08/06/2023
Presidential Speech by Bola Ahmed Tinubu (BAT) - Uncle Tunde's guide to understanding 5 economic jargons in the speech:
1. Unified exchange rate: An exchange rate (in this context) is the rate at which one currency is swapped for another (e.g N1 = $1). Nigeria currently has two exchange rates, the official rate set by the CBN (currently around N461), and the parallel market rate (currently around N760), which is decided by the market. A unified rate will mean that there will be only one exchange rate. A market led exchange rate is better ideally (but may lead to the naira losing value in the short run), especially if available to all as investors would be able to plan with the stability, the CBN would save USD and there will be less room for arbitrage.
2. Arbitrage: This is the buying and selling of an asset to take advantage of price differences. In this case, the arbitrage referred to here is the difference between the price of the USD at the official rate, and the price at the parallel market. For instance, getting access to $1m at the official rate would cost N460m, and selling it at the black market would yield N760m approximately. Money is made by just having access. BAT intends to minimise/eliminate such arbitrage because USD is limited in Nigeria and needs to get to those who need it for productive activities.
3. Subsidy Removal: Subsidy is money paid on a product to reduce its cost by the time it reaches the end consumer. The government currently pays subsidy on petrol, to reduce the final cost to Nigerians. The Federal Government set up a plan to remove subsidy this year, and the new President announced that the plan is still in motion.
Removal of fuel subsidy will make petrol a lot more expensive than it is today. The President intends for the cost savings to be used to improve education and healthcare.
4. Monetary Policy: Monetary policy is a set of actions to control a Nation's money supply. Monetary policy includes actions like determining interest rates, managing inflation, how much banks should keep in reserve, etc. The president wasn't specific on what Monetary Policy "house cleaning" means for this administration but it's likely to start by unifying the exchange rates.
5. Omnibus Jobs and Prosperity Bill: An Omnibus bill is a bill that covers diverse topics. In this case the Tinubu administration is proposing an omnibus bill for jobs and prosperity, which might mean that it will be targeted at providing jobs, promoting ease of doing business, and bettering living conditions.
A similar Act was passed in Canada and contained amendments of several acts in the fiscal, infrastructure, housing, social development, and various industrial sectors which helped to boost job creation.
These proposals are great and long overdue. Hopefully, the new administration has the resolve, discipline and wisdom to implement them appropriately.
