Mandatory currency devaluation ruins a nation, says Ogbimi



Francis Ogbimi is a professor of Technology Management at Obafemi Awolowo University, Ile-Ife. He spoke with Roseline Okere on the need for Nigeria to be self-sufficient in petroleum refining.

The Naira exchanged 194 units to one Dollar in the official market up to the month of May, now it is exchanging about 300 units. Is devaluation of the Naira the way forward for the Nigerian economy?
No! Mandatory currency devaluation ruins a nation; it is not the way forward for any nation. The Nigerian Foreign Exchange market today is indeed a continuation of the Mandatory Foreign Exchange Market that was introduced to Nigeria as part of the Structural Adjustment Programmes (SAPs) introduced to African nations by the World Bank and IMF in the 1980s.

A mandatory devaluation is one done under the pressure of the scarcity of foreign currency in a nation. Germany was the first nation to be forced to adopt the German SAP in the period 1919-1923. Germany lost World War I to the Western Allies. The Allies demanded $33 billion from Germany as war reparations.

Germany could not pay. Consequently, the Allies forced Germany to sign the Versaille’s treaty, which contained the mandatory currency devaluation progamme.

That was the German SAP. The German Mark had exchanged 4.2 units to the Dollar in 1918 at the end of the war. The German SAP started in 1919. One year into the German SAP, 1920, the German Mark exchanged for 63 units to the Dollar. In 1921, 200 Marks exchanged for one Dollar.

In 1922, 2000 Marks exchanged for one Dollar. By 1923, the German Mark collapsed, 4.2 trillion Marks exchanged for one Dollar. The German economy and the machinery for fighting the war were destroyed.

The Germans and Germany, a world power were destroyed. The Nigerian SAP, which began in 1986 was forced on the nation by indebtedness to foreign creditors. The Nigerian experience 1986 to 2016 may be reported as follows: In 1985, the Naira exchange Rate (Naira/Dollar) was 0.89. That is, one Naira was equivalent to 112.4 Cents. In 1986, one Naira exchanged for 49.5 Cents. In 1993, the Naira exchanged for 4.5 Cents. In 1998, one Naira exchanged for 1.2 Cents. In 2004 the Naira exchanged for 0.7 Cent. The Naira exchanged for 0.5 Cent in 2015 and today the Naira is exchanging 0.3 Cent.

Could the Allies have subjected German to the German SAP to strengthen Germany economically and in military terms at the end of the war? No! The humiliation of the Germans and the destruction of the German economy were evident immediately and at the end of the punitive programme in four years. It is the reason the first Woman Prime Minister of Britain, Margaret Thatcher, once said that when you want to destroy a nation, first, you destroy the currency. It is the reason developed nations always defend their currencies.

The German people rose, abandoned the German SAP and restored their honour. The Commissioner for National Currency, Hjalmer Greecy Schat promptly stopped printing the mark and issued a new currency (the Rent-mark) that was equal to one trillion old mark and restore the exchange rate of 4.2 Mark to the Dollar.

Economists, accountants and bankers do not understand how the economy works. They lack a sense of history and do not understand the science of sustainable economic growth, industrialization and development (SEGID).

So, they claim that irresponsible devaluation will lead to market-determined exchange rate, make the Naira a convertible currency and promote inflow of foreign investment into Nigeria. What became the market-determined exchange rate for the mark, the currency of a productive world power?
The Nigerian SAP has sapped and disgraced Nigerian for 30 years. The Convertibility of a currency is not achieved through mandatory devaluation. A convertible currency is one which is that of a productive nation. It is the currency of an economy which produces a non-negligible proportion of the total quantity of goods produced in the world in a year.

The American Dollar, the British Pound and the Japanese Yen are convertible currencies because the United States, Britain and Japan, each produces a non-negligible proportion of the total quantity of the goods produced in the world in a year and many nations, which buy the goods need dollar, pound and yen to pay for the goods.

The Nigerian Naira exchanged 112.4cents in 1985 and exchanges 3 cent today. The Naira has been devalued 99.7 per cent and the economy ruined.

So, what is now the way forward?
Learning (education and training) is the primary basis of achieving SEGID in a nation. Capital investments, including foreign investments do not promote SEGID. So, no wise nation destroys its currency to attract foreign investments. No one has been learning since the Nigerian SAP began in 1986. The youths are either selling imported articles in the streets or riding motor cycles to irk a living or unemployed.

Nigeria is facing mass unemployment, low productivity, hyper inflation, poverty and high crime wave problems hyper inflation, poverty and high crime wave problems because of very low national productivity. A nation with an agricultural economy is necessarily poor.

The way forward is to abandon SAP, adopt a fixed exchange rate, focus on intensive education, training for educated youths to acquire complementary practical skills and promote SEGID.

The Federal Government recently hiked the price of Premium Motor Spirit (PMS) from N86.50 to N145, claiming that it is the right step towards full-deregulated downstream oil and gas sector. Do you think that government has done the right thing?
The so-called new petrol directive will leave the Nigerian economy worse-off in future.  Recent experience showed that the Nigerian government does not have enough foreign currencies to import petrol. The parasitic importers also do not earn foreign currencies to import petrol. Even if the government has enough foreign currencies to import petrol, importation is never the route to self-reliance. Increase exploration and production and refining are the true basis of self-reliance.

The substance in the new directive on petrol therefore, is expression of the greed on the part of government and the rich to sell petrol at substantially higher prices in Nigeria.

The Buhari administration is doing nothing different from the former administration because it is implementing the Structural Adjustment Programme (SAP), which Nigeria adopted in 1986.

What is the relationship between the current price regime and SAP?
The adoption of SAP and its elements – private capitalism (privatization, liberalization and deregulation, appropriate pricing, market economic principles), the mandatory foreign exchange market, by Nigeria in 1986, was a very grave national error.

The adoption of SAP and its contents in 1986 enabled the rich and those who get into government to abandon all efforts towards promoting economic development and focusing more on using every opportunity in government to acquire liquid public assets and make money for themselves.  The rich and those in government in Nigeria have identified petrol importation as a means of getting rich overnight; they do not consider the scarcity as a problem that should be solved.

SAPs were meant to humiliate Africans the second time after the 1470s-1990s enslavement of many millions of Africans and colonization of the African continent as the first major humiliation. Nigeria and over 30 other African nations adopted SAPs as the panacea to African problems as from the early 1980s.SAPs were prepared for African nations by the World Bank and IMF.

Germany a world power lost World War I to the Western Allies. At the end of the war, the Western Allies subjected Germany to the German SAP. The Allies had demanded $33 billion from Germany as war reparation. Germany could not pay. Consequently, the Allies forced Germany to sign the Versailles’s treaty, which contained the mandatory currency devaluation programme.

The German Mark had exchanged 4.2 units to the Dollar in 1918 at the end of the war. The German SAP started in 1919. One year into the German SAP, 1920, the German Mark exchanged for 63 Mark to the Dollar. In 1921, 200 Mark exchanged for one Dollar. In 1922, 2000 Mark exchanged for one Dollar. By 1923, the German Mark collapsed, 4.2 trillion Mark exchanged for one Dollar. The German economy and the machinery for fighting the war were destroyed. The Germans and Germany were destroyed. Could the Allies have subjected Germany to the German SAP to strengthen Germany economically and in military terms at the end of the war?  Our analysis of the Nigerian SAP document showed clearly that it lacked growth elements.

Nigeria and many other African nations were forced to adopt SAPs because the West claimed that African nations had become too heavily indebted from consuming too many manufactured goods they do not produce.

How does Nigeria today compare with Nigeria in 1986?
It is almost 30 years of disgrace for Nigerians and other Africans. Do African nations produce any scientific product today? African experts are probably illiterates with respect to African problems. If Africans were knowledgeable with respect to African problems, African nations would never have adopted SAPs and their contents including the mandatory devaluation machinery – the foreign exchange market, deregulation and privatization.

Sadly, most educated Africans think that Caucasians and Asians are the only races endowed to make the scientific products Caucasians and Asians make; Africans would never make them.  Hence, all Africans can do is to import the scientific products perpetually. These educated men and women are mistaking. Africans in this category of people have been and remain Africa’s major clog on the wheel. Making the modern products is a matter of the scientific knowledge, skills and competence (KSC) possessed and applied by a people. Any race that possesses the needed KSC makes the scientific products.

What must Nigeria do to solve the problem of scarcity of petroleum products?
Mere adoption of deregulation and privatization cannot build refineries and increase refining capacity. Increased production is the solution to low supply, not the adoption of ideologies like capitalism (deregulation, privatization, liberalization) or socialism/communism.

Only seven per cent of the nations in the world practice full deregulation of the sale of petrol. The United States of America does not practice full deregulation; the American government controls the price of petrol.

The modern Western Europe was the ancient Gaul. Ancient Gaul did not manufacture modern chemicals and automobiles. China existed as a nation in 1000B.C. Japan claims that its existence dates back to about 300B.C. China was not making cars in 1949 and Japan was not making cars and electronic products in1854. Ancient Gaul, China and Japan went through development processes for about 2000 to 3000 years, became industrialized and were then able to manufacture many scientific products. So, Africa’s problem is lack of industrialization, not lack of deregulation and privatization. The solution to Nigeria’s problems therefore, is industrialization. An industrialized nation would necessarily be able to produce many scientific goods, including petroleum products. History and logic show clearly that the mere adoption of deregulation and privatization of public assets or importation does not increase the supply of products in a nation.

Do you think we need foreign investment to make Nigeria self-sufficient in petroleum refining and how many refineries do we need in Nigeria?
The USA has 139 functioning refineries, Japan (29), Saudi Arabia (10), Venezuela (12) and Nigeria (4). The Nigerian government should build ten more refineries and other learning infrastructure and focus on intensive learning like Japan did to promote rapid competence-building growth and industrialization so as to solve poverty and petroleum products scarcity problems in Nigeria.

There is the wise saying: teach me how to fish, do not just give me fish to eat, so that I can catch fish any day that I want to eat fish. The Nigerian experience is a shameful one. Foreign nationals have been exploring and producing the oil and gas in Nigerian soils and waters since the 1950s with Nigerians standing as on-looker.

The so-called deregulation and privatization policies are based on importing petroleum products. No nation gets adequate supply of any product from mere importation. Did America become a world power by importing everything from Britain? Did Japan become the second biggest economy in the world by importing everything from Britain and America?  Shallowness in reasoning has wasted the first 55 years of Nigeria’s independent life. We need to change our pattern of reasoning.

What is your advice for the Federal Government in respect to effective management of the downstream sector?
On the short-run, Nigerian leaders and businessmen must change their minds from ‘getting rich overnight way of life,’ to seeing the need to build the nation to be called Nigeria. Today, Nigeria is virtually a failed nation. Great minds build great nations; great nations are possessed by great minds. The needed change of mind must be done now, otherwise Nigeria will die soon.

Nations become great by developing their people through education and training and acquiring increasing competences. Nigeria is an agricultural/artisan nation with very low productivity. Everything including petrol is scarce in Nigeria. Nigeria is a very poor nation because its productivity is very low. The pool of knowledgeable, skilled and competent people involved in learning and production activities are the nation’s ever-appreciating assets (AAs) that do not experience economic meltdown.

The World Bank, in its World Development Report, stated that technological knowledge means know-how; those countries, which possess less of it, are caught in the poverty bracket. Poor countries, the bank continued, and indeed poor people are not able to compete in the global system not because they do not have capital, or other material resources, but because they have less knowledge. I agree with the bank that the difference between the agricultural-economies in Africa on the one hand and the technologically advanced economies in Europe, America and Asia on the other hand, is a matter of difference in the level of knowledge.

The objective value of the learning person appreciates; the learning-man and learning-woman are therefore appreciating assets (AAs). Hence, the equation, which describes the objective value of the learning man, is a growing one.  From this fundamental premise, we developed the scientific equation, which revealed that five learning-related variables determine the health status of an economy and they ought to guide the planning for industrialization. They are: 1) N – the number of people involved in productive work or employment in a nation; 2) M  – the level of education/training of those involved in productive activities in the economy and of the people of the nation; 3) L – the linkages among the knowledge, skills, competences and sectors of  an economy; 4) r – the learning rates or intensity in the economy and especially among the workforce; and 5) n – the experience of the workforce and the learning history of the society. All the variables are related to the learning-man and learning-woman. Moreover, the higher are the values of all the variables, the better is the economy.

Japan was forced to open her doors to the West as from 1854. After many trials, the United States in 1854 through the threat of her naval fleet forced Japan to open her ports to American ships and trade.

The Japanese quickly realized that the time to remain in seclusion was over. Japan quickly signed a series of forced-treaties from 1854 to 1858 with America and other Western nations. That led to the subtle change of government known as the Meiji Restoration of 1868. The Japanese quickly realized that the way forward was to learn from the West. That regime quickly made changes in the structure of government and educational system. By 1875, there were some 600 Western experts hired by the Japanese government and some 3000 foreign advisers were invited into Japan between the signing of fundamental treaties and 1890.

The Restoration met Japan an agrarian nation. There were few, if any industries of importance in Japan at that time. The government did not waste time establishing model industries which encouraged Japanese to learn and acquire knowledge and skills to build the factories modeled after those set up by government. Most of the public enterprises built by Meiji Japan lost money for a long time. However, because the primary objective for establishing them was for the citizens to learn from them, promote industrialization and establish private ones to demonstrate that Japanese have learnt and acquired the relevant capabilities to build and run similar plants and industries, they could not be sold till the desired objectives were achieved. Following the intensive learning put by Japan in the 20-year period 186 to 1905, the nation achieved industrialization. Today Japan has no natural resources in its soil, but it is an economic world power.

Receive News Alerts on Whatsapp: +2348136370421

  • Emmy

    And yet another knowledgeable Nigerian speaks. I have often wondered if we have no one with some requisite knowledge, experience and development economics savvy to question this madness we have deliberately brought upon our collective and individual survival. Thank and you Prof. Francis Ogbimi. I have met and read from others who think alike. If possible, could you drop an email for me. I would like to write you personally. I feel joy

  • William Norris

    This is one of the stupidest articles I’ve ever read. Endlessly referential with no depth whatsoever.

    Currency devaluation is good. It’s been explained so well that there’s no need to bore you with the details that you haven’t cared to look into.

    Yes Nigeria is generally unproductive. A big part of the reason is easy money, both the overvalued naira & plentiful Niger Delta revenues that have enabled importation of everything.

    Devalue the naira and let the Niger Delta keep her revenues and Nigerians will be forced to do the needful or starve.

    If devaluation is bad then t The Dullard should set the forex rate at $1= ₦1 and let’s experience the economic revival.


    • the thinker

      see where it got us to? you’re one of those evil people that is killing nigeria/. all your fake promises about devaluation has evaporated

      • William Norris

        You don’t know what you’re talking about.

        Let the government set the value of naira to $1= ₦1 let’s see what happens.

  • benedict chindi

    Please pay the honourable Prof and d Guardian no attention. They clearly have no idea what they’re talking about. Thank God d Prof dosen’t run d Nigerian economy; we would have become even more of a laughing stock than we already are…like Zimbabwe and Venezuela.

    And even worse, d Prof advocates price fixing of petroleum products…below international market value, and at d same time more investment in education, refineries and other infrastructure. Dear Prof, please where do u presume d money is going to come from. A country with 27 non viable states? Unable to pay civil servants; then u deduct state allocations and starve the economy to pay subsidies. Na wa o.

    Dear Prof, we know you r an expert in technology mgt, but please next time u are asked ur views on FX mgt, simply advise politicians to fix National productivity. The exchange rate takes care of itself.

    And dear Guardian, please stop the elevation of ignorance. People may just take d Prof seriously. Thank you.

    • the thinker

      you’re talking nonsense

    • the thinker

      your brain is stuck colonial times. wake up and think!

  • Lawuyi Oyeniyi LALUDE

    It is interesting to note that there is a machinery that perfects the Global Monetary policy, and not just arbitrarily scheduled!

  • Chuma Iwuanyanwu

    Our major problem in Nigeria is that our landscapes in our country are full of illiterates and these fools insult a brain like prof. Ogbimi. Nigeria will not survive unless these fools shut up their mouths and intelligent educated gurus take the leadership of Nigeria. These fools should read a book called “The End of Poverty” written by Jeffrey Sachs. If Buhari government can listen, let him take the advise of Prof. Ogbimi, though Buhari did not agree to the devaluation of Naira. Our greedy politicians and crooked business men and women have killed Nigeria. Thank you Prof., fortunately, I have studied all you wrote and there is no way Nigeria can move forward unless we learn and produce.

    How one earth do we expect miracles if we still keep penchant on consuming things we cannot produce. No nation can be great by importing this and that. We have to build refineries and stop importing refined products, the highest sources of corruption in Nigeria.

    • Great

      After reading this, I googled around to know more about this interesting prof Francis Ogbimi, and was amazed to discover that he not only have a blog but also a large ARCHIVE of powerful ideas about development sitting on his blog for any one to read, found at: PROFOGBIMI.COM, this man is a rare genius, these are the kind of smart brains we need in this country especially at this times. Go now to his blog to read more at: