Naira devaluation proponents got it wrong
“Arguments sometimes are pretenders “ – Plato
The arguments adduced by self-styled economic experts or analysts who have been advocating for official devaluation of the Naira exchange rate vis-a-vis the U.S. Dollar and other foreign currencies is worth challenging. This is because when untruth or ignorantly expressed opinions get repeated, it is capable of wearing the garb of truth. The truth of the matter is that most of these so-called economic experts have failed to practically apply economic theory, which is general concept, to the specific Nigerian domestic economy with a view to solving the nation’s economic problems.
That brings us to Prof. Otonti Nduka’s observation more than 40 years ago. My University of Nigeria General Studies 207 ( Humanities) 1975/1976 edition had extracts of his book: Western Education And The Nigerian Cultural background, Chapter VII, On Moral Education. In that chapter, he made an attempt to describe “some of the changes which contact with the West has brought about in indigenous system of values.
As has been shown , the contact between Nigeria and West involves the juxtaposition not only of physical aspect of Western and Nigerian cultures but also of values which the two cultures upheld. Since the Western was the more dominant culture, and since by and large everything European was claimed to be superior to its counterpart in indigenous cultures, the Europeans set out to teach the natives a new system of values. In their eagerness to acquire Western cultural innovations, Nigerians often grappled with ideas and practices they ill-understood and whose underlying assumptions they would have repudiated if they had understood them.”
One of such Western-induced ideas through International Monetary Fund (IMF) and World Bank is the concept of currency devaluation as a panacea to revamp Third World economies of which Nigeria is the main target. Their foot army are local intelligentsia who are either opinion leaders or people in authority and of influence in government.
Their thesis has always been that you devalue currency to boost exports. Because most developing countries in Africa are in dire need of earning foreign currencies via increased exports, they fall into this trap and unwisely devalue their currency when they neither are neck deep into export nor do they invoice exports in their local currency. We will come back to this point later.
In the case of Nigeria, we were asked by the IMF in 1986 during the regime of General Ibrahim Babangida to de-regulate our financial system, de-regulate foreign exchange market (which was fixed at that time and strictly regulated) and devalue Naira to revamp our economy that was suffering from balance of trade dis-equilibrium by leaving exchange rate of Naira to Dollar to be determined by market forces of demand and supply.
At that time, Nigeria was pursuing import substitution as an economic development strategy to grow small and medium enterprises that were mainly into manufacturing all over the major cities of Nigeria. We also boasted of vehicle assembly plants in Lagos, Ibadan, Enugu, Kaduna and Bauchi rolling out heavy duty trucks and cars. With deregulation in 1986 and devaluation of Naira by General Ibrahim Babangida-led Federal Government, the Nigerian economy collapsed as a result of devaluation of Naira which made Naira content of imported raw materials to grow astronomically and unaffordable by most manufacturing outfits. We failed to see that devaluation of Naira is a trap by Breton Woods institutions to keep developing countries perpetually underdeveloped by weakening the purchasing power of their currency in world trade arena.
The question is: If Nigeria does not devalue the Naira what will happen? The answer is nothing, as long as Federal Government does not approach IMF or World Bank or other multi-lateral Bretton Woods institutions for credit or support. Maximum ruler General Sani Abacha did not devalue Naira but instead kept the value vis-a-vis US Dollar fixed at N86/$ for the most part of his regime. All that happened was talk, but nobody even threatened to wind up Nigeria – sorry, sanctioned Nigeria for not devaluing Naira.
Why was that the case? It happened because exchange rate does not depend 100% on market forces. There is a political element to exchange rate determination. Thus the government of every country to a large extent maintains exchange rate at a level that is to the best interest of her citizens and the economic units.
Apart from that, currency devaluation is a strategy or tool used to expand market share in international export market for those countries that invoice exports in their local or home currency. Why should U.S. be hostile to China or Japan when Yuan and Yen are devalued and not Nigerian Naira? U.S. does so to protect its local manufactures because Chinese and Japanese goods compete favourably with that of U.S. in quality terms so there would be a shift away from American made goods to Chinese and Japanese goods when Yuan and Yen are devalued. Nigeria is not a threat to world trade that is why they want us to devalue our currency.
Our so-called economic experts who are proponents of Naira devaluation should put on their thinking caps. Nigeria’s major export is crude oil of which the price per barrel is fixed by OPEC and invoiced in US Dollars. If we devalue Naira will that make Nigeria’s crude oil cheaper in the international market?
Unfortunately, Nigeria has remained undeveloped because our intelligentsia who are in policy making positions have failed to apply their foreign acquired knowledge to solve domestic problem to the benefit of the country. They remain brainwashed by foreign theories and values which Prof. Otonti Nduka observed more than 40 years ago.
We should not only buy made in Nigeria goods and services to survive the present economic condition, we should also think about what is in the best interest of Nigeria. President Muhammadu Buhari has asked the right question to proponents of devaluation: What will Nigeria benefit from devaluation of Naira? The so-called economic experts have not come up with a convincing answer.
The decision not to devalue Naira remains the best decision.
• Enyinnaya is a Fellow of the Chartered Institute of Bankers.