After several years of managing and pegging its currency, the central bank in Africa’s largest economy, Nigeria, has now fully floated the Naira against the US dollar. This decision will have serious consequences on the Nigerian marketing and media industry, given the linkage between the industry, foreign direct investment, and global trade.
Prior to the float, Nigeria maintained a Janus-like foreign exchange system. An official window and a parallel market (popularly called the black market) had two different rates, with the former and the latter having a wider gulf between them. This created opportunities for arbitrage and round-tripping, leading to feeding Nigeria’s out-of-control inflation.
For over a decade, the marketing and media industry struggled to develop and grow as foreign direct investment dried up, particularly in the technology and services segments. Investors could not continue to wait for years to repatriate trapped funds. While the float is not a magic bullet that will solve all the problems in the industry, the level of transparency, predictability, and openness created by the market will, in the medium and long term, prepare the industry for growth.
A major win in the immediate is that players in the industry can now plan and carry out capital injections without the paranoia of an unpredictable forex market that could invalidate or even wipe out the value of their effort (CAPEX). At least everyone can now focus on their business instead of trying to read the crystal ball of forex, a rabbit hole that has stagnated and swallowed up growth and development across the economy.