Devalue to scrap the Naira – Part 1

Victor Odozi’s four-part serial on “Rescuing and defending the Naira” (The Guardian, May 23-26, 16) was quite interesting. But it fell very short on the key reason for the Naira’s beleagured condition by excluding the factor of corruption among “the driving forces behind the persistent depreciation of the Naira exchange rate…” while the expectations from its preferred option through “a merger at the prevailing CBN/interbank rate” almost border on utopia given the incredible abuse of the Naira (massive pilferage and money laundering) and systemic criminality in forex allocation and management within the banking system (CBN vs BDCs!).

Also, its “one single dose of devaluation cannot guarantee a stable and sustainable unified exchange rate regime” is a frightening recipe! The question is by what cumulative percentage will the Naira be devalued before it attains its realistic equilibrium level with USD? These and more issues are fuelling “Nairacide” more than “Naira pessimism”! And while it is true that the inelasticity of demand does not hold for luxury goods, the resultant “unduly high rise in prices” cannot be resisted by consumers for essential but non-luxurious items like medicaments for which there are neither local substitutes nor facilities for their local production. It will only exacerbate the broken-down healthcare delivery situation, give further fillip to medical tourism and accelerate the death of the poor, many for whom dying is already cheaper than living.

Moreover, while its view that devaluation should be only one of a mix of the outlined integrated fiscal and monetary policy reforms is very correct, the practical difficulty of implementing the other critical elements of those policy reforms (including removal of import controls!) in a prostrate economy will doom its outcome as it was with SAP. SAP was a benefit-for-injury economic paradigm that structurally short-changed Nigeria by giving virtually everything to the rest of the world (devaluation, liberalised moneyflows and importation) in return for injury (massive capital flight, money laundering, double-digit inflation and interest rates, infrastructural decay, de-industrialisation, explosive unemployment, nominal growth without development, etc).

A fundamental problem in governance in Nigeria is not only that few ministers and technocrats have private-sector experiences but also hardly test or check the realism of such policies with market-place realities before they are promulgated and/or review such policies periodically. This has always generated the chasm between the governments and the governed. The Nigerian Economic Summit Group has apparently become tired of giving ignored advice to the governments. Also this writer commented on the 2012 Budget Proposal by the former Finance Minister thus: “ The prevailing level of heightened opposition among Labour activists and tension among the lawmakers that greeted the submission of the budget proposal confirms that managing Nigeria’s economy in the next four years requires all the skills, diligence and care that an experienced medical doctor provides for an intensive-care patient to prevent him/her from slipping into coma that can be very taxing on the infrastucture, doctor, patient and the carers.” (The Guardian, October 17, 2011). Did the regime bother? Has the economy now not slipped into coma?

In the last few month, Nigerians have been daily regaled with heart-breaking accounts of uncountable events of not only outright stealing of Naira obtained at the official exchange rate through the Federation Account by government officials but also money laundering activities on mega scales involving conversion of Naira to USD at ridiculous rates and vice versa for illicit local transactions. This systemic battering of the Naira generally rendered the CBN’s “Omo” activities sterile, paralysed the effectiveness of its monetary policies and induced their mis-match with fiscal plans for several years.

Hence, whatever exchange rate has been ascribed to the Naira vis-a-vis other hard currencies has been artificial as inadequate measures of the output of the Nigerian economy in exchange for goods and services produced by other economies. This is what bred “Naira pessimism” that has wreaked the economy. Hence a push for its devaluation now on top of its reckless undervaluation over several decades may undermine its survival.

A former President once publicly boasted : “The Nigerian economy has disproved all economic theories”! By this he implied that the economy was still strong despite the massive pillaging inflicted on it that should have sent it crashing! But that was because the earnings from crude oil exceeded the quantum of pillaging at that time.

This was similar to Muhammad Ali’s sober post-“Thrilla in Manila fight” in 1975 : “ You know I almost gave up in the seventh round because walls have fallen under the weight of the blows I gave him (Joe Frazier), but the man kept standing!” If Joe Frazier is still alive today, can Ali survive five seconds with him given his health condition which originated from thousands of blows in the boxing tournaments, including those from Joe Frazier? The Naira is in the same condition with Ali’s health situation after many decades of wanton abuse especially when the quantum of pillaging started to exceed oil earnings.

Although the Naira still nominally performs two out of its four critical functions as a medium of exchange and a measurement of value, it has failed woefully as a standard of deferred payments and as a store of value. Even its functionality as a measurement of value is questionable, given what Professor Dotun Philips asserted to be its “nominalization” after SAP! These are the key reasons why Nigeria’s leaders, entrepreneurs and wealthy people mostly hold their assets in hard currencies. We have only got a glimpse of the Panama papers; we have not reached Cayman islands, Liechtenstein, or Bermuda among other “safe havens”! This scenario cannot change until the Naira is freed from the yoke of corruption which has been systematically devaluing it and all the efforts to stabilise and grow the Nigerian economy in real terms will remain sterile and futile.

Normally when a man suffers from high levels of glucose or bad-quality fat in the blood, he is advised to refrain from consuming nutrients that are rich in these substances. Thus a person with these health conditions who ignores such advice is definitely accelerating his journey to the mortuary!

To be continued tomorrow
Okunmuyide wrote from Lagos.