How We All Depleted the Foreign Reserves

ENI B,  eniola.bello@thisdaylive.com, Twitter @eniolaseni, sms 08055001956

It was a chance encounter. But then a disagreement on the Buhari administration handling of the economy, or rather its (mis)management of the forex regime, developed into an interesting conversation on the Nigeria situation. The sparring partners? One is a businessman whose firm has extensive interest in civil engineering, construction and medical supplies, and who has been described as the man who hijacked a former governor in a Southwest state from his godfather. And the other is a senior journalist with a social conscience. For the purpose of this article, let’s call the one Tee, and the other Kay.

Tee: My Comrade, do you support this administration’s refusal to devalue the Naira?

Kay: Of course, I fully support the foreign exchange regime in place. There’s no reason why the government should succumb to the blackmail of those who want the Naira devalued.

Tee: Oh! I shouldn’t forget you’re a socialist. I hope you’d allow me to show that you are mistaken. The best thing for the economy right now is the devaluation of the Naira. As you very well know, we run an import dependent economy. The only export product from which we receive foreign exchange is crude oil, the price of which has crashed to less than $40 per barrel. When crude oil price was over $100 per barrel during the immediate past administration, President Goodluck Jonathan increased the minimum wage. Today, however, most state governments are having difficulties paying salaries. Companies are laying-off workers. Factories are closing down. With job losses worsening the unemployment situation, crime would only increase. Critical investors, because of the inflexible exchange rate regime, have bailed out of the country. The result? The CBN (Central Bank of Nigeria) is the primary source of foreign exchange. And because of the depletion of the foreign reserves, the CBN is unable to meet demand, and has therefore been forced to ration. The economy, which was growing 6-7% some three to four years ago, is shrinking as growth is no more than 2%. And the situation will only get worse.

The government needs to grow this economy. And in the circumstance in which we have found ourselves, Naira devaluation is the surest route to growing the economy. With devaluation, government will earn more on the Dollars from crude oil sales. The states would have the required revenue to pay salaries and meet their obligations to businesses. Workers would be empowered to spend. Companies would have the necessary resources to revive their operations, carry out expansion and employ new hands. Investors, knowing that with cheap Naira they are bound to make money, would naturally return to the country. And the logic of business greed is that, for every one dollar profit, an investor would most likely bring in $10 with the hope of making more profit. The CBN would therefore no more be the primary source of foreign exchange. The country’s reserves would rebound.

In any case, Nigeria should not concern itself with the Dollar. It is not our currency. We have no control over it in any shape or form. Even our singular export – crude oil – we have no control over the processes of its exploration, production and sales. We accept what our partners, the multinational oil companies, say they have produced and sold because we do not have the knowledge and expertise to carry out the exploration and production on our own. We have no way of even knowing when we are short-changed. So why peg the Naira against the Dollar or against any currency for that matter? Why not allow our currency find its level within market fundamentals, permitting only minimal regulation in the country’s best interest?

Kay: Interesting stuff! Brilliantly articulated! Listening to you reminded me of Dr. Victor Odozi, one time Deputy Governor of the Central Bank of the Nigeria when the Babangida administration introduced SAP (Structural Adjustment Programme) in the mid 80’s. You also reminded me of the economic wizards in the Obasanjo administration when they sold us privatisation and deregulation. You do remember that the Naira was once stronger than the Dollar. However, since the 80’s, there has been an incremental devaluation of the Naira. Odozi predicted in 1986 that with devaluation, the forex market would be just like other market having free sellers and buyers. At that the exchange rate was less than one dollar to N10. Today, at one dollar to N200, the story remains the same. At every point, the argument has always been the same – growth, job creation, etc. In the first 16 years of this democratic dispensation, three different presidents of the PDP (Peoples Democratic Party) administration had packaged the same thing in different formats, but the country has only witnessed likely jobless growth. We might as well try something different.

Tee: It wouldn’t be fair to say there has been no growth. There has been growth, 6-7% for more than a decade under the PDP.

Kay: Mere statistics. We didn’t see the impact of the much celebrated growth in the human condition.
Tee: The problem is us, you and me. We’ve allowed our country to become a dumping ground for every product under the sun. We import rice and chicken and clothes. When I was growing up in the 60’s and 70’s, rice used to be only on our Sunday menu. Uncle Ben’s rice that was imported at the time was only affordable by the very rich. Today we consume rice imported from many countries in Asia. That is our foreign reserve. Look at the clothes we, all, are wearing. They are imported. Our shoes and wrist watches are imported. Our cars are imported. We so love champagne that we are said to be one of the highest consumers of the product globally. We eat our foreign reserve as rice and chicken, drink it as choice wine, wear it as clothes and shoes, drive it as cars, and fly in it as private jets. We cannot continue to live recklessly and not pay the price one way or another.

Kay: We have been unable to feed and clothe ourselves because of the very policy you are espousing. It is the periodic devaluation of the Naira over time that has made it cheaper to import than to produce here. That was the reason all the thriving textile factories of the 70’s and 80’s in Kaduna and Kano had to close down. That was the reason the Peugeot Automobile of Nigeria and Volkswagen Nigeria could not continue to assemble their brands in the country. That is the reason most Nigerian money men in Corporate Nigeria are no more than traders and rent seekers.

Tee: The issue you’ve raised has nothing to do with Naira devaluation. It is a problem of law and order. If there’s a restriction or prohibition on the importation of rice and chicken, how do these products find their way into the country? It is a question of law and order. How do banned textile materials and furniture equipment flood the Nigerian market? It is an issue of law and order. It is not enough to attribute to smuggling, the ready availability of banned products in the country. Rice and chicken and textile materials and furniture are not smuggled using a man’s wallet or a woman’s handbag. They are smuggled in with heavy duty trucks. Which serious country allows its territory to be turned into a dumping ground for all manner of goods in the name of smuggling? How many Customs officers have been arrested, prosecuted and convicted for aiding or conniving with smugglers? Why do men and officers of Customs bribe their way to be posted to border posts?

Law and order is perhaps the country’s biggest problem. When politicians and government officials have lined up in their garages between 10 to 20 SUVs, the cost of which is clearly above their legitimate income, it is an issue of law and order. When those elected to serve us, after four or eight years in office, buy properties in London and Washington DC and Cape Town and Dubai, in addition to their mansions in Lagos and Abuja and their country homes, it is an issue of law and order. Were all those properties measured against their tax assessment forms and necessary questions asked, they would think twice before embarking on such primitive acquisitions. Why should the resources of the country be deployed to subsidize the rich?

At the end of the animated debate, Tee could not persuade Kay to buy into the Naira devaluation formula. Both, however, agreed on one thing – there is an urgent need to give law and order a fresh approach. For me, I return to the original question, should the Naira be devalued or not, dear reader?