President Buhari has refused to give an inch in his rock-solid determination not to devalue the naira. Unsurprisingly, this has earned him critical opprobrium among professional neoclassical economists and others knowledgeable in the links between exchange policy and economic growth and corruption. This much was revealed in his recent Al Jazeera interview and discussions among many Nigerians. To many the president’s foreign exchange policy does not make economic sense. But is that really true? Let me offer a perspective that will shed some light on the sense and sensibility of the president’s “stubbornness” with regard to devaluation.
Before I do that I would like to state upfront that if I were the president or his minister of finance I would take the easy and tested neoclassical economic approach to the management of the Nigerian economy.
It could deliver quick results and boost the confidence of investors, within and without. Having said all this, I would like to add by saying there is a path to robust national economic development through the president’s intransigent exchange rate policy. Alas, it is an arduous path. I am not sure if the president (one-term or two) or Nigerians have the time and patience for the road he has chosen to bear sufficient dividends.
This is not his only problem. The main challenge in my thinking is that the kind of exchange rate policy Buhari’s government has decided to pursue requires a more comprehensive policy framework to uplift our national economy than has been presented so far. I have not heard the president’s men and women articulate such a multi-edged policy regime, which will be largely market-driven, integrally endogenous, and patently patriotic. The economic minds in Buhari government may think they are on a good path to economic Eldorado, but the path will prove to be very fragile if they do not immediately forge and implement a robust set of policies and programs undergirded by a well thought-through social philosophy. It is within such a cohort of policies and programs that his current exchange rate policy makes eminent sense.
Buhari’s exchange rate policy makes good sense in this four-pronged national financial management framework. It is one that pursues value integrity, value solidarity, and value subsidiarity as my late friend economist Ashikiwe Adione-Egom would put it. By this he meant that the currency, financial, commodity, and industrial markets must be consciously linked and administered to yield endogenous growth.
First, it is not enough to reject the devaluation of the naira while it is depreciating in the currency market. There must be economic policies that are in place to give value integrity and constancy to the national currency. Second, the government needs to find a way to mobilize savings through its monetary and financial policies and distribute such via the market to industries to aid long-term investment.
If the Buhari government and CBN want to continue with their current exchange rate policy, then they need to have monetary and financial policy regimes that will be in financial solidarity with Nigeria’s development. Solidarity implies that the monetary system is channeling medium to long-term savings instruments at low interest rates to the industrial markets to grow local content in manufacturing and spur endogenous development.
If the government and its CBN governor cannot show us how the financial system is (or will be) solidly connected and committed to the industrial and productive sectors of our nation, then, I am afraid, all the current talk about endogenous development will amount to underperformance. Frankly, this is why I maintain that the path the president has chosen is a fragile one—nonetheless, workable. Not that his nationalistic approach cannot lead the economy to prosperity; the problem is that the amount of work required to get us there is daunting. Besides, the president would need experts who are not only trained in orthodox neoclassical economics, but also in heterodox economic theories.
The third major policy focus will be the development of a network of regional commodity exchanges that will channel commodities to the industrial and consumer markets even as they provide better decision-making information for farmers and merchants and enable them to efficiently buy and sell their goods. Of course, for these regional commodity exchanges to work we have to also develop a system of commodity banking.
Now, we have come to the final arm of the four-pronged approach to the kind of patriotic national economic management that Buhari is gesturing to but have not yet fully articulated. The president needs to put in place policies that will enable and empower people to use the resources available to them in their regions, states, and rural areas to create jobs for themselves. Nigeria’s ability to generate this kind of endogenous economic development that will accent value subsidiarity depends on sound (and patriotic) currency and financial markets.
Egom would put it this way: A goodly operating currency and financial market reticulates jobs to all economic regions, spreads industries around, and encourages productive activities from bottom-up. Such currency and financial markets do not encourage economic activities to be concentrated at cities and urban centers when they could be best carried out in rural areas. Besides, economic activities are not to be allocated in the cities or urban areas to the detriment of rural regions.
Buhari has high patriotic hopes for our country but his policy of rejecting the devaluation of the naira at this time in order to spur endogenous development may not enable him to quickly realize his lofty dreams within the current parameters of our national monetary-financial systems, which are oriented towards the outside world. The monetary-financial systems of our economy are not resource-conserving and are hostile to endogenous economic development. They cannot usher in a robust environment that can create and sustain symmetry and evenness in the distributing growth, jobs, goods, and services across the sectors and regions of country. The monetary systems have not wedded the financial circulation of money (savings in the banks and stock exchanges) to industrial circulation (money-capital financing production, industries, commodity exchanges, and long-term development projects). All these will need to change if the president is to succeed in his chosen challenging course.
President Buhari has made a clear choice about the kind of national currency management style he wants to use. His choice is not atavistic or unthinkable as many of our so-called experts have argued. His problem lies elsewhere and it is threefold. First, he is gesturing to a drastic change of economic direction and orientation that the nation may not be ready for at this time. At least, the government and APC have not sufficiently prepared the citizens for it. Second, his economic savants and strategic communication experts have not been able to clearly articulate the robust policy framework within which the “stubborn” exchange rate policy sits. Third, the government has not articulated the kind of social philosophy and social-justice vision that will energize Nigerians towards the economic future he is frantically gesturing to. As long as this set of challenges remains whatever goodness he intends with his exchange rate policy is at best very fragile.
What I have done in this essay is not perfect, but it serves to nudge President Buhari’s ideas and reflexes towards a systematic economic framework in order to reduce the fragility of goodness in his exchange rate policy.
-Wariboko is the Walter G. Muelder professor of social ethics at Boston University with specialization in economic ethics.
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