President Obasanjo, woken up from his night of long knives which saw the exit of his chief economic adviser and must now face the Naira question squarely just like Tony Blair is doing joining forces with the Euro. The CBN Governor and all bank executives in Nigeria for reasons other than economics say the Naira must follow its sliding path ad infinitum. Notable public affairs commentators like Pat Utomi, Emmanuel Ijewere and Rasheed Gbadamosi have added their 'power' voices to the Naira devaluation band wagon. This, in the last two years is what the President who lays no claim to being a Wall Street or City of London economist find confusing in understanding the Nigerian economy. Now that all sectors of the economy are crumbled in 15 years of unbridled devaluation, it is apparent that alternative policy has to be charted.
In this direction, all advocates of Naira devaluation are challenged as wrong and out of touch with global trends. Tracking worldwide foreign exchange trend from the Financial Indications pages of the Economist since 1999, points the Naira out as the only currency that has devalued by 50 per cent, except the Turkish currency which fell but recovered. Dr. Utomi and Ijewere can dare me to a television debate on this. The big question is why the Naira movement is stupidly against world trend?
The answer is this - the kind of IFEM formulas that create this sort of rapid devaluation work not because they express some inexorable economic law but because all banks agree that they work. They are expression of deals of the mind which all banks have always by tacit consent chosen to honour. If the banks change their mind which they adamantly refuse to, the stupid devaluation will disappear in a moment.
The slight appreciation of the Naira recently under the very conditions said never to give rise to a strong Naira is a clear corroboration of the above conclusion. Records of IFEM Naira movements since 1986, show the Naira to have devalued at the average of 12 kobo, that is , one thousand forty- five times but gained value at the average of 3 kobo which is one hundred and sixty five times. This loss happy but gain shy phenomenon is out of sync with global practise of forex management and it is only possible in a bastardised market that the IFEM is.
The Naira is the blood that runs in the vein of the Nigerian economy. Since the body can only be as healthy as the purity of the blood that runs in the vein, a devalued Naira that defies economic law can never maintain a healthy economy. This is why foreign exchange management right from the gold standard to today’s floating regime are closely watched by well meaning governments. European nations which used it as a tool to get trade advantage over their trading partners by making their exports cheaper gave it up, as a reprisal devaluation to get even was the response. Devaluation brought disgrace to governments in the domestic economy which is why the 1967devaluation of the pound was the worse ever suffered by that currency that led to the fall of Edward Heath in the U.K. On a sound economic basis therefore, devaluation is never a tea party but a serious business the citizens and government ignore at great peril, which is what we are doing now.
This brings to the fore why we devalued the Naira in the first place. It all began in 1985 or there about when experts' conclusion from the Babangida induced IMF debate was that we have to devalue to reduce import and increase home production and exports. In one of the debate sessions at the Institute of the International Affairs, Victoria Island, Lagos, I asked Gamalliel Onosode what is there to export besides oil. One did not get an answer. Today, the chief is completely silent as happenings contradict his postulations. Exports outside oil are down to near zero level but imports have increased with quality reducing daily. This is the tragedy of our experts, the Messrs Utomi, Ijewere and R. Gbadamosi who dominate the NICON Hilton Abuja economic forums, presenting their functional illiterate economies which now stare them in the face.
The low Naira value poses a serious psychological trauma. Our labour, enterprise and creativity are intolerably valued a hundred plus points below the minimum world average. This has led to drastic fall in living standards for the hardest working professional, worker and businessman. We are forced to put up with goods those we are better of in Europe and America have thrown away. That is why doctors, engineers and highly skilled peopled migrate abroad to do less challenging and minimal jobs just to earn foreign exchange. A socially responsive government must not take this as a normalcy that must be sustained.
It is ridiculous that the Naira is weaker than the Liberian and Sierra-Leonean currency by several units. This anomaly is likened to the Irish pound getting stronger than the British pound or the Cambodian currency getting stronger than the Japanese yen. This can never be a possibility, if the government is to remain in power. This strength is measured from the base year 1986 when we started devaluation because our experts are fond of saying that, after all, the Japanese yen is 120 plus to the dollar.
The reality is that the current 120 yen to the dollar is an appreciation because it was 220 yen to dollar in 1986.
Another observation is that the Naira is the only currency in the world that is valued solely by government spending. Government budget spending induces instant devaluation but a hold on government spending never does the reverse of instant appreciation. Sound economic measures of currency values worldwide however aggregate the following baskets of fundamentals: The Balance of trade, the Balance of payment, surplus, deficit and balanced budgets, the price of the main forex earner, in our case, oil, stable political environment and the credibility of men running the government. These composite factors have not deteriorated terribly but have in fact improved, yet are not reflected in the Naira value. This is why the Naira value is completely out of sync with world trend. It also leads to this hypothetical but very possible question what would be the fate of the Naira if the price of oil falls to an all time 10 dollars per barrel and our oil fields are damaged? Would the Naira then be valued at 10,000 to a dollar?
The President must now ignore the silly past and defend the Naira as Bush, Tony Blair and Gerard Shroeder would defend the dollar, the pound, the D. Mark and Euro respectively. The political philosophy is simple and straight forward. If a piece of cloth like national flags are defended at all cost, the Naira that gives meaning to our economic well being is worth our greatest defence. This is the universal practise responsible nations the world over adopt. It must not be ignored in our time.
November 2001
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