Naira cannot appreciate under market forces

AFP Pius Utomi Ekpei

AFP Pius Utomi Ekpei

The reported imminent “Emergency Economic Stabilisation Bill 2016,” which, among other things, is targeted at shoring up the value of the naira, prompted me to take another look at my 1996 position paper on naira devaluation to the Chief Ernest Shonekan-led Vision 2010 Committee, entitled “Naira Devaluation: A Precipitate Step.” I had posited back then that, contrary to the rosy projections by the pro-devaluation pundits, the naira could not appreciate in the prevailing circumstances. Nigeria didn’t have the technological know-how, manpower, or the infrastructure to churn out standard industrial products at competitive prices.

To embark on massive currency devaluation in the aforesaid circumstances, in an increasingly competitive world, would invariably lead to large scale currency speculations; further forcing down the value of the naira. And in the case of a predominantly import-dependent economy, the process could effectively put the nation into a de-industrialisation mode. Well, this has pretty much been the Nigerian narrative since September of 1986.

My opinion on naira devaluation hasn’t changed; in fact, having regard to Nigeria’s scandalous infrastructural deficit, the very bad situation in which we find ourselves today can only get worse with time. So, when I first caught wind of the essentials of the imminent Emergency Economic Stabilisation Bill, I thought, “If administrative fiat does not save the naira, market forces will eventually kill the naira.” Interpreting presidential body language? Not by the standard definition of it; sign language isn’t my forte. But I’m optimistic my first amateurish attempt at the art will hit the bull’s eye, if only because Nigeria’s 2016 situation is by orders of magnitude worse than her 1986 scenario. On top of Nigeria’s lack of industrial capacity has now been superimposed a booming, and ever-growing foreign exchange parallel market.

That market presently offers the highest returns on financial outlays in Nigeria; and does it at an instant! In 1994 a serving top naval officer solicited my professional advice on behalf of a retired Air Vice-Marshall (AVM), whom I was told had been exploring the possibilities of venturing into manufacturing business, but somehow couldn’t make up his mind on any sector to invest in, in spite of the array of investment proposals that he had closely studied. The AVM and I eventually met at Lagos Ikoyi Club open bar, on a typical weekday evening. We quickly made acquaintance of each other and settled down to talk business. As I reeled out my measured presentation, my audience of one sat motionless, his body and head spoke of the stillness of a sentinel; his eyes barely steady in their sockets. There was not a chance of mistaking him for a “bloody civilian.” He didn’t take notes, but I instinctively knew the fine details of my presentation were not lost on him. At the end of my endeavours, I had presented both the technical and financial details of three independent investment proposals to the AVM.

The would-be investor’s subsequent methodical response, nay criticisms, seemed to me as rehearsed as my earlier presentation. I had barely taken a breath when the two-star general launched a “counter-defensive.” The ex-Armed Forces Ruling Council (AFRC) member in General Ibrahim Babangida’s regime lamented that the “general business climate in Nigeria is hostile to investment.” First, according to him, civil servants make it virtually impossible to process the permits and, or licences required to establish the particular business. Then the community landowners become perpetual parasites. The banks who are supposed to provide financial cushion lump charges at will for “invisible services.” Then the “monster called dilapidated infrastructure stares mockingly at your years of efforts.” Meanwhile, the “back-breaking challenge of securing your multi-million dollar investment and personnel awaits you down the road.” The retired military aviator also lamented Nigeria’s “undisciplined and opportunistic labour unions;” and the list continued ad nauseum.

As he spoke, I kept saying to myself: but he has walked the corridors of power for decades; why didn’t he and his former AFRC colleagues take their best pains to put these all-too-evident systemic defects right? What did he and his former colleagues spend all those long years doing in office? If he and his former colleagues were so blissfully lacking in both initiative and administrative capacity, as the AVM’s lamentations suggested, why did the former military president under whom he served push Nigeria to the brink of disintegration to hang on to power? The questions raced through my mind like the waters of grand rapids, as I quickly reflected on the plight of Nigeria. I felt wounded to the quick. The wound felt doubly painful because the ex-AFRC member didn’t even see the great irony of his present act.

Nigeria has more of this tribe of persons than she could ever count: individuals, lacking in patriotism and entrepreneurship in equal measure, but who, because of privilege position or proximity to the corridors of power, built up stupendous offshore accounts with the sole aim of making a lucrative industry of currency speculations. This is a principal reason Nigeria’s much-expected industrial revolution recedes by the year. There are perhaps more chances of finding icicles in Sahara Desert than for the naira to appreciate in Nigeria’s currency-speculations stoked market forces. The vaunted foreign portfolio investments, so-called, are neither “foreign” nor “investments” in the appropriate usage of the phrase.

Earlier in his administration President Muhammadu Buhari had stoutly given the inspiring impression that he knew these details like the hind of his hand; great pity he capitulated on his position on naira devaluation. Could he now be seeking to redeem himself through the instrumentality of the imminent presidential emergency powers bill? Few objective persons would deny that redeeming Mr. President’s stature has now become synonymous with saving the naira.
Afam, a consulting engineer, writes from Abuja

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  • Basil Ogbanufe

    It is very wrong to focus on the value of the Naira as the salvation of the economy. The Naira is merely an instrument of measurement. If the Naira falls (or devalues) in relation to the U.S. dollar, it means the demand for the U.S. dollar is high and vice versa. The demand for the U.S. dollar is also a reflection of economic/productive activities within the country. A high demand for the U.S. dollar indicates low economic/productive activities within the country and vice versa. The objective of any economy is increased economic/productive activities and not the value of its currency. The question now is, how can economic/productive activities be increased in Nigeria? 1, government cannot be regulator and operator of the economy at the same time. This is corruption, and promotion of corruption. 2, government should hands off the economy through its outright privatization and liberalization through the NSE (Nigeria Stock Exchange) by way of IPO (Initial Public Offer). Government should hands off establishments like NNPC, Eleme petrochemical company, Kaduna refinery, Port-Harcourt refinery, Warri refinery, Ajaokuta steel, NTA, Radio Nigeria etc. This will help salvage the Nigerian economy.

    • William Norris

      You have a good understanding of what’s needed to get Nigeria back on the path to economic stability.

      Most Nigerians have allowed greed and laziness overwhelm their common sense. Nigeria needs FREE MARKETS and LESS GOVERNMENT to prosper. That’s all.