Last week, we looked at how Nigeria’s plan to trade oil using its local currency, the naira, could strengthen the economy. Today, we’re tackling the tough questions: What obstacles stand in the way, and how can Nigeria overcome them? To answer that, we’ll look at lessons from countries that have faced similar challenges and found success.
Challenge 1: Getting Other Countries On Board
The Problem: Convincing international partners to use the naira instead of familiar currencies like the US dollar, euro, or British pound won’t be easy. Most countries prefer currencies that are stable and widely accepted in global trade.
The Solution: Take a page from Turkey’s playbook. Turkey pushed for the use of its currency, the lira, by negotiating trade deals that benefited its partners and promoted the lira. This strategy opened new trade doors and gave the lira a bigger role in regional markets.
What Nigeria Can Do: Nigeria can follow this example by focusing on diplomatic efforts and building trade relationships with key partners, especially those that already buy a lot of Nigerian oil, like India, China, and Brazil. By offering attractive trade terms, Nigeria could boost the naira’s use beyond its borders.
Challenge 2: Avoiding Inflation and Price Surges
The Problem: If the naira isn’t stable, using it in international deals could lead to rising prices at home. Argentina learned this the hard way when it tried to push the peso for international trade and inflation spiked.
The Solution: Argentina eventually learned to manage its monetary policies more carefully, which helped calm inflation. But Nigeria can also learn from Indonesia, which diversified its economy by investing in sectors like agriculture and technology. This helped Indonesia stay stable even when global prices for its main exports fell.
What Nigeria Can Do: Nigeria should invest more in its non-oil sectors to protect itself from sudden economic shifts. Diversifying the economy means that if oil prices drop, other sectors like farming and manufacturing can help keep the economy steady and prevent inflation.
Challenge 3: Fighting Corruption and Ensuring Transparency
The Problem: Corruption has been a long-standing issue in Nigeria, and new economic programs like the naira-for-crude deal could be at risk if not managed properly. Without transparency, there’s a chance that revenues could be misused.
The Solution: Malaysia’s experience shows a clear path forward. When it started trading using its currency, it introduced strict audit systems and made trade data publicly available. This kind of transparency built trust and ensured that the money went to things that mattered, like schools, hospitals, and infrastructure.
What Nigeria Can Do: Nigeria can adopt similar measures by setting up public reporting systems and independent audits. Regular updates to the public on where the money is going and how it’s being used would build trust and show that the government is serious about accountability.
Challenge 4: Handling Oil Price Swings
The Problem: The global oil market is unpredictable. Because Nigeria relies heavily on oil revenues, sudden drops in oil prices can shake the economy and weaken the naira.
The Solution: Norway’s approach provides a valuable lesson. Norway created a sovereign wealth fund that invests its oil profits in various assets. This strategy has helped Norway keep its economy stable even when oil prices fluctuate.
What Nigeria Can Do: Nigeria could set up its own stabilization fund. By putting excess oil revenues into diverse investments, Nigeria could build a financial cushion that keeps the naira steady during tough times. This fund could also help pay for long-term projects like roads, schools, and technology development.
Final Thoughts
The naira-for-crude deal could be a game-changer for Nigeria, but only if the country takes the right steps to manage the risks. By learning from Turkey, Argentina, Indonesia, Malaysia, and Norway, Nigeria can find practical solutions to make this bold move successful. In the next and final part of this series, we’ll look at specific strategies Nigeria can use to make the naira-for-crude deal work for everyone.
Stay tuned!
– Abidemi Adebamiwa writes from Pleasanton California
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