|
THE PROPOSED NEW NAIRA, EXCHANGE RATE AND THE NIGERIAN ECONOMY
BY SAM A. ALUKO
1. The "Strategic Agenda for the Naira" espoused by the Governor of the Central Bank, Prof. Charles Chukwuma Soludo , on 8th August, 2007, is another bang in the arsenal of those foreign-imposed gimmicks that have dominated the so-called reform programmes of the federal government since may 29, 1999. The Central Bank of Nigeria had successively taken the nation for granted and without consultation in the exercise of its so-called independence to foist on the nation a new monetary system. The Central Bank failed to persuade the Abacha and the Abubakar administrations to permit it to print N100 and N200 notes, between 1994 and 1998. But just before the Obasanjo administration had time to settle down, it foisted on Nigeria the two currency notes. Later, it printed N500 and N1000 notes, against rational advice in the ecstasy that they were the best things that had happened in Nigeria. The CBN got the accolade of the gambling bankers, their collaborators and their foreign sponsors. Later, at great costs to the nation, it minted coins of various denominations which are yet to be fully accepted in the market. It promised that in future, in view of the need to prevent the holding of many currency units of small values, it might print N2000 or N5000 notes. A pliable nation applauded then. Now the CBN plans to abandon them for smaller units!
2. Similarly, without consultation, and oblivious of the ill-effects on the rural population where the majority or our people live, have their being and provide food security for the population, it abolished the People's Bank, the Community Banks and their ilk and replaced them with what it termed micro-financial institutions, as if the Peoples Banks and the community banks are not also micro-financial institutions.The CBN also abolished the 89 banks that existed and replaced them with 25 quarrelling, consolidated banks by arbitrarily increasing capitalization of banks from N5 billion to a minimum of N25 billion. Without due consultation it also increased the insurance companies minimum capitalization by about 10 times. All these anti-people "reforms" have violated not only existing laws but also Nigeria's constitutional provisions. The overall effect is to concentrate wealth in the hands of a few at the expense of the majority of Nigerians. Soludo has been congratulating himself, had been lauded by the few beneficiaries, and has received accolades abroad, because he is a tool of international finance capital. Today, more than ever before, the financial and economic systems of Nigeria have been captured from the people by foreigners who masquerade as development partners. Foreigners now dominate not only the most important arms of our government, but they also control the thought processes of our leaders. They deceived the national assembly to grant independence to the CBN, as if they are not aware that monetary policy direction is the responsibility of government and that the monetary policy must be in tandem with the fiscal policy of the federal, state and local governments acting in concert. The Central Bank is to operate and execute the monetary policy of government. The government is not to operate the monetary policy of the Central Bank. The government owns the CBN, the CBN does not own the government.
3. In its characteristic malevolence, before the Yar-Adua administration settled down, as in Obasanjo administration in 1999, the CBN has somersaulted on Nigerian Monetary Policy by decimalizing, in reverse, the naira foreign exchange rate and its domestic denominations by merely knocking out two zeros from their current face denominations without consultation or due process. The CBN Governor has said that with effect from August 1, 2007, the foreign exchange rate of the naira will not be 127.5 but 1.27 to one USA dollar. I doubt if the Federal Cabinet, the State Governors, the financial institutions and the other viable stake-holders were permitted to have input into the proposals and assess their implications on the economy before the proposals were reeled out as if a speech from the throne. Surprisingly, the Federal Ministry of Finance which is really supposed to oversee the CBN on behalf of the governments, defended the CBN, that its law grants it independence to act so unilaterally, and if I may say so, irresponsibly. The Central Bank is the governments' bank. Its Governor, deputy governors and its board of directors are appointed by the president of Nigeria, in consultation with the executive and the legislature. Governments money is what sustains the CBN. Most of its lendings are made to the government. Its establishment was by the Nigerian government. When some of us argued that the CBN cannot, and should not be independent of government but that its activities should be reactive, and complementary to the policies of the Nigerian governments, eye brows were raised, that it was an attempt to politicise the CBN. But the CBN Governor for whom not a single electoral vote was cast at any election, has become not only a financial dictator but also a danger to the stability of the Nigerian economy. It has been largely responsible for the successive devaluations of the Naira since the early 1980's. It has been responsible for much of the distress in the financial sector in Nigeria. It has been the chief cause of the instability in the foreign exchange market and, consequently, for the slow growth of the Nigerian economy. It has been deceiving the government and the people that it has succeeded in bringing down inflation, when, in actual fact, the masses of our people continue to be plagued with galloping inflation. The new plank being touted by the CBN Governor is focused on foreign exchange than on the stability, management and domestic health of the naira.
FOREIGN EXCHANGE MANAGEMENT.
4. The exchange rate is the price of one currency in terms of another. The usual International Currency is the USA dollar or now the European Euro. There are two types of exchange rates. They are, the official exchange rate and the parallel or black market exchange rate. In civilised economies, the black market rate is virtually outlawed and non-existent. In backward economies, like Nigeria, the black market rate virtually determines and pushes down regularly the official exchange rate. For the 53 African countries, since the Structural Adjustment Programme(SAP) was foisted on virtually every one of them in the early 1980s, the black market exchange rates had surfaced, grown and been used as the bench-mark of the true values of their respective currencies vis-à-vis the US dollar.
5. Official exchange rate and exchange rate arrangements are usually established by governments not by the Central Bank. Other exchange rates include market-determined rates which are determined by legal market forces. For countries maintaining multiple Government established exchange rate arrangements, there can be principal exchange rates, secondary exchange rates and tertiary exchange rates. The official or market-determined exchange rate is often used to compare prices in different currencies. Since exchange rates reflect, at, best, the relative prices of tradable goods, the volume of goods and services that a US dollar buys in the United States may not correspond to what a US dollar would buy in another country. In order to equalise price levels among countries and be more accurate in the comparability in value of different countries incomes, economists use the purchasing power parity(PPP) to compare real incomes across borders. Thus, while the Gross National Income (GNI) per head of population in Nigeria today is about 560 US dollars, that of USA is about 44000 dollars per head, (about 78 times, that of Nigeria.). At Purchasing Power Parity , Nigeria's per capita income is about 1050 dollars, compared with about 42000 of USA,(40 times that of Nigeria.) In other words, one dollar in Nigeria will purchase about twice the quantity of goods and services that one dollar will purchase in USA.
Where the black market rate also called the parallel market rate, exists pari passu with official exchange rate, as in Nigeria, the black market rate usually pulls down the official exchange rate, thus leading to the recurrent devaluation of the official exchange rate. For instance, in the 1970s, and until 1986 when the Structural Adjustment Programme was imposed, the black market rate was virtually not in existence, because the naira was then convertible. Since then, the two rates have moved in sympathy, with the official rate chasing the black market rate without the official rate being able to catch or abolish the black market rate, as follows:
Exchange Rates: Number of naira to one US dollar:
|
|
1980
|
1985
|
1986
|
1990
|
1993
|
1995
|
1998
|
1999
|
2003
|
2005
|
2007
|
|
Official
|
0.5
|
1.0
|
3.6
|
8
|
22.1
|
21.9
|
21.9
|
92.0
|
133
|
135.0
|
128.0
|
|
Black Market
|
Nil
|
Nil
|
4.0
|
9.3
|
56.8
|
60.3
|
60.3
|
102.0
|
135.0
|
140.0
|
140.0
|
6. Black market rate flourishes where the currency is not easily officially convertible into other currencies, so that the nation's currency is not tradable or easily changeable abroad. The Central Bank of such a country keeps tightly to the available foreign exchange earnings and auctions them periodically, inconveniently and inadequately. The more the black market rate flourishes, the more those eager to do quick business recourse to it. because it is easier though more costly to purchase. The recognised banks in such black market infested economies purchase foreign exchange from the Central Bank at the official rate of exchange and sell it to end users at higher unit rates, and make quick profit there from. It was the Nigerian banks that were designated authorised foreign exchange dealers and customers of the Central Bank, since 1986,that largely funded the black market.
The World Bank and the IMF, have since 1986, particularly since 1999, opined that, in Africa, the black market rate is the true exchange rate. The Central Bank of Nigeria has always accepted this and used the black market rate as the bench mark for the determination of the naira foreign exchange rate. The central Bank always argued that Government or the Bank should nor fix the exchange rate not interfere with it, even though one of the most important functions of the Central Bank, as the Government Bank, is to stabilise the value of the naira both internally and externally.
THE NEW PROPOSALS ON THE VALUE OF THE NAIRA.
7. The new proposals of the Governor of the Central Bank of Nigeria , to decimalise the naira, by removing two zeros from the current dollar exchange rate, so that instead of the present N128=$1, it will be N1.27 =$1, with effect from 1st August, 2008, runs against the avowed advocacy of Soludo, his Central Bank , the bankers and their collaborators that the exchange rate value of the naira could not, and should not be fixed but be left to market forces. It is an admission of the failure of the country's entire exchange rate policies since 1986. Soludo himself admitted as much by saying that his proposals are to bring back the exchange rate regime to pre-1986 SAP era.
Of course, their chief mentors in the World Bank, the IMF and the Western Democracies that have got the control of the Nigeria's economy will applaud the proposals, which, in any case are theirs and not those of Soludo per se.
8. After the failure of SAP, the World Bank and the IMF persuaded the UNO to impose fresh economic and monetory policies, particularly on Africa. They discovered that the perennial devaluations of the currencies of the poor countries have been making it impossible for the economies to achieve meaningful rates of economic growth. After the failure of the 1986-1990 SAP, they compelled the United Nations to impose the 1990-1996 Development Goal, on Africa. At the end of 1996, they discovered that the African countries were poorer in 1996 than in 1990. The UNO again imposed another 1996-2000 Plan, only to discover that at the end of 2000, all the development goals went miasma. Hence, the 2000-2015 Millenium Development Goals,(MGDS) with targets decided not by the peoples of Africa but by the IMF/World Bank, the Development Partners and the major Western Powers. It is now half time between 2000 and 2015, and the development omens are not good. The currencies of all the African Countries, except South Africa and the Arab North African countries, continue to depreciate massively. Ghana, their Show piece country in West Africa, for instance, has its Cedi depreciate from 2.8= USA $1 in 1980; C327=$1 in 1990; C5455 =$1 in 2000; to 9270=$1 in July 2007. Ditto in many of the other poor economies where the exchange rates have gone out of control. For instance, in all the 15 Franco-phone African Countries, that operate a common West African Monetary Union(WAMU), that is, Benin: Burkina Faso; Cameroon; Central African Republic; Chad; Comoros; Congo Republic; Cote d I'voire; Equatorial Guinea; Gabon; Guinea Bissau; Mali; Niger; Senegal and Togo, the official exchange rates moved from 211.3 CFA to one USA dollar in 1980 to 491 to one USA dollar in July 2007. In all the other African countries, their foreign exchange rates have considerably worsened since the 1980s, as exemplified by a sample in the accompanying table.
Movement of Exchange Rates in Highly Devalued Currency Countries
9. Other non-African countries whose foreign exchange rates have risen from low single digits in the 1980s and 1990s to basket full to the dollar by July 2007 include Amenia 420 Dram; Belarus 2140 rubel; Cambodia 4122 Riel; Chile 523 Peso; Costs Rica 511 Colon; Hungary 216 Forint; Indonesia 9426 Rupia; Iran 917 Rial; Iraq 1472 Dinar; Kazakhstan 127 Tenge, South Korea 954.9 Won; Lao 10184 Kip; Lebanon 1508 Pound; Mongolia 1165 Tugrik; Paraguay 5412 Guarani; Slovenia 192 Tolar; Sri Lanka 104 Rupee; Venezuela 2147 Bolivar; Vietnam 15921 Dong and Yemen 1981 Rial. It will be seen that none of the countries cited, except South Korea and Hungary, is a highly developed economy. They, like African, countries have been under the grip and manipulation of the IMF/ World Bank conditionalities since the 1980s or since the collapse of the Soviet Union in 1991. The countries, like Nigeria and other African countries, are also now being pummelled to redenominate their respective currencies by the mere removal of one, two or three zeros, in the hope that the experiment will work. It is the same manner that the Structural Adjustment Programme (SAP), with the massive currency devaluations that it brought, was heralded as the panacea for the ailing economies of the poor economies. Then, it was widely proclaimed and accepted that it was the over-valuation of the currencies that diminished their propensity and ability to produce and export. Now, it is being touted that it is the large units of their foreign exchange rates that hinder their domestic production and their ability to import the needed capital goods. Almost all of the SAP imbued countries have become dumping ground for second-hand and abandoned capital equipment from the developed economies with consequential economic down-turns in the poor economies.
10. In an attempt to justify the reverse decimalisation of the currencies, it is pointed out that in the developed economies, say like the European Union Countries that have adopted the Euro as their common currency, the 2007exchange rate of the Euro to the dollar is 0.8. They are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands (Holland), Portugal and Spain. Before integration with the European Union, Italy's Lira, for instance, was exchanging at 1600 to one USA Dollar. Also, that the other developed economies like United Kingdom, Australia, Canada, Denmark, New Zealand, Norway, Sweden and Switzerland, have very low units of their respective currencies for a USA dollar. It is also being pointed out that emerging economies, like Argentina, Brazil, Bulgaria, Israel, Kuwait, Malaysia, Poland, Puerto Rico, Romania, Saudi Arabia, Singapore and Turkey, have either maintained low units of their currency exchange for one USA dollar, or having run a virtually collapsed exchange rates have recently decimalised, in reverse, their currencies, by removing one, two or three zeros from the units so as to obtain very low single unit exchange rates. It is some of such countries that Professor Soludo cited as alibi for the proposed reverse decimalisation of the Naira.
11. However there are also developed and developing countries that have not decimalized, in reverse, their exchange rates but have been developing rapidly, with their exchange rates appreciating in the process. Japan, the second largest economy in the world after the USA, maintains a 2007 exchange rate of 117 Yen to One Dollar, down from 140 Yen to the Dollar in early 1980s and 128 Yen in the early 1990s. In fact, in 2006, the Yen-Dollar exchange rate WAS 116 but in order to increase exports to Europe and USA, it devalued slightly to 117 Yen to the Dollar in early2007. Japan has not decided, nor does it intend to remove two zeroes from its Yen in order to obtain1.17 Yen to One Dollar. Indonesia from where we import a large quantity of vegetable oils has a current exchange rate of 9.426 rupiah to $1. South Korea has, today 932 Won to $1. It was 965 Won to one Dollar in 2006. Columbia today maintains an exchange rate of 2043 Peso to one Dollar. A year ago, it was 2356. Venezuela, a member of OPEC like Nigeria, maintains today 2147 Bolivar to one Dollar. In 2006, it was 2650 to the Dollar. In other words, the currencies have appreciated overtime, not by removing zeros but by genuine enhanced economic performance or/and by the government and their Central Banks jealously guarding the integrity of their currencies.
12. I have gone to this length in order to put the Soludo currency experiment into the necessary perspective and to show that it is not an original strategy, designed to make any significant positive change to the Nigerian economy, nor to increase the foreign exchange rate value of the naira. It is a reverse SAP, that will not only confuse the masses in Nigeria and jeopardise the financial and the monetary systems but it will further pauperise the common people, while surely enriching an insignificant few, the speculators, the bankers, the black marketers, the financial touts and the fraudsters. The "Soludo Strategic Agenda for the Naira" is one in a series of what the African Development Partners, the IMF and the World Bank will introduce, particularly in many African countries in the immediate future. Already, Ghana has decided to knock off three zeroes from its 9270Cedi to the dollar, to become 9.3 Cedi to the Dollar and thus makes Ghana's cedi to look respectable in the foreign exchange market. It will be remembered that at its introduction, Ghana's Cedi and Nigeria's Naira were of equal value. So, what is proposed for Ghana like for Nigeria is a fluke.
13. The naira will not have appreciated in value if and when the proposed N1.27 = $1 comes into being. Nor will the Naira's real worth increase merely by making 20 naira the maximum currency unit. In fact, while the highest unit of the naira today is 1000, when the Soludo N20 comes into circulation, it will really be N2000 , whose two zeroes have been removed to deceive the public. The N5 note will really be N500 , the N10 note will really be the N1000 and the 50kobo coin will be 500kobo or N5. By admitting now that the introduction of the N500 and the N1000 notes caused inflation, the N20 note, with the two zeroes knocked off, will cause higher inflation.
OTHER IMPLICATIONS OF THE STRATEGIC AGENDA FOR THE NAIRA
14. The market and the free exchange rate regime having failed to propel real growth in the economy, the monetary strategists now wish to resort to Mathematics for possible salvage. When, in 2006, Zimbabwe, whose dollar was exchanging at 25,000 to the dollar, dropped two zeroes, so as to make the exchange rate 250 to One US Dollar, there was a lot of sneering and jeering in the European and American media against President Mugagbe for running a "voodoo" economy. In Nigeria, I have always accused the Central Bank for perpetuating a 'Kalo- Kalo' economy since 1986 when the auctioning of foreign currencies began in Nigeria. It will be worse if and when the Soludo Strategic Naira comes into being.
15. The first and the obvious outfall of the system will be the cost of introducing the new currencies and the accompanying coins. After the enormous cost incurred by the Central Bank to print the N100,N200, N500 and N1000 notes and the coins therewith, five new notes of 50 kobo, N1 , N5 , N10 and N20 will be printed and new coins of 1 kobo, 2 kobo, 5 kobo,10 kobo and 20 kobo will also be minted at another enormous cost to the economy. If we do not get it right at our first attempt but, as in Brazil which Soludo alluded to, we get it right only after many times, the cost may be indeterminate. But the cost element may be the least of the ill- effects.
16. More fundamental are the costing problems to which the strategy will give rise. For instance, the commodity seller who today charges N100 for his goods is not likely to agree to charge one Naira immediately. He will possibly charge 1.50 or N2 in the belief that he has considerably reduced his charges, forgetting that he has thus charged 150% or 200% of his former charges. The difficulty will increase, the lower the amount of the present charges. For instance, the roadside roasted maize seller who charges 50 kobo for an ear of corn today will probably charge 1 kobo which will be the lowest coin in the strategy. 1 kobo in the strategy will be the equivalent of 100 kobo, twice the present 50 kobo. So, the minimum price chargeable for any commodity under the strategy will be 1kobo whose real value will be the equivalent of the present 100kobo. Similarly, the wage earners whose take home pay today is N7500 per month is not likely to be happy to accept N75 per month, because the costs on which he has to spend much of his earnings would have virtually doubled. What will the banker charge for the 2.5 kobo per cheque leaf that he charges currently ? In the real sense, he should charge 0.025kobo.He will possibly not be willing to deal with too many zeroes, and so will likely charge much more, particularly as the CBN is not all that efficient at effectively policing the banks and their multifarious charges.
17. Thus, the fraud that may accompany the introduction of the Strategy is likely to be most prevalent in the finance houses. The tendency to inflate the profitability in the sector immediately before its coming into operation cannot be wished away. A finance house or a bank that has been making 10% profit may declare 20-25% profitability, or in its assets, in the belief that when the two zeroes are removed from the totality of its assets, profits or earnings, it will be at an advantage. So, if he declares 2 million Naira instead of 1 million Naira profit by the time the two zeroes are removed, he will be twice better off. It happened in Brazil, Zimbabwe and in other countries that have gambled with the strategy. This has been described as voodoo. It has failed and will continue to fail for a long time after its introduction. It is easier for sellers to jerk their prices up proportionally than to reduce them equally proportionally and on time. In Nigeria, prices that go up hardly ever come down appreciably. During the time lag, the consumer, the wage earner and the producer will suffer in the same manner that he suffered under the Structural Adjustment Programme, when immediately afterwards the consumer could no longer buy a new car, the borrower saw his debt disproportionately higher and unrepayable and the worker saw the deterioration in the purchasing power of his income. Goods and services that today sell for N137 will hardly sell for N1.37 but, say, N1.40. If at all it ever comes that low. The gradual process of acceptability will mean a longer process of hardship for the majority of our people. Soludo said that the strategy will lead to Naira convertibility. However, unless Naira convertibility precedes the introduction of the strategy, a black market will develop of greater proportion and devastation than developed with the devaluation of the Naira Since 1986. If the convertibility of the Naira precedes the introduction of the strategy, it will be unnecessary and unreasonable to pay part of any State or Federal allocations in dollars because the Naira will be a convertible currency not only to the dollar but also to any other currency that the governments may need. If the convertibility does not precede the introduction of the strategy, the state governments, like the banks, will be a veritable route for funding the black market. In any case, what authority will the Central Bank have ito control how a State Government spends its money? So, the statement that the State Governments will be paid partly in dollar but will not be permitted to withdraw dollar cash for the settlement of their external obligations will be unenforceable. In any case, why pay statutory allocations in dollar which is not the Nigerian unit of account or medium of exchange ? Even consumers, who, today, open domiciliary accounts in foreign currencies withdraw from them at their convenience. Otherwise, there will be no incentive to open such accounts. The market will not deepen but will also be frustrated and may lead to greater flight of capital, because confidence in the workability of the system will wane.
18. Furthermore, at present, and according to the CBN annual report of recent years, the inflow of foreign exchange into Nigeria through Nigerians and others from abroad had increased and is increasing. That is largely because, at present, $100 sent from USA to anywhere in Nigeria is the equivalent of N12,750. At the introduction of the strategy, the incentive for such inflow in the short to medium term will drastically reduce and consequentially reduce the foreign exchange quantity available to deepen the Forex Market. The foreign investor, like the domestic investor, will likely want to watch and have a waiting time and observe how the strategy will work out before committing his resources into new or existing the ventures. The risks involved and the management skills, techniques and resources needed to sustain the strategy is possibly beyond the capacity of a non-industrial and import dependent and export dependent economy like Nigeria's. It is a gamble whose success is unpredictable.
Also, the psychology of the person worth 1.27 million naira today suddenly seeing himself worth 12700 naira cannot but be taken into account, even though his net worth would not have in real value diminished. His first reaction will be to assume that since 1.27 naira will exchange for 1 dollar, he will similarly be a dollar millionaire. It is only gradually and slowly that he would realize that he will not be worth that much. Some of the Nigerians that spoke to me in Canada from USA, Canada and Europe, immediately after the announcement of the Soludo strategy hailed it by assuming that 1.27 naira of their present holdings in Nigeria would translate into one USA dollar .When they became aware that no such revaluation of the naira would have really taken place, they became hostile to the strategy. Money is what money buys. The confidence in a currency is the basis of its acceptability and survival. That acceptability and survival will take long in coming with the introduction of the strategic naira. In fact, the strategic naira will trigger the balking of a stable exchange rate of the naira .
Finally, but not exhaustively, confidence in currencies treated in the way that the Central Bank wants to treat the naira is usually absent. This is why in almost all cases the names of the currencies are changed and new names are adopted. Although the naira has been bastardised since 1986, confidence in it at home and abroad is still there. On the introduction of the strategic naira that confidence might vanish, particularly if the old and the new Naira circulate side by side for a while. That was why when Nigeria changed from the pound, it adopted the name naira. With what new name does Soludo propose to replace the naira? In some countries, even when they gave the epithet 'new' to describe their old currencies, their citizens were still skeptical. For instance, Azerbaijan renamed its old manat as 'new manat'. Bosnia and Herzegovina, 'convertible mark', Israel, ' new shekel'. Peru, 'new sol'. Serbia and Montenegro, 'Yugoslav new dinar' and Romania, 'new leu'. In other countries entirely new names were adopted like euro for the European Union countries. Brazil adopted real in place of peso. Eritrea adopted nakfa in place of birr, Sao Tome and Principie, dobra, in place of franc. Madagascar, ariary, in place of franc. Lesotho, malieti instead of loti. Seychelles, rupee instead of franc, amongst others. Some of the new names were adopted on nationalistic basis or at integration of independent countries into a union. Those that adopted new exchange rates by merely dropping zeros and by mathematics were derided as voodoo countries. This was why they hardly ever got it right at first or second attempt. It is a gamble not worth taking in Nigeria at this time. It is not necessary to follow failed states with failed currencies in the mad rush to be like the Joneses, by merely and arbitrarily removing one, two or three zeros from bastardised currencies. The strategic agenda on the naira cannot be a template for a stable and enhanced naira exchange rate.
WHAT TO DO WITH THE NAIRA
What then should we do with the battered naira? It is better to leave it as it is and take measures to continue to strengthen it. The exchange rate of the naira has been stable at 127.50 to the dollar since early this year, up from 132.50 in 2005.There is no doubt that even at 127.50 to one dollar the naira is highly undervalued. The naira should be made convertible so as to reduce exchange rate pressure on it. This is possible in view of the appreciable foreign exchange reserves that the country has built up ,which is today about the 21 st largest in the world and 8th in the low and middle income countries in Africa, only Algeria and Libya have higher foreign exchange reserves than Nigeria. South Africa, with about 50% of Nigeria's external reserves, makes its rand convertible while Nigeria's naira remains inconvertible. The rand has appreciated against the dollar by about 30%, from 8.6 rand to one dollar in 2001, to 6.8 rand to the dollar today. When the Babangida regime began the devaluation of the naira in 1986, it was assumed that the exchange rate unit of the naira to the dollar would not be higher than 5 to 1.When, in 1993, the naira was stabilized at 21 = $1, the advice to the Abacha regime was that gradually the rate should be brought down to much below 20 = $1. It is no longer possible today because of the misbehavior of the Obasanjo regime .But it is possible to bring down the unit exchange rate of the naira to the dollar to about 100 = 1, through a more dynamic performance of the Nigerian economy and by a closer coordination between the monetary and the fiscal policies of government ,without much disturbance to the existing incomes, wages and prices policies. The Central Bank should not act alone as if the naira is its private property.
Pari passu with a healthier naira should be a reducing rate of interest ,much less than 10% for agricultural and industrial investments. Nigeria will remain uncompetitive in international markets as long as the rate of interest remains as high as 20%, compared with 4.5% in USA, about 5% in Western Europe and 1.9% in Japan. For small and medium industries in Japan, for instance, the rate of interest is as low as 0.7%.The naira cannot continue to appreciate if Nigeria continues to remain import-dependent even in those goods and services in which it should be an exporter .The monetary policy of the Central Bank should not be essentially devoted to reducing the quantity of naira in circulation, through arbitrarily withdrawing naira from the banks, It should be devoted more to assisting in the increased productivity of agricultural,industrial and service goods, as the Australian Central Bank had done over the years and as it continues to do .In other words, in the Equation of Exchange of MV = PT, the concentration should not be on M(quantity of money) and its circulation but also on T(quantity of goods and services) as they are affected by price. It means that for the naira to continue to appreciate exports must increase considerably and imports must reduce also considerably.
Nigeria's share in the global output of goods and services must increase, so that by our running lower external deficit, Nigeria will continue to accumulate larger reserves and continue to adopt more planned economic policies that will make our economy less vulnerable to external shocks. All these will make the naira exchange rate less volatile and increase the confidence of domestic and external investors in it and in the economy.
Better fiscal, monetary and exchange rate policies will bring down the rate of inflation, even though low inflation rate per se does not necessarily lead to economic growth. However, with the low external debt profile of Nigeria today ,rapid growth, decreasing rate of inflation and increasing external value of the naira are possible and attainable
What is important in our present stage of development is not to continue to take deleterious dictation from abroad but to put up development programmes that will be the result of joint efforts of consumers, workers, investors, tax payers, voters and the citizens in general. Our government should ensure that the generality of our people know much more than hitherto on how the economy and our finances are managed, so that those who are able can make appropriate input and exert control over the activities of government ,including those of the Central Bank. In that case, the type of sudden bombshells from the Central Bank on banks, insurance and on the strategic naira will, in future, be avoided. That is the import of the Directive Principles of State Policy entrenched in our Constitution. Hitherto, the Federal Government and its Central Bank have been under the undue control of the 'development partners'. They are those that we should hold responsible for the introduction of the proposed strategic naira. Although the Governor of the central bank announced the strategy on the naira, it is the voice from abroad. Professor Soludo should not be condemned , but the Obasanjo regime that allowed itself to be held hostage and thus totally surrendered the economic, financial and monetary policies of Nigeria to foreign interests since May 29, 1999. Soludo, being an icon of the Obasanjo regime, did not realize that a new regime came into being on May 29, 2007. His current actions may be petulant and peevish ,but he should be pardoned and be correctly reoriented henceforth.
Sam A. Aluko
Professor of Economics
Writing from:
Windsor, Ontario, Canada
20th August, 2007
|
Authors 
Posted by Robot| 07.09.2007 13:05