Let Us Talk About The Devaluation Of The Naira
By now, everyone must have heard or read the article on the Economist titled ‘Crude Tactics‘. The article focuses on the current situation in Nigeria and the stand of the President. It has caused an uproar, so let’s talk about the devaluation of the Naira and the hike in prices which have been affecting our daily lives from the late months of 2015.
There are important questions to go round the country, we should answer honestly and not based on ideologies.
Would the devaluation of the Naira help Nigeria, an import-dependent country?
Would the devaluation of the Naira boost local institutions to produce the required goods?
President Buhari’s decision to change the M.O of running the foreign exchange; ban on Bureaux de Change (BDCs), is this the way forward?.
President Buhari’s plan to drive the Nigerian economy to become an economy not affected by foreign exchange, can it be achieved in his administration?
Currently, the Naira sells for 306 against the dollar at the parallel market currently, the CBN still keeps the official rate at between 197 and 199. The matter has urged economists and former CBN governors to speak up.
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Ckukwu, said, “This position is not sustainable; the CBN will find it difficult to keep and preserve the naira in the face of falling forex income to the nation.We cannot continue like this as a country. Already, the CBN is no longer able to provide forex for basic raw materials and production inputs; this may lead to further factory closures. It is in our best interest to devalue now. ” Although this was disputed, he said
” Actually, naira devaluation is good for the economy; it will not hurt an import-dependent economy like ours the way some people have perceived it. When we devalue the naira, it will make some imported goods to be so expensive that some local substitutes will begin to spring up; this will help to stimulate domestic production.Again, when we devalue, it makes our exports as a country to be cheaper such that they will become more competitive in the international market ”
Renowned economist and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said a combination of naira devaluation and forex controls by the CBN would save the country.He said the naira-dollar official exchange rate, pegged at between 197 and 199, was not realistic, adding that there was a need for further adjustment of the official exchange rate.
A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, is of the opinion that a further devaluation of the naira will not be in the interest of an import-dependent nation like Nigeria. He said, “Do we have the products to export abroad if we are to devalue the naira? Devaluation will, no doubt, make exports to be more competitive in the international market, but we don’t have the products to be exported for now. This is why devaluation may not be good for Nigeria at this moment. China will allow its currency to be devalued because it has the products to be exported.”
Last year, the former Governor of CBN, Mallam Lamido Sanusi, said Nigeria needed to devalue the naira because the CBN might not be able to sustain its current forex control polices on the long run, especially in the face of the depleting forex earnings by the nation.
CBN Governor, Prof. Chukwuma Soludo, also said in a paper presented at a forum last year, said history had shown that forex restriction had not worked in many countries in the past.
Despite all this, President Buhari maintains that while export-driven economies would benefit from devaluation of their currencies, devaluation will only result in further inflation and hardship for the poor and middle classes in Nigeria’s import-dependent economy. He has likened devaluing the Naira to having it “killed”, and said that supporters of devaluation will have to work much harder to convince him that ordinary Nigerians will gain anything from it.