inflation rate, my fear is that this initiative may be a difficult one to sell now  and is capable of eliciting hostility from the ECOWAS community. If the euro-zone experience is anything to go by, then it may not be feasible for any member nation’s currency to be endorsed for use by other member countries. It has to be a new convertible currency which explains in part why Britain didn’t join the single currency arrangement. The way around it, in my view, is to take it up first at country level in bilateral agreements as opposed to the entire region.  For example, Nigeria can enter into a currency swap agreement with Benin, Togo or Ghana, which ensures that exports to these countries are settled in naira,” Uwaleke explained.

Abiodun Ihebuzor, an international development professional with expertise in policy and strategic leadership, human resources and investment management and business process transformation, described the suggestion that Nigeria should push for the Naira to be West Africa’s reserve currency as interesting, but wondered about “capacity to manage the likely surge in demand for the currency and the unforeseen event of politics in inter-regional economic monetary management.”

He said having seen the end of Bretton Woods and the crises created by an artificial system that negate the gold standards, “the concern is really not about the good idea or the challenge. The destruction of a system that is clearly built on value and then replaced with a system that is a mere promise built on trust?” He asked.

Tony Monye, economist and policy analyst and the convener of The Lunar Leadership Society in Nigeria, said it would not be an easy fight to attempt for the country. “The French speaking countries are controlled by Paris, so not an easy fight,” he said, stressing that France was more than France on paper. “It’s one of the leaders in the global space,” he said alluding to the influence France wields over Francophone West Africa.