To devalue the naira or not

THE above was the subject of a colloquium conducted by The Cable, an on-line publication on Thursday, February 11, 2016 at the Civic Centre in Victoria Island, Lagos. The last paper I did on this matter which had the caption: ‘Devaluation is not the panacea’ was generously published and attracted comments from across the spectrum of this country. The panelist for the colloquium included the Edo State Governor, Comrade Adams Oshiomole as the lead discussant with Moses Tule; Director Monetary Policy Department at the Central Bank of Nigeria, Bismarck Rewane, Chief Executive Officer of Financial Derivatives, Comrade Isa Aremu; Deputy National President of the Nigerian Labour Congress; and Muda Lawal, the Director General of the Lagos Chamber of Commerce and Industry who was represented at the event by the Director of Research at the LCCI, Dr. Vincent Nwanem. Frank Aigbogun; founder and publisher of Business Day newspapers was slated as the moderator of the colloquium.

In his opening remarks, Simeon Kolawole gave expression to his distraught with regard to taking a stand on whether to vote for the devaluation of the Naira or not. But Just like with any matter under consideration, there are merits and demerits and what ultimately matters is the tilt of the balance; and as Simeon observed, the problem with devaluation is that there are no guarantees but only expectations! A logical consideration of this matter would support this conclusion. For instance, who says that we shall experience accretion to our reserves if we devalue as is being proposed to attract external inflows? Is it not logical that even as we take this step, the attitude will be that of wait for further inevitable devaluation to follow before any move is made?

The Lead discussant, Comrade Adams Oshiomole was vintage as he deployed and unleashed as usual native intelligence in leading discussion. He asked rhetorically that if the Naira was on trial who was taking the Naira to court; who were the prosecutors and who were the defenders? He promptly concluded that those prosecuting the Naira and wish to stampede the Country to follow the devaluation route are the investment bankers as well as currency speculators which particularly includes foreign-based portfolio investors, hedge funds manager and their supportive rating agencies etc. who more often than not take a position based on their received intelligence on the matter and would proceed to act in any manner to possibly bring about the fulfilment of this forecast. For me the punch line was the observation by the Comrade Governor that if devaluation was the answer we would still not be discussing it as a way out today referring to the fact that the Naira had been consistently devalued commencing from mid 1980s following the introduction of the Structural Adjustment Program and we are still here today discussing its desirability.

Oshiomole also decided to wear his labour leader cap when he observed that devaluation will impoverish further the working class who would be waiting to ask for wage increase should the country attempt to succumb to the decision to devalue. He therefore jocularly concluded that he will queue behind his commander in chief, President Muhammadu Buhari as well as the Central Bank in voting against devaluation. And when towards the end of the colloquium the discussion veered towards which rate of exchange should guide decision-making in the country, he argued that the real economists are the market women in his village who do not care a hoot about such niceties as they pursue their daily activities.

Moses Tule in his intervention observed that devaluation is sound economics when the fundamentals are right. He was here alluding to the fact that devaluation in some countries had been adopted to boost productivity to increase market share as was quite recently experienced when the Chinese attempted to devalue their currency and the Americans were up in arms cautioning that such moves could precipitate competitive devaluation which is not good as it offends the core tenets of World Trade Organisation in its efforts to ensure trade and commerce is not impeded in any manner whatsoever. But when the issue arose as to which rate should drive economic decisions in the country between the interbank and the parallel market rate, the matter should have been properly closed by referring to the volume of business which goes through each channel.

The representative of the Lagos Chamber of Commerce and Industry in his intervention bemoaned the fact that what we are currently experiencing is uncertainty instead of risk with regard to the frequent changes of policies. And that their membership is in the business of managing risks not uncertainty. But we have a crisis in our hands and to a large extent it has become a game of wits between the regulator and the operators. And therefore all concerned should strive to adjust and come to terms with the situation as it is today which we hope would stabilise before long. He as should be expected alluded to the 43 items which have been exempt from access to official foreign exchange announcing the fact that operations are being wound down as a result resulting in massive job losses and that their members are generally handicapped for lack of availability of foreign exchange to carry on their business at the desired level.

When it was time for Bismarck to make his contribution I empathized and was full of compunction considering the trend of discussions and his well-known stand on the imperatives of devaluation. And when he did make his presentation, the pressure which he was under was palpable but he still managed to put in word regarding the fact that there is misalignment on the rate of exchange as it is currently and that there is a need for a policy for the management of the exchange rate whatever that means as I understand a policy to succinctly mean what objectives to pursue in this respect as well as the strategies to support their attainment. It is difficult to have a policy for a matter which is not entirely under your full control. We hope that the reported decision reached by Saudi Arabia and Russia regarding freezing production at the January levels would be supported by all concerned so that we might enjoy some respite as prices firm up so we commence the process of rescuing our lives which is currently dominated with developments at the foreign exchange market underscoring the profligacy and general mismanagement which had defined policy making in Nigeria.

Dr. Chizea wrote from Lagos