Naira Is Grossly Undervalued: Why Nigeria Should Not Devalue Its Currency

In the midst of what appear to be Economic crisis to the unwary, and the mischievous calls by some "Economist" for a further depreciation of the Nigerian Naira, I would call on President Buhari, Finance minister Kemi Adeosun and Central Bank Governor, Godwin Emefiele never to succumb to a few elite blackmail and capitulate into a further DEVALUATION of the already buffeted Nigerian Naira.

There has been the argument that the gap between the Official rate, at N199 to the Dollar and the parallel market rate at about N300 to a Dollar creates a wide arbitrage for "well placed and connected allottees," some of whom are bankers and unscrupulous "manufacturers" who make over 50% arbitrage margin without lifting a finger in any production or value added capacity. Not withstanding some truth in their viewpoint, it must be emphasized to new comers in this debate, that Nigeria, no matter how many times it devalues the Naira, Currency Arbitrage would remain common feature in its Currency management system.

Arbitrage started in 1986, when the Gen Ibrahim Babangida military regime listened to the "Do-gooder Economists," the so-called American ivy-league universities trained Economics, some with "copy and paste PhDs, including the likes of Dr Kalu Idika Kalu ( later Olu Falae, the current SDP Chairman) and Dr Chu Okongwu, IBB's ministers for Finance and Economic planning respectively.

The argument in 1984 during the short-lived regime of General Mohammadu Buhari, then Nigerian military Head of state, was that the Naira was over-valued and for Nigeria to get the World Bank Loan it required to cushion its Balance of Trade Deficit, the Naira must be "Devalued," so says both the IMF- the "executioner" arm of the World Bank and some misguided elites, including "Pretender Economists," some with "ulterior motive! This according to both parties in the equation was the only way Nigeria would survive the Economic crisis it inherited from the "free spending and looting government of Alhaji Shehu Shagari,. But General Buhari saw the danger of such misadventure and held his line, and Nigeria never fell apart as predicted by doom-saying elite Economists and IMF. I make bold to say that had Nigeria allowed the Economic policies of then Buhari regime led by its Finance minister Onaolapo Soleye to flourish, we would have achieved Balance of payment equilibrium within 3 years of that administration.

But those trajectory ( I called Buharinomics 1 ) were jettisoned when the gap-toothed, smiling General Babangida overthrew the Buhari/Idiagbon regime and abandoned its succeeding home-grown, largely unconventional Monetary policies and pandered to the whims of IMF and the so-called Nigerian-Havard and their rent seeking Economic elites. And buying their bates the Babangida regime, desperately seeking popularism because of its illegal nature, capitulated to the "noisy makers" and officially DEVALUED the Naira from an official rate of N2 to a Dollar to N4 to a Dollar, then the Parallel ( or Black market rate ). But did that solve the "Arbitrage" problem as recommended by the opportunists IMF and their collaborating patronage seeking Nigerian Economic elites? No that stupid Devaluation never solved the arbitrage argument because Nigerian elites love imports of a plethora of foreign goods and services- Best Italian Shoes; American SUVs, British Shoes and universities for their children and wards; own houses in London, Paris, Washington and Dubai; Fly to Germany, UK or US hospitals for common Cold symptoms- and yet Nigeria pays for all these largely from exports of a mono product, Crude Oil, both the Production quantities and price (quoted in US Dollars per Barrel) are beyond the control of Nigerian policy and decision makers.

Since the Babangida administration's ill-advised official Devaluation of the Naira in September 1986, there has been no way back for the Naira, sliding South, irrespective of whether or not the US Economy and its Dollar currency, upon which the Naira depreciation was bench marked, was growing or suffering Depression or Recession. The arm chair opportunistic Nigerian "Economist" never had a plan B, on how to strengthen the Nigerian Economy and the now comatose Naira struggling against the major convertible currencies of the world! But they keep arguing and recommending more Devaluation to bridge the Currency Arbitrage gap, absolutely clueless to the factors responsible for Naira pummeling in the international currency and money markets! As far back as 1984, my final year at University of Nigeria ( UNN) - along with Godwin Emefiele, the current Central Bank Governor, I wrote in my BSc project paper titled: "Nigerian Monetary and Fiscal Policies for Development, 1980-1983. At the time I presented that project paper to the Department of Finance, in partial fulfillment for the award of BSc Finance of that university in 1984, General Muhammadu Buhari was the then Head of State and like now, when he is the democratically elected President, Nigeria was facing serious Economic illness and Balance of Trade disequilibrium ( heavy deficit in its current account in the Balance of payment statement for the periods under my review ) ocassioned by cluelessness, mismanagement and outright looting spree of the 2nd Republic President Shehu Shagari's administration.

In that project paper "Conclusions and Recommendations" in Chapter 7, pages 51-53, I recommended:

(a) "In recent times Nigerian authorities have been bombarded with suggestions of Devaluing the Naira to reflect its true parallel market value because of paucity of Foreign Exchange to match the insatiable demands for foreign goods and stop the hemorrhage in our Foreign Reserve and slow imports and encourage exports which will now be cheaper in the international markets. "The writer is of the opinion that Devaluation of Naira would not be to our best interest; rather than helping us, Devaluation would worsen the current economic malady, because Nigeria remains a mono-culture economy depending on 90% of its foreign exchange earnings on the sales of crude oil- its production capacity is determined by OPEC, and the demand for which is "price inelastic," and the price for which are determined in London and Newyork."

(b) "As a longer term measure, the Nigerian government must be seen to be serious in its efforts to diversify the economic base, particularly the Foreign Exchange earning base of the Economy and get away from oil sales dependence! "Nigeria must not only be self sufficient in its local Raw materials, but must produce to export, including value adding to semi-processed levels to get more foreign exchange income through exports of Agricultural commodities." I went further under this suggestion to advice that "Foreign multinationals be encouraged to use their huge profits they make out of Nigerian market to engage in Agricultural production of their currently imported raw materials as a way of improving our Balance of trade, by reducing Imports and increasing exports...."

But here we are 32 years after, in 2016, and some opportunistic, mischief makers calling themselves "Economists" and International Finance experts from US and UK news lines are here calling for President Buhari and CBN Governor Emefiele's head for resisting their stupid calls for further devaluation of the already devastated Naira, broken to its bones after 16 official devaluation between September 1986 and January 2015, the result of which has been disastrous Brain drain, and the wiping out of the middle class, leaving stupendously rich Leeches and rent-seekers at the top and an abjectly poor Nigerian masses at the bottom of the rung!

They did say only the "insane" will keep doing the same thing and expect a different result, yet some Nigerian economists pretend not to know the crippling effect of continuos devaluation of the Naira such that a currency at par with the US Dollar in 1983 is now N200 to a Greenback in the official market, and over N300 at the parallel market ( AKA Black market ) causing crippling "stag-inflation," demise of the middle class and continuous erosion in the living standards of Nigerians as earnings drop in real terms.

I want to advice Governor Emefiele, Finance minister Kemi Adeosun, and President Buhari never to succumb to the blackmail and antics of these foreign Buccaneers and their Nigerian accomplices, who call themselves "Economic analysts," but only out there to seek patronage for themselves without caring a hoot what the general public suffers in their deafening but irresponsible call for further devaluation of an almost comatose Naira. Forget about feckless "Arbitrage" argument. There has been arbitrage in every currency of the world the moment your FX Earnings cannot match you demand for imports. There has been Arbitrage leeches since 1986 when this devaluation misadventure commenced with General Babangida, at one stage in 1987/88 the arbitrage gap was 120%. Now it is been manipulated by same Nigerian elites benefitting from the rot, to just about 50% arbitrage window. The PMB government must continue to resist the mischievous and selfish call for Naira Devaluation at this stage. The antidote to a weak Naira as I pointed out in 1984 and want to restate in this article is production and innovative hard work for exports of goods and services for exports. Without that, and it doesn't matter if you devalue Naira at N400 to a $, the arbitrage gap in the parallel market will shoot up to N600 to $ because you are not earning enough to meet the import greed of a few.

In conclusion, I agree completely with the steps taken so far by Godwin Emefiele and the Buhari administration to "ban all the ban-ables and boycott all the boycott-able goods and services" previously thoughtlessly and recklessly imported into the country by a few unscrupulous business people .

Tony Ishiekwene ACMA; CGMA
CEO/ Managing Director, TIK Global ( Financial Advisors and

Management Consultants) Abuja, Nigeria; London, UK)
Email: [email protected]

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Articles by Tony Ishiekwene