Devaluation: My layman position – Part 2
Continued from yesterday
Service providers in whatever capacity look for the slightest opportunity to increase their prices with any increase in fuel, dollar tariff which are not usually commensurate with the items raised. Already, without an official declaration of an increase in the US Dollars, prices are beginning to sky rocket. Even orange sellers have increased their prices, much less, the organised sector that really needs the Dollar. This will definitely have a corresponding effect on the ability of the Government to execute its policies.
Yes! the Government may be able to pay off its local creditors but subsequent contract execution may not be achievable. For instance, if the price of a car the government intends to purchase right now is N4.5 million at the present value of the dollar, if the Naira is devalued, the price may increase to N6 million and the extra cash the government has would be useless became the unit cost the government would have been able to buy at the current exchange rate would be unachievable at the escalated rate. But how about the creditors themselves, the money is no longer worth what it was by any standard of measure because of the devalued currency and the corresponding hyper inflation. So who is fooling who? Hence work done is zero.
This is my argument. In the last 10 years or more prior to 2015, people had free access to Forex which they could acquire at seemingly reasonable rates. But how much investments did our would-be investors bring into the country. The normal habit of a typical Nigerian is to keep whatever proceeds he gets from his transactions abroad and then return to Nigeria to buy more dollars; make money abroad, keep the money there and return back to Nigeria to buy more dollars for his business. Sometimes, they only come back with enough money to change at the black market and buy more money from central bank for their transactions. The Nation does not necessarily benefit from their businesses. Most of them don’t even pay taxes on the transactions they carry out abroad. It’s a vicious circle to the detriment of the Government.
Secondly, a lot of companies that hide under the guise of importing machineries either inflate the price and cash in on the excess or end up changing the reason for their transfer and use the money for other things as soon as the funds have reached the destination. The truth is that there is a lot of scam going on in the forex trading.
I do not believe that an unorganised money sector like the Nigerian Bureau de change (BDC) which is popularly referred to as the parallel market should form the basis for assessing the value of the Naira. We are all aware that there are lots of ill-gotten wealth in hundreds of billions in people’s houses in Nigeria today. Since, they did not work for this money they are willing to buy the dollar at any price it goes for, hence, no matter the value, once they have a requirement for the Dollar they just buy at whatever the cost. It then becomes announced that dollar sold at X amount today. I think it will be unfair for a serious nation to benchmark the value of its currency on the type of arrangement in our nation.
In developed economies, the BDC are meant for tourists and not business men. People change the insignificant amount of money in this sector. However, in Nigeria, business men change millions of dollars at BDCs because they always claim they are not able to purchase the money from the commercial banks. I believe tax paying Nigerians who do legitimate businesses and engage in transactions and engage in services and goods not prohibited by the government always (at least in the past) get their moneys from the CBN. Check and you will observe that most investors complaining seriously don’t even pay tax and have not done anything to contribute to the influx of dollars into Nigeria to enable the CBN resell.
What I will encourage would-be buyers of dollars for business to do is also to look for how they can purchase local items and process them properly so they can export outside the Country and whatever they get from their proceeds is in turn, used to buy what they need for their projects. This would go a long way in reducing the pressure on the Naira. Also, Nigerians need to become patriotic in their thinking. A lot of Nigerians that have benefited from the System should also render their returns in contributing to the nation. For instance, Nigerians that were given oil blocks and other profitable ventures on a platter of gold end up buying super luxurious houses and estates in the UK, USA, Dubai Switzerland to mention a few instead of bringing back the proceeds back home to Nigeria, which would increase our FOREX earnings. These houses and estates are worth hundreds of millions of GB Pounds, dollars etc and would significantly boost our FOREX earnings. Instead, they keep their proceeds in investments abroad and still come back to Nigeria to struggle for the little dollars left at home for their luxurious conveniences, haba. Government needs to institute policies that will make local beneficiaries of our oil wells and other national collective ventures invest more at home. They got the wealth at home, hence, they should invest at home. Some people I know personally benefited from huge contracts in the last five years and never had any investment in the country. All their proceeds were taken out for further investment abroad. We all need to become patriotic.
To ensure that foreign investors keep coming into the Country, the Government needs to guarantee the safety of their returns. But they must be genuine investment and not the quick turnaround that does not put any form of development into the economy. I would even suggest that the kind of foreign investment we should encourage more are those that will help process our raw materials in Country, thereby creating jobs and for their returns they export. Hence they will not require buying dollars locally. Nonetheless, the investors that genuinely need to take their funds home should. But within the capacity of the economy. A devalued Naira will not generate more forex automatically.
The Naira/Dollar issue in my sincere opinion is just a game of wits. Given the present disposition of the Government where significant progress is being made to check corruption, the amount of excess liquidity within the country will be minimised and people will no longer be willing to buy foreign currency at any price. If the Government keeps its position on the Naira, and tightens its noose on how people can round trip the Forex, it’s just a matter of time that the dollar will begin to drop.
With all the noise of import and export and the need for money, all we need in life to survive is food and clothing. All these we can provide for ourselves locally. It’s about time our big men cut down on their expenditure and stop wailing at every policy of the Government that does not favour them.
Savok, a civil servant, is resident in Abuja.