President Buhari

By Bodunrin E. Folorunso

Your Excellency, Mr. President,  Gen. Muhammadu Buhari (GCFR), you are leading this economy into disaster and must take urgent and decisive action or else, the economy is doomed.

By your recent actions, as implemented by the Central Bank of Nigeria, you have depicted a lack of understanding of what it takes to manage the Nigerian economy, yet you have refused to listen to those professionals in your cabinet who do. We are all suffering for it while you claim to be fighting for the poorest Nigerians.

This is a particularly painful situation because I voted for you and therefore, I am partly responsible.

Firstly, Naira devaluation should never be the decision of any one politician and definitely not the President, the chief politician. This should be decided by an unbiased panel of experts with sound professional background in economics. This panel is usually resident in the Ministry of Finance and
the CBN. However, our current CBN governor, inherited from the absolutely incompetent and inexplicably corrupt PDP-led President Johnathan administration, has not only shown a deficit in integrity but a highly flawed approach to achieving exchange rate stability with an attendant overdevaluation of the Naira in the black market due to massive and unprecedented capital flight and extremely low investor confidence, both domestically and internationally.

It is so bad that the CBN has recently uncovered that its own directors have been misappropriating the nation’s hard earned foreign currencies (forex) to itself via allocations to CBN director-owned BDCs. Unconfirmed reports have also indicted the CBN in illegal cash withdrawals of massive amounts of forex from its vaults to fund electioneering in last year’s general elections, which exacerbated the current forex illiquidity crisis.

It is also sad that you, Mr. President, have not said a single word on the mishaps occurring in the CBN and the full devastating impact of their continued flawed forex policies and criminal activity despite your “fight against corruption” mantra.

Secondly, to devalue or not to devalue is actually not a “decision” to be taken solely by any government official because it is a market driven phenomenon. In economics, the supply and demand for a currency determines the value of that currency. If there is high demand for Dollars and low supply of Dollars in a certain economy, there is an immediate decline in the value of that currency against the Dollar. This is economic fact and is the case in Nigeria. Whether the President likes it or not, people will seek Dollars and other forex to fund their businesses in order to provide for themselves and their families. If the official window is shut, they will approach the interbank. If that is shut, they will approach the black market. This drives the demand at the black market to an unsustainable level that leads to over-devaluation at this segment, which is exactly what has happened in Nigeria today.

The reason for this phenomenon is the inelasticity of demand for forex. Inelasticity of demand is an economic term which means that no matter what, there is a need for foreign products for which only forex can satisfy.

Therefore, the demand is driven by the absence of local substitutes for the products and services purchased in forex.

When Mr. President says he will not devalue, who is he really serving? How many people can access the official market? Only the rich! These currently include petroleum marketers, commercial banks and a few manufacturing and heavy equipment importers. Even these companies cannot access the
market for their full consignments as the CBN cannot even meet demand at its official rate of N197/$1.

The rest of us, including the poor man Mr. President claims to be fighting for, have to go to the black market at N325/$1. Even PTA and school fees for our youth, the future of this nation, have to go to the black market as the CBN takes months to fund these eligible transactions which are usually only part funded after the long delay. So who is really enjoying this N197/$1 rate?

When Mr. President says the rich will pay more for banned imported goods as released by the CBN,does he first think, ‘Who are the rich paying for these goods?’ The rich are paying local companies that import these goods. These companies hire our fellow Nigerians and the poor in gainful
employment (directly and indirectly). Even toothpick importers have employees, Mr. President. If these companies cannot source forex from the black market or any market due to over-devaluation (expensive forex) or simply lack of supply of Dollars, they will simply close down as they would no
longer be able to satisfy the needs of the “rich”. So what then happens to the poor man in their employ? He loses his job. NLC recently alerted the Government that 3 million of such jobs are now at risk due
to the lack of forex.

As President Olusegun Obasanjo (GCFR) said in his book, Mr. President, you are highly inflexible as conveyed in your persistent refusal to listen to the advice of your own economic team to devalue the currency. This obsession with “not killing the Naira’, it is an erroneous philosophy. It goes like this, ‘If
you devalue, you will increase the price of basic goods in the market and therefore cause inflation and reduce standard of living of poor Nigerians.’ To test this philosophy, no devaluation must result in the opposite and improve the standard of living of poor Nigerians. Clearly, this is not the case. It is a
fallacious theory.

Let me explain, Mr. President. If you do not devalue, there will be no forex to the point that businesses will shut down and jobs will be lost in the economy thereby making the unemployment rate to sky-rocket. The poor will get poorer while the rich will simply put their planned investments in their bank accounts.

However, once you devalue, you not only increase the costs of
goods, but you increase the liquidity of forex in the market. This means there is more forex from portfolio and long term foreign investors who would bring their funds into the market and exchange same for Naira to invest in the economy and create jobs.

No investor will bring money into an economy when they are unsure of what value they will eventually come out at. A fixed price regime is not sustainable. So if you say you will not devalue, they simply will not believe you, there is no prayer and no explanation that will convince them that for 5 to 10 years,
typical investment tenors, you will not devalue your currency. That is simply untenable. Therefore, only by devaluation or revaluation of the Naira, i.e., a free floating currency regime, can Nigeria build investor confidence. To elaborate, devaluation brings investors and forex and indirectly saves jobs in
the economy. Devaluation can even grow jobs and investments in the real sector and money markets by creating finance industry jobs and real rector jobs. It is only jobs that can improve the standard of
living of poor Nigerians.

Even if the Naira was N1/$1 and all social amenities and security were provided, once a man cannot eat, he will die. Let me elaborate with an example. If you tell a poor man to choose between two outcomes: the cost of gari is going to remain constant at N10 per cup, despite economic realities, but
he would lose his job tomorrow or the cost of gari will increase from N10 per cup to N15 per cup but he will be given a raise in salary within six months, which outcome do you think he will choose? A fixed price without economic development will eventually be much worse than rising prices and economic
development. This is evident in Nigeria’s growing purchasing power parity over the years despite high inflation, i.e., our gross domestic income outpaced inflation, thereby improving standard of living. Real GDP per capita grew by 8.4% on average from 2011 to 2014 to $3,203 according to the World Bank
despite average inflation of 9.5% over the same period.

Mr. President is of the opinion that increasing prices, bought about by any devaluation of the Naira, will harm the poor man. But has inflation not jumped from single digit to 11.4% under your administration? Did you devalue the Naira during this period? No. So how do you explain why inflation
is growing? Very simple, Mr. President. Inflation is caused by excess currency in circulation and increasing cost of goods in the market. Remember that almost every product in Nigeria is import dependent in varying degrees. Either the input materials are imported, or the equipment used to manufacture the products are imported or the wrapper materials, or the wrapper ink, or the other packaging materials or the advertising or the technical support staff engaged to advise on the product design, market roll out services, etcetera are all imported and are therefore forex based. If the exchange rate devalues and the respective product import prices remain constant in forex, then the
cost in Dollars/Euros/Pounds will remain constant while the price in Naira will increase. If you then add the fact that you cannot even source the forex because of restrictive Government policy, then the price in Naira will go up more due to the time value of money. If a merchant cannot make a sale for 6 months
when he used to be able to make the same sale in one month due to the fact that he was waiting for forex, by the time he makes the sale in 6 months he would increase the price to recover the lost income. This is because the money received in one month is more valuable than that received in six
months. This is similar to fare pricing of a taxi driver. The taxi that moves around is always cheaper than the one in the car park because the one that moves around is picking up fares bit by bit at a faster rate while the one that sits in the park all day will try to make up for lost income on the passenger that
comes to him at the end of the day. So prices are going up because of imported inflation due to the strengthening Dollar and the slowdown in economic activity due to capital flight and the drop in oil prices. Therefore, if you did not want to devalue to curb inflation, you have failed, because there is already inflation.

So what is the solution? Devaluation alone will not reverse the economic trend but it will make it much better and save the economy from total collapse. It will ensure greater liquidity of forex and keep businesses running and jobs alive as trade will recommence in the economy. It will even keep fuel queues at bay as petroleum product importers will be able to open Letters of Credit and assist the NNPC, which has done all it can as the sole importer of petroleum products since the 2015 elections, when the forex scarcity started. Once you have devalued, or better, ensured a free floating exchange rate regime, you must now try to improve the demand for the Naira. Remember that the value of a
currency is a function of the demand and supply of that currency and a fixed exchange rate regime that does not take into cognizance this simple economic fact will immediately create a black market.

So if devaluation will save the economy from death, what will ensure its recuperation and eventual clean bill of health? Investment in Naira based industries. If a Nigerian can buy a Mercedes C-class 2016 model from Nigeria, where every single bolt, crew, engine and all other accessories and
component parts have been manufactured and locally sourced from other firms in Nigeria, at half the cost and 100% of the quality, why will that Nigerian import the vehicle at a higher price and in inaccessible forex? That is what I mean by Naira based industries. Promoting made in Naija products is good but you must expand this programme to what consumers are actually paying for, i.e., highly demanded foreign produced items. If what we demand in Nigeria are foreign clothes, you must encourage the private sector to invest in local factories that produce the exact foreign clothes with identical quality. This way, rather than import the clothes, we will buy it from Nigeria in Naira not forex.

So how do you get private investors to manufacture all the foreign goods we buy in Nigeria locally? Very simple, Mr. President. All government effort must be geared towards investment in real infrastructure which is the base of any manufacturing sector. Transportation – roads, rail and marine,
security, power, gas pipelines and commercial dispute resolution – law courts, enactment of enabling laws etc. Once these are in place, you must also have an educated and skilled labour force to man these manufacturing concerns. Graduates and non-graduates should be trained in the relevant skills
needed to man these concerns in order to provide the required skilled labour locally. The final bit of the puzzle is enabling legislation. Tax incentives like 5-year tax holidays and other investment incentives must be granted to local and foreign investors to spur fast influx of investment in local manufacturing.

This concept of import substitution via encouragement of investment in local capacity is not new. The economic boom witnessed in Indonesia, India and China was enhanced by the opening up of their economies to investment. These countries used sound exchange rate policies backed by economic
principles and focused investment strategies to get to where they are today. A telling measure for whether your exchange rate and investment policies are in tandem with international best practice is investor feedback. Virtually all foreign investors currently have little or no confidence in Nigeria due to
poor management of the forex policies by Mr. Emefiele and the CBN and your restrictive stance on Naira devaluation. Billions of dollars of potential investments are waiting for Nigeria, Mr. President, and these investments have been delayed due to lack of sound economic policies such as market
reflective exchange rate regime and removal of all forex bans and impediments.

In summary, Mr. President, you must wake up from your slumber and ideological approach to economics and listen to those who you have appointed and those who care about this country enough to voice our concerns on the management of the economy. It is not enough to fight corruption and
insecurity, you must also fight for investment in the real sector to create jobs and improve the standard of living of all Nigerians. You must fight for us, Mr. President, because we fought for you on Election Day, and we will do so again, whenever called.

To fight for the common man seeking to take care of his family, the business man seeking to invest in the real economy, and all citizens of this great country seeking a better life, you must urgently do the following, Mr President,

* you must immediately devalue the currency and establish a free floating
exchange rate regime;

* you must immediately invest in the real sector and foster local manufacturing
of all foreign products consumed in Nigeria with a 5-7 year target for full domestication of foreign products;

* you must immediately make a pronouncement setting up a Presidential Committee on the Economy that will establish an economic blueprint for Nigeria;

*you must immediately fire the incompetent, biased, corrupt and woeful CBN Governor and hire someone with a strong background in economics who has international clout to spur global investor confidence,

* you must immediately remove all forex restrictions imposed by the CBN governor such as dollarization of the economy and attendant sanctions, cumbersome export proceeds documentation requirements (especially in the oil and gas segment to retrieve billions of dollars now sitting aboard where they used to be in Nigerian banks), restrictions on the use of Naira denominated cards abroad and banning of certain items from the forex market;

* you must immediately address the nation on the economy and give solutions to the problems in a systematic and scientific way and finally, Mr. President,

* you must immediately start listening to your citizens, especially those who have a good economic background, in order to tap from our knowledge for the betterment of the Nigerian State, to which our loyalty is first and
foremost, and as OBJ said to your predecessor, as like a prophet to a king, ‘before it is too late.’

*Folorunso Bodunrin says he’ s a concerned citizen. He writes from:[email protected]