Buhari’s reality check on floating the naira – Part 2
Continued from yesterday
Under the circumstances, the question remains, how do we obtain long term funding support for the real sector which should constitute the cornerstone of any economy of substance? How could policies that would boost the confidence of international entrepreneurs and encourage them to bring in Foreign Direct Investments, FDIs into Nigeria to boost growth in the real sector, be fashioned out and sustained? Is the recent decision to float the naira adequate catalyst, or a combination of both fiscal and monetary policies as FDR and Keynes did back in 1933 and what are the fall back positions of government, should the floating of the naira strategy prove not to be as efficacious?
The pertinent questions above, to me are what the authorities in charge of the economy should urgently seek viable answers to. Countries like Japan have been experimenting with the FDR economic stimulus model-referred to as Abenomics- named after current Japanese president, Shinzo Abe for decades without success.
If Japanese economy which is technologically driven with a plethora of high technological inventions and brands like Toyota to export has remained in deflation despite the FDR type financial stimulus so far implemented, what guarantees do we have in Nigeria that as naira is now being floated, FDIs would start flowing into our economy as flexible exchange policy advocates contend?
Perhaps the fact that Japan is home to the largest ageing population and therefore suffers from a vastly declined workforce and as such, has no room for further growth as the economy has attained saturation status, may be the constraint.
It may be argued that in contrast to Japan, Nigeria’s population comprised about 60% of youths and, therefore, enjoys the advantage of a virile workforce, plus abundant capacity for growth ,and these could result in a different and more positive outcome for Nigeria than it did in Japan.
Other factors that could influence a different and better outcome for Nigeria is that while Japan’s debt of roughly $9 trillion, which is almost double her GDP of about $5 trillion, is probably the reason the country is still stuck in stagflation (a worse type of deflation), despite application of several financial stimulus measures, opposite is the case in Nigeria where 13% post re-basement debt to GDP ratio is quite healthy. Hopefully, with ample room for growth in infrastructure investment, Nigeria is more likely to respond better to financial stimulus than Japan.
After all said and done, my honest view is that neither would devaluing or otherwise of the naira per se, nor would mere floating of the naira necessarily pull Nigerian economy out of the woods. Rather, the combination of both monetary and fiscal policies, in addition to a positive perception of a focused economic team being at the helm of affairs in Nigeria, instead of mere dependence on the body language of the president would be the game changer.
This implies that less interference by the presidency on economic matters would make a huge difference in the restoration of confidence in Nigeria by both local and international investors again.
Mr. President’s spectacular endorsement of a flexible foreign exchange rule for the Naira, in his opinion article in Wall Street Journal, WSJ, earlier in the week is a huge confidence booster , as it’s a marked departure from his initial hard stance. Once confidence returns, the dollars that have taken flight back overseas or buried in septic tanks in homes in Nigeria, would return to the economic system to fuel the engines of production once more. The good news is that President Buhari has undergone a lot of political metamorphosis in the past one year. That is no mean achievement.
Mr. President has also graciously accepted the removal of the controversial fuel subsidy which he initially opposed because he feared its removal would hurt the poor masses whose interests are very close to his heart and now the floating of the Naira, which he was initially vehemently opposed to, is today an official policy of Nigeria?
Most captivating of all the gestures is that the president appears to have backed down from his initial threat to apply deadly military force in quelling renewed insurgency in the Niger delta, to a negotiated settlement with the militants. Although the non-violent approach in the Niger delta is yet to yield the desired dividends, there is hope that dialogue would achieve better peace than matching violence for violence which would only result in peace of the grave yard in the treasure trove of Nigeria.
On the contrary President Buhari’s new attitude of not sticking to his guns (literally speaking) in my view is conditional to the new concepts being implemented more efficaciously than his original thoughts and with more positive outcomes.
Failing to ensure that these new measures that he has reluctantly acquiesced with, would yield quicker more positive turnaround of the fortunes of Nigerians, could result in disappointment to the president and cause him to revert to his comfort zone of command and control, which would not bode well for Nigeria and Nigerians. Therefore, in order to achieve a more holistic effect and better outcome of both the fiscal and monetary measures so far introduced, the next thing government should focus attention on is the yuan/ naira swap deal, struck during President Buhari’s recent trip to China. For the reasons earlier cited, the Chinese deal should be consummated without further delay.
After the take-off of the new flexible foreign exchange trading system, the CBN should shift focus to how to add flesh to the bones which the much vaunted yuan/naira swap has been since it was announced. That would simultaneously enhance Nigeria’s foreign trade with both the Western world- USA/Europe and Eastern world -China/Asia, our country’s two largest trading market partners.
Right now, whether President Buhari’s positive change in economic outlook by becoming less tedious and having an expanded and broader world view would gain momentum and be sustained is a prospect that Nigerians are anxiously trying to decipher.
Nevertheless, a combination of plummeting oil revenue resulting in the present economic meltdown, plus a floating Naira may not augur well for a nation in dire need of economic elixir, if the leadership is not dynamic and astute.
Worse of all, the nation may be in double jeopardy if the new policies are truncated as opposed to being pursued to their logical conclusion.
So our prayers should be that Nigeria makes it through the dark hours.
Magnus Onyibe, a development strategist, futurologist and former commissioner in Delta State govt, is an alumnus of Fletcher school of law and diplomacy, Tufts University, Medford Massachusetts, USA.