Sunday, February 21, 2016 4:14 pm
Okonkwo Peter Chigozie
The Nigeria economic space is currently being heated with two dominant forces of pro and anti Naira devaluation.
Though a competent Lawyer that can argue any case on economic indices, I don’t claim to be an Economist with expert authority in this matter.
I am weighing into this discourse as one of the privileged Nigerians that ran with the vision of our Leaders in mid-wiving the birth of All progressives Congress (APC) at the National Merger Committee of four political parties. All Progressives Congress (APC) Manifesto should be a factor of consideration in this ongoing discourse about devaluation of the Naira. Incidentally, I was the one that moved the motion for adoption of APC Manifesto at the National Merger Committee.
There are two major factors that rule in world economies: The Human Factors and the God Factor.
THE HUMAN FACTORS are vastly controlled by the forces of demand and supply stretching over all factors of human life. Supply of crude raw materials from developing countries and supply of refined/finished products from advanced countries. Supply of international monetary services by advanced countries and consumption of international monetary services by the developing countries. Under the Human Factor Indices, the forces of Demand and Supply rule over pricing in open market systems. This is pure elementary economics.
THE GOD FACTOR: The impact of this factor is evidenced in God blessing a nation with good and prudent leaders accountable to the people or cursing a nation with bad and foolish leaders accountable to their pockets and cronies. It also manifests through Godly peace within and among nations or war within and among nations; natural disasters rupturing supply of sensitive international commodities and natural tranquil enhancing flow of international commodities. It is a trite fact that the Supernatural-Being who rules over the kingdoms of men can enhance or rupture national economies. Permit me to relate these factors to our present dilemma over devaluation of Naira.
DEVALUATION OF NAIRA AS AN OPEN GRAVE
Nigeria runs a mono economy where its 95% Foreign Exchange earnings comes from export of Crude Oil. Our earnings in the international market and our Foreign Reserve derive 95% of its inflows from the sale of Crude Oil. Generations after generations of Nigerians shall continue to suffer until we get Leaders that will diversify our economy and also appreciate the need to have refinery capacity that can refine at least 80% of our Crude Oil, leaving out only 20% for export. Dear Nigerians, our Government establishing functional refineries either directly or through encouraged private sector is not a rocket science. This is doable within three years of any administration that can hit the ground running with this policy. (This shall be a story for another day).
The simple economic theory of the aforementioned is that Nigeria is unprotected and grossly exposed to any shock in the international Crude Oil market. If Crude Oil prices go up, we earn more for use and Foreign Reserve.
If the price of Crude Oil slumps in the international market, Nigeria slips into poverty overnight. As a consuming nation with bloated government structures in Local Governments, States and Federal levels and insatiable appetite for luxury, we will slip into poverty if Crude Oil price crashes to $10 per-bbl in the International Market. The three tiers of government will be incapacitated to pay workers salary and do other needful thereby triggering off unplanned revolution and chaos.
Our present predicament is that our current earnings in the International Crude Oil Market and Foreign Reserve are so meagre to finance the demand of Forex on our Central Bank. The Central Bank has an estimated monthly average of $3 Billion Forex demand while its capacity to fund is within an estimated monthly average of $1Billion leaving a shortfall of over $2 Billion due to incapacitation triggered by poor earnings in the Crude Oil market.
THE DEVALUATION OF NAIRA SCHOOL has argued that the current official exchange rate of N199 to $1 by Central Bank and the wide gap of N340 for $1 Exchange Rate in the Black market is unsustainable and bad economic policy. This school of thought has adduced the following reasons as supporting their demand for devaluation of Naira.
1. That devaluation shall trigger multiple in flow of Forex outside our Crude Oil sales.
2. That Devaluation will attract foreign investments into our economy.
3. That Devaluation will discourage huge demand of Forex on Central Bank.
4. That devaluation will reduce the gap between the official-rate and black-market rate thereby eliminating round-tripping in the system (criminal diversion of sourced official-rate to black-market Rate).
The aforementioned reasons though convincing, over-looked some inherent dangers and dislocations within our internal harmony as highlighted below:
1. Any attempt to devalue the Naira will automatically shoot up the prices of Petroleum products to at least N250 per litre of Petrol. Please further be informed that at N250 per litre of Petrol and the current poor earnings in the International Crude Oil Market, Nigeria cannot afford to subsidize these products. This will spark off catastrophic consequences that this new government cannot accommodate.
2. The Devaluation School of thought is yet to give us clear figures of the expected Forex earnings outside Crude Oil sales that will be triggered by devaluation of Naira. Please in clear figures, what are the expected earnings of Forex outside Crude Oil sales? These touted inflows are sincerely so negligible to make up for the chaos increased pump price of Petroleum products will trigger.
3. Can we say emphatically that once our Naira is devalued, there will be multiple inflow of foreign investments in Nigeria? The answer is capital “NO”. In a nation grappling with energy capacity of 5000 Megawatts, productions within our economy are simply not affordable. The cost of doing business in Nigeria is rocket high due to poor electricity supply. Security of lives and properties are equally a herculean task. The very day we get our country’s security network in order and equally enhance our electricity generation to at least 25000 megawatts, foreign investors will flock to our shores like locusts. Nigeria as the largest market in Africa with over 200 million people shall become investment haven once our Leaders can lead us out of darkness to glorious new dawn of light.
4. It equally begs the question to suggest that devaluation will automatically translate to reduced demand for Forex in Nigeria. As a consuming Nation with insatiable appetite for importation, even if you Devalue Naira to N700 to $1, Nigeria will still pile up demand for Forex even for the importation of toothpicks.
THE WAY FORWARD FOR MR PRESIDENT.
I was emotionally touched when President Buhari before United Kingdom audience told the whole world that “Nobody has sufficiently convinced me on why I should murder the Naira”. Permit Mr. President to add “Don’t dig this Open grave for Nigerian economy through this ill timed devaluation of Naira.” Any devaluation of Naira now shall be against APC Manifesto. The advanced economies stoking this fire of Devaluation of Naira through their proxies will never disclose to us their government’s interventions during Recessions and Depressions. They will not tell us the volume of subsidies to their farmers. They will not tell us the initial processes and level of their government interventions in transiting their economy from developing to advanced. They want us to behave like them and play to the dictates of open market variables not minding the dislocations such attitude will trigger in our local environments.
President Buhari is a blessing to Nigeria at this critical period of our history (Remember the God Factor at the beginning of this article). At a time when Nigerian leaders with thieving fingers allegedly siphoned $2.1 Billion meant for arms purchase to private pockets, Buhari is a blessing of leadership at the right time.
At a time when 80% Federal projects are abandoned after contractors in collaboration with thieving leaders have collected 90% of contract fees, Buhari is a blessing of leadership at the right time.
At a time when the costs of running Federal Government (both Executive and Legislature) can sufficiently service the Budget needs of three African nations, Buhari remains a blessing of leadership at the right time. Having sought to lead Nigeria in four previous elections since 2003, some have argued that President Buhari could have been President during our Oil Boom. I was quick to remind them that Davids of any nation arise to rescue such nations when Goliaths have defied it. Now is time for godly leadership over Nigerian. In ignoring devaluation of Naira, the following steps may be key:
1. Eliminate waste as noted above and drastically bring down the cost of governance in our country which is too high and unaffordable now. The Federal Executive should be able to administer Nigeria within the limit of maximum 12 Ministries/Parastatals appointing 12 Ministers with Portfolio and 24 Ministers without Portfolios to satisfy the demand of Section 147 of Nigerian Constitution. The 12 Minister with Portfolios should be shared out two per a geographical zone while the 24 Ministers without Portfolios shall function as over sight Ministers on assigned supervisory roles. The cost of legislative governance should also be drastically pruned down. The present cost going to National Assembly is scandalous and unaffordable.
The current Budget before the National Assembly is UNBuhari. It is noteworthy to observe that Mr. President has started addressing this anomaly with some disciplinary actions against the Officials that allowed this national embarrassment.
2. The Central Bank should maintain and strictly adhere to the current official Exchange Rate of N199 to $1 applying the economics of “Scale of Preference” and “Opportunity Cost” to the high Forex demand. The available monthly $1 billion being chased by over $3 Billion Monthly Forex demand should be disbursed in preference of the needful and forgoing alternatives. CBN should adequately block all leakages in Forex disbursement possibly eliminating fraudulent diversion of funds from official market to black-market.
Nigeria should now learn how to cut her coat according to the available clothe and then cut it according to her bloated appetite size when the price of Crude Oil rebounds in the International Market.
Barr. Okonkwo Peter Chigozie – OHAMADIKE [email protected]