ON THE REVALUATION OF THE NAIRA

By Dr Abayomi Ferreira,
www.abayomiferreira.com  

We should start the discussion from the beginning. There are two questions we must clarify to have a useful discussion. The first question is, ‘To take Nigeria into the SAP era in 1985, the kingpin of which is the continuing devaluation of the naira in the past 22 years, what steps did the experts and Babangida take? They published a decree to put a new denomination on the naira and tied it to the dollar and the ubiquitous international market forces. Monetary values became recognisable mainly in the dollar language in Nigeria. Indeed, there are many transactions including property rents and sales as well as daily household use items that are rated till today in dollars. Thus began the free and uncontrolled fall in the value of the national currency. They told us that there was no alternative, TINA. This was in spite of the ‘open debate’ which was held at the behest of Babangida and the apostles of SAP in which the majority of Nigerians opted not to enter into the wilderness of Structural Adjustment Programme. After 22 years of TINA and SAP, it is obvious that there is an alternative. The point is that the economic system that is being run according to the IMF and the World Bank manifesto has thrown and kept Nigerians in the bowels and grips of avoidable poverty. Our people have been kept in what Soludo recently and aptly described as a dynasty of poverty. Of course, not every Nigerian is in the grips of this poverty. There are those who have escaped through the market forces that make them into trillionaires in the fecund industry of foreign exchange transactions. It is only natural that such people who make fantastic incomes from the exchange industry will insist on TINA for to them there is no alternative. In 1985, Babangida,s troops threw Nigerians out of the Imoudu Hall of the Nigeria Labour Congress at Tejuoso Street, Surulere Lagos when they gathered to debate the TINA slogan of the apostles of devaluation. The debate is still on. There is an alternative.  

The second question is, what have been the consequences of devaluation in Nigeria? They are many and they are bitter. They are many but include the following,

1. Poverty has spread in the country and the standard of living of millions of Nigerians continues to fall. Nigerians are trapped in the bowels of intractable poverty in spite of the fact that they are among the hardest working people in the world. The Economic Policy Watch as far back as 2002 shows that in 1980, five years before devaluation, 27.2 percent of Nigerians were living below the poverty line. The figure rose to 46.3% in 1985. In 1996, it had reached 65.6% and it has remained at 70% over seven years since the year 2000. In absolute figures, it means that 98 million Nigerians are incapable within the economic system to provide basic needs such as shelter, clothing, potable health, education, transport and such needs as has been defined by the UNDP. This majority of Nigerians survive on less than 1 dollar for one person a day. Of course, poverty manifests in various ways, including lack of income and productive resources that is sufficient to guarantee sustainable livelihood: hunger, malnutrition, ill health, poor access if any to education and basic services, raised mortality and morbidity from illness, homelessness, social discrimination as well as social and indeed economic exclusion, denial of participation in society. An examination of the three mortality rates shows the worsening of the situation following 1985: maternal mortality, infant mortality and under-five mortality rates have worsened; life expectancy at birth fell from 56 in 1980 to 43.4 in 2004. The Human Development Index rating is falling. The latest Human Development Report on 9 November 2006 placed Nigeria 159^th among 177 nations. In 2000, Nigeria was 151^st from 136^th in 1993. It is informative to digress very briefly to state that in 2003, when Nigeria rated at 158^th position, the occupied territory of Palestine, not Israel but the occupied Palestine rated at 102^nd position. That should set us thinking and working and changing.  Diseases of underdevelopment remain prominent as the causes of illness, absence from productive work, morbidity and mortality. Illiteracy incidence is still among the highest in the world.
2. The world ranking of the Nigerian economic performance in terms of its GDP size shows a lackluster performance that we can trace to the effects of the devaluation of the naira and the baptism of SAP. From the Human Development Report 2001 we quote, The Nigerian economy has been suffering from severe and persistent regression since the mid1980’s. Its GDP, which was US$ 93.3 billion in 1980, is now currently about one-quarter of what it was a quarter of a century ago…Moreover, associated with this serious economic retrogression in terms of GDP, is the deepening level of poverty in the country...Nigerian economy was the 23^rd in world ranking with a GDP of $73.43 billion in 1984. The persistent impoverishment of the people since SAP and devaluation of the national currency in 1985 can be more clearly seen when we relate the GDP at $93.3 billion in 1980 to the figure of $24.39 billion in 1987. By the year 1999 Nigeria was about returning to its productive level as at 1984. To the individual Nigerian, after 1985, he has to work a thousand times more and harder to earn what he earned for the same work before devaluation. One needs only to be able to read and understand to perceive the fact that 1985, because of SAP and devaluation of the currency, became the watershed between a retrievable Nigerian social system and the intractable poverty trap in which Nigerians are enclosed today
3. What are the results of these adverse impacts of TINA whose surname is SAP?
• Highly qualified professionals emigrated from the country to earn their livelihood abroad. That effect has depleted the badly required trained and experienced manpower availability for the development of the country.
• Youths emigrate through all sorts of means only for hundreds of them to perish in the Atlantic Ocean or Mediterranean Sea. This effect will manifest adversely in future efforts to develop the country. The country will need a fundamentally different political programme to bring back to the country the youths who survive the hazardous emigration and will be working in foreign countries.
• The promoters of the devaluation policy instituted a two tier exchange rates system and for years profited from it by taking naira out of Nigeria at the government lower rate and returning such funds to Nigeria at the higher commercial rate.
• The developed world obtains Nigerian exports very cheaply whilst we buy their products at higher costs. There is actually a substantial net drain of productive resources from Nigeria to the developed world.
• Uncontrollable inflationary effects on prices which only became ‘stabilised’ a couple of years ago
• Those who loot the public treasury, and they are many move their money abroad thus depleting the wealth of the country to the benefits of the developed world.

  

A political and economic necessity to revalue the naira

During the 2003 electioneering campaign, the Democratic Alternative DA came out with the declaration that it would promptly revalue the Naira if it won the elections. All the other parties including the ruling ones who were poised to win the elections kept mum. There should be no government in the world that would leave the full control of the livelihood of its peoples to international market forces. That is the act of floating the naira in the international market and tying the Nigerian currency to the US dollar. Only the caliber of people who have held power in Nigeria from 1985 till 2007 would deprive their people a fair return for the contribution they make to the economic processes in the world. It is a mark of the quality of the ruling PDP that the president and his ministers are not privy to the programme of the Central Bank. We do not have to tie the naira to the apron strings of the dollar or any other currency for that matter.  The programme that is being put out by Charles Soludo is a necessary way out. The experts who have come out with different terminologies and condemned the new policy are the same people who took the country in the first place down the road of devaluation. We must remember that there are experts in the Central Bank of Nigeria and the views of outside experts do not have to override. Every rider of Okada motorcycle knows that if he sustained a fracture of the thighbone from a motorcycle accident, the treatment is to have the fracture fixed. He only needs the services of an expert surgeon to put that need into effect, to process the treatment. Nigerians know that devaluation of the naira has thrown them into sustained poverty since 1985. They want to get out of the dynasty of poverty, as it is very well put by Charles Soludo. The job of experts is to process the currency out of the dollar trap. It is interesting to hear the new Musa Yar’Adua government wanting to get Nigeria into the list of the leading 20 economies of the world by 2020. Charles Soludo also expressed that ambition in the introduction to his speech that has caused so much heat. In 1980, in terms of the size of its GDP, Nigeria was ranked the 20^th among the economies of the world. The countries of Europe and North America now run many charities whose objective is to assist Nigeria to make poverty history. We know that no outsider can remove poverty from Nigeria. That job is for Nigerians. There has been no country in the world that has been developed by outsiders except for the benefits of the outsiders. One of the basic steps that must be taken to revive Nigeria is to revalue the national currency. Although the exchange rate of four naira to five US dollars that is being proposed by Charles Soludo and his team of experts is less than the rate before 1985, we accept that it is a worthy step in the right direction. The experts in the Central Bank of Nigeria should carry on with their programme. The experts outside who denounce the programme are for continuation of devaluation. Certainly, there is an alternative, revaluation. 

Dr Abayomi Ferreira

abayomiferreira@yahoo.co.uk

18 August 2007

Robot  # 1 | 18.08.2007 15:34

ON THE REVALUATION OF THE NAIRA By Dr Abayomi Ferreira, ...Read the full article.

Akinyi  # 2 | 18.08.2007 20:05

Revaluation means the calculated adjustment to a country's official exchange rate relative to a chosen baseline usually gold but since countries no longer use gold as a baseline, the baseline for revaluation is the dollar hence revaluation means the same as dollarization. What the CBN is about to do is fix exchange rate , a decision only a country's government -central bank can make. For example, suppose a government has set 20 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to 10 units per dollar. This would result in Naira being twice as expensive to people buying it with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency. So, simply put, revaluation or redenomination or currency reform or dollarization is just an increase in the value of a currency in relation to others. Meanwhile, what this means is –that Nigerian government wants to give “artificial value” to the Naira. Nigeria could succeed if and only if we have enough foreign exchange to back up the Naira. In other words, your government wants to subsidize the dollar. Can Nigeria subsidize the dollar? There lies the problem. You all know Nigeria's tortured history in subsidizing oil. Most western countries operate a floating exchange rate—this means that the value of their currencies are determined by SUPPLY and DEMAND. It means that a country’s currency will find its own level automatically. In a fixed exchange rate which CBN wants to adopt, the Naira cannot find its level. A good economist will tell you that the ONLY way to put value on your currency is to INCREASE production of goods and services. That is the only way. Anything else is cosmetic dressing of larger economic problem. That the Naira will suddenly strengthen from 125 to 1 Naira to $1.25 thereby halting or reducing hyperinflation from 5000% to 50% is same as shifting two zeroes in 5000 to achieve an artificial 50%. It does not make sense. At the moment, the main production in Nigeria is OIL. Unfortunately, we do not determine oil prices. Foreign investment will decrease or dry up because Naira will now be too expensive. Even Nigerians living in Diaspora will find no interest in investing in Nigeria. Nigerians abroad infuse well over $10B in Nigeria’s economy. And by the way, IMF charter frowns at policymakers manipulating exchange rates to gain undue advantage.

bjdon  # 3 | 19.08.2007 05:27

Dr Ferreira You make the following comment “ The experts in the Central Bank of Nigeria should carry on with their programme. The experts outside who denounce the programme are for continuation of devaluation. Certainly, there is an alternative, revaluation. “ I think you and many others do not really understand exactly what the CBN is proposing. It is NOT a revaluation of Naira in the common understanding of the term but rather an ‘adjustment’ which in reality dose not make any change either terms of Naira purchase power or the wealth of Nigerians. Let me use a real world example to illustrate. When ever I go to Nigeria I fly from Lagos to my home town of Benin City. The flight costs about N10,000(it’s a gone up a bit but let’s use this price for the example). Now coming from the UK that’s approx £40 (at 250 to 1 again an approximation as the rate is higher than that but I am just using this for ease of calculation) so in effect today a flight to Benin City costs me approx £40 Now what will be the situation after the currency ‘adjustment’ or what you think is a ‘revaluation’? The Pound Naira exchange rate will move 2 places to the left and become N2.50 to £1(approx), HOWEVER all the other prices in the economy will also move 2 decimal places to the left, so my ticket price moves from N10, 000 to N100. As you can see in pound terms there’s no change for me as the ticket still costs approx £40(in this case 40 *2.50=N100) ditto no change in the REAL value of the Naira. I understand that for must people it seems that the CBN are revaluing the currency back to pre SAP levels, but in reality that is not the case. While the nominal face value of the exchange will indeed be what is before SAP, the TRUE value as measured in terms of purchasing power will be exactly what it is today. Unfortunately all the negatives you list as a consequence of devaluation will not be solved by this exercise.

denker  # 4 | 19.08.2007 06:19

the point is misappropriation of the right definitions of the terminologies Revalution and Redenomination as regard to universal comprehension of the both words. i think my learned doctor is confusing the whole thing. Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency. Contrast to "devaluation". Investopedia Says: For example, suppose a government has set 10 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to five units per dollar. This would result in that currency being twice as expensive to people buying that currency with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency. Before the Chinese government revalued the yuan, it was pegged to the U.S. dollar. It is now pegged to a basket of world currencies. Redenomination 1. The process whereby a country's currency is recalibrated due to significant inflation and currency devaluation. Certain currencies have been redenominated a number of times over the last century for various reasons. 2. The process of changing the currency value on a financial security. Investopedia Says: 1. For example, the Bulgarian lev was redenominated due to inflation arising at the end of the Second World War. After the redenomination, one "new" lev was equal to 100 "old" levs. The lev was redenominated three times in the twentieth century. 2. A recent example of redenomination arose when the euro was introduced and the denomination on many European securities had to be changed to the euro.. :D:D:D