A close study of our recent economic history would suggest that the present policies adopted by government, particularly with regard to Naira devaluation, and fuel price increase, are not different from the same strategies that triggered the oppressive serial abuse of the Naira exchange rate in the era of former President Babangida and sustained Nigeria’s steady slide in the rankings of the World’s poorest nations. Invariably, therefore, the ill advised rehash of those same options to resolve our present economic logjam will unwittingly deepen our poverty.
“An Economy on the Brink” was earlier published in this writer’s columns in the Vanguard and Daily Independent Newspapers in March 2009. I hope you find the unfolding feeling of dejavu in the following summary rather disturbing. “The global recession has been made a scapegoat for our failed economy by our leaders.
They expect Nigerians to forget that the economy has underperformed in the last decade or more, despite our abundant agricultural and mineral resources, particularly, our enviable fortuitous revenue from higher crude oil price since 2005, when export income quadrupled in dollar value. Inexplicably, in the same period, rising unemployment, abiding double-digit inflation with undignified consequences for all income earners, and reduced industrial capacity utilization became our grim harvest.
Invariably, the defective structure of our monetary framework and fiscal allocations guaranteed that we became poorer even when we earned our best ever export dollar revenue surplus. Regrettably, the CBN Governor had always insisted that the failure of monetary policy was the product of government’s unfettered “expansionary policies”! In other words, according to this logic, if government and MDAs did not have much money to spend, the economy will fare better; i.e. interest rates and inflation would fall, and industries will thrive and employment rate will also improve! Surprisingly, however, certainly against CBN expectation, the present relatively paltry fiscal allocations due to the collapse in oil price coexist with higher interest rates and inflation with no respite on increasing unemployment and industrial collapse!! It is worrisome, that, by its action or inaction in certain matters, government appears to be consciously providing the fuel to drive our economy faster down the slope! First, let us briefly examine the impact of government’s ‘deliberate and strategic’ devaluation of the Naira by about 25% since November 2008! We recall the CBN Governor’s confident boast that present value of reserves would provide imports demand cover for over 30months, even if we did not earn a single dollar more to supplement the current $63bn plus reserves.
In other words, the Naira could remain stable at around N120/$1 for 30months hence, even if crude oil price fell to $1/barrel! Regrettably, the 25% drop in Naira value just three months into the global recession must be testimony that earlier promises of Naira’s enduring stability were clearly deliberate misinformation. However, despite CBN’s assurances that the sudden devaluation was well thought out and calculated to save the economy, the reality is that our people have suddenly become disempowered victims of rising prices with significant loss in purchasing value of all Naira income earners. Householders have since made belt-tightening and harsh adjustments to their consumption and family welfare.
Indeed, labour may increase their demand for the earlier indicated minimum wage of N50,000/month, which was computed on the basis of an inflationary rate sustained by a Naira rate of less than N120/$1. The expected purchasing value of future pension payments has suddenly become demolished by Naira devaluation; sadly, if Naira depreciation persists, it would make contributions to pension funds or indeed any form of savings totally meaningless.
Instructively, economists will tell you, however that a depleting savings culture is bad for investment! Furthermore, industrialists have also inherited higher imported raw material costs, which will inevitably lead to the need to supplement working capital with loans at over 25% interest rates! The net effect of these oppressive burdens will be much higher product prices and more hardship for consumers. Ultimately, possibly inferior imported price competitive goods, would degrade public demand for made-in-Nigeria products and ultimately demolish local businesses to trigger massive download of workers into an already saturated labour market with obviously grave implications for security of lives and property! The impact of devaluation on infrastructural development is also equally unpalatable.
Invariably, all local governments, states and federal budgets were predicated on an exchange rate of about N125/$1! The inflationary spiral instigated by government’s deliberate devaluation would mean that allocated funds may just be sufficient for only recurrent expenditure as there may be little or nothing left over for application to such critical areas such as health, education, transportation, etc; consequently, the social welfare of our people will inevitably be severely compromised! Similarly, the impact of government’s avowed deregulation of the downstream sector on our economy deserves a closer evaluation.
I recall the ardent prayers of the Managing Director of the Nigerian National Petrol Corporation (NNPC) during Obasanjo tenure, that crude oil prices would tumble from the Olympian heights of $100 and above so that domestic pump price of fuel will fall and preempt attrition with labour, and the civil society. Well, in answer to this prayer, crude prices have now crashed to about $40/barrel, but inexplicably, the pump price of petrol will invariably rise rather than fall, despite low crude price, if government goes ahead with full deregulation. Consequently, if rising or falling crude prices both mean higher domestic price of fuel, then, we should recognize that there is something fundamentally wrong, particularly with a monetary policy framework, which propels the Naira exchange rate towards further depreciation even when we earn more export dollars! Indeed, with such a framework, any devaluation of the Naira would cancel out any benefit from a drastic fall in the price of crude oil.
In this regard, it is revealing that, Nigerians did not enjoy lower petrol price even when crude prices skyrocketed beyond expectations, because the Naira rate which should have improved commensurately as a result of increasing dollar revenue, inexplicably, remained stagnant and resistant to improvement. Regrettably, government’s monetary policy teams preferred to knowingly, erroneously describe the Naira rate of exchange during those good times as stable and Nigerians applauded their economic wizardry! There is now a margin of over N30 between the official and parallel market Naira rates and this can only lead to further devaluation, which, in turn, will lead to higher petrol prices locally, even if crude prices fall! If, on the other hand, crude prices rise simultaneously with depreciating Naira, then, deregulation will surely fail again, and we may well sing ‘Zimbabwe, here we come’!” The above article was written after the 25% devaluation in 2009.
SAVE THE NAIRA, SAVE NIGERIANS!
Vanguard
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