31 Jan 2009 |
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It is time to cash in on the naira’s falling value By Ayo Akinfe Like most other Nigerian economic analysts, I have been reading every single line of the business pages over the last few weeks in search of details about the impact the global credit crunch is having on our economy. In these columns, there is a long list of woes that have been highlighted and many fears raised. One worry that keeps being repeated by many of the commentators is the fear about the effects of the slide in the value of the naira. At the moment, N150 is exchanging for one US dollar, compared with around N120 at the end of last year. Probably most worrying about the phenomenon is that the slide is incessant and all indicators point to the fact that the worst is yet to come. Who knows how much the naira will be worth in a month’s time. Of course the falling value of the naira is not our only problem and to be honest, neither is it our most important one but for some reason, it has been latched on to as this great cataclysmic woe that needs addressing. I for one am not surprised at the panic the slide in the value of the naira is creating in official circles and the way it is giving the likes of Charles Soludo, Ndidi Okereke and Mansur Muhtar sleepless nights, as it exposes the soft underbelly of the Nigerian economy and reveals the vulnerability of the straw house we are living in. Our weaking currency simply means that imports are becoming a lot more expensive. Nigeria is one of these consumerist societies that imports everything including clothes, electronic goods, household equipment, machinery, cars, luxury items, middle class food items, building equipment and to our eternal shame, even petrol. All these goods are purchased by exchanging the naira into dollars, so if the value of the naira halves against the dollar, all these imports cost twice as much. Once upon a time, the naira exchanged for $1.4, believe it or not. During those heady days of the 1980s, Nigerians were so indulged that we went on a spending spree, importing everything from abroad. Water, nails, shoes, food, television sets, jewellery and clothes were all purchased from abroad. Anything manufactured in Nigeria was considered sub-standard, irrespective of the quality. As the realities of Nigeria’s economic fragility hit us in the mid 1980s, the value of the naira continued to slide against the dollar and stabilised somewhat at the end of the 1990s. Now that this fall has resumed, we are panicking again, knowing fully well that it will ultimately mean that foreign goods we have taken for granted will soon be out of reach. Some commentators are calling on the Central Bank of Nigeria to wade into the crisis and shore up the naira by throwing money at it. I for one cannot think of a more senseless suggestion. Even if Nigeria could afford this, it would be foolhardy. Wasting out hard-earned foreign exchange propping up the naira is not only short sighted but it is also suicidal and tantamount to wastefulness that will do nothing but enrich stockbrokers, bureau de changes and bankers, leaving the nation to pick up the tab. As things stand, Nigeria’s foreign reserves have fallen to $51bn today from $58bn in November and $61bn in October. Wasting this on the naira when we have more pressing needs such as building our infrastructure, addressing our chronic power supply problem, providing clean drinking water for the masses, abolishing illiteracy, developing an industrial base, boosting agriculture, developing the Niger Delta, etc is sheer madness. From a priority point of view, the slide in the value of the naira is not the most debilitating effect of the current global financial crisis. More worrying problems in my opinion include the fall in foreign direct investment (FDI), reduced access to credit, the drop in global crude oil prices, the collapse of global commodity prices and the certain fall in remittances from the Nigerian diaspora. As has been the case too many times in the past, Nigerians as a people have failed to grasp the opportunities which challenging situations sometimes provide. We have failed to appreciate the fact that necessity is the mother of invention and that when one door closes it means that another one should be opened. Nigeria as a nation state is simply too weak economically at the moment and this is simply because we do not produce, manufacture and export enough. We are a nation of 140m people and our annual export earnings only add up to about $60bn, while our total gross domestic product is a paltry $200bn. Our basic woes stems from the fact that we simply do not sell enough to the outside world, while on the other hand, we are voracious consumers. Like locusts, we devour everything in our path and leave very little behind. It is frightening to think what Nigeria would be like had the Niger Delta not had any oil in it. Unlike the Americans who believe the answer is to become protectionist, I believe that the only way to avoid having a balance of trade deficit is to step up exports. Experience has shown us that banning imports or placing punitive duties on them has done little for the Nigerian economy. All this has resulted in is subsidising uncompetitive local operators who have no incentive to match the quality, price and service of their foreign competitors. The current global crisis gives us a unique opportunity to kill two birds with one stone. This could be a once-in-a-lifetime opportunity to address the naira problem once and for all, while at the same time, sort out the chronic problem of an absence of a manufacturing base and its resultant woe of us not knowing the meaning of the word export. Generally, how a nation reacts to the fall in the value of its currency provides an indication of how industrious and ambitious it is. Serious nations rejoice when the value of their currencies fall because it provides an opportunity for more exports, while lazy and irresponsible countries like Nigeria lament because it means they will no longer be able to afford their foreign luxuries. Whenever the value of the British pound rises, the country’s captains of industry besiege the government and ask it to do something to weaken their currency. Aware of the fact that a strong pound makes British exports more expensive, ministers use their leverage to ameliorate the situation as much as the markets will allow but it appears that in Nigeria, we are deaf and blind to such basic economic concepts. A weak naira should be great news for a country like Nigeria. Were we an industrious nation of serious and ambitious people, we would be dancing in the streets and rejoicing at the competitive advantage a weak naira gives us in the international marketplace. Developing nations at the same level of socio-economic development as us such as Bangladesh, Pakistan, Indonesia, Mexico, Vietnam, India, etc are reaping the dividends of the current financial crunch in the industrialised world. Both manufacturing and service companies are relocating their operations there and their quick-to-learn workforces have rapidly picked up the art of manufacturing quality goods for developed markets. Nothing stops Nigeria seeing this as the way to go. For me, the most important job in government today is the office of the commerce and industry minister currently occupied by Chief Achike Udenwa. He should be travailing the globe in search of foreign investors and he should spend the bulk of his budget in putting the necessary facilities for them to thrive in place. Agriculture, manufacturing, semi-processing, mineral mining, textiles, printing, engineering, etc, are all sectors where Nigeria would have a natural competitive advantage over many nations on earth due to a host of factors. We once had such industries ourselves and as such, still have skilled workers in these sectors. Also, given the number of university graduates we produce a year and the value we place on education, it would be easy to find and train the staff to make FDI projects in these sectors internationally competitive very quickly. It may take us up to four years to get this off the ground but whether we like it or not, we have no choice. If we have to live off gari and sugarcane for five years while we develop ourselves into net exporters, I say it is a price worth paying. All hands should be on deck to boost our manufacturing capacity as a means of increasing exports and taking advantage of the weak naira. Any other course of action is sheer suicide. Our financial leaders like Mansur, Soludo and Okereke should be brave enough to tell our pampered elite that their foreign luxuries are now beyond reach and as from now on, money that went to provide for their pleasures in the past, will now be spent on boosting exports.
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