Our Next Collective Concern – The Begging Questions II

In part 1, the argument was a general overview of how a revisit of the exchange could be asked: in continuation, it would be necessary to elucidate how Nigeria got into the foreign exchange-mechanic quagmire. I could postulate that it started in 1975 when the late General Murtala Mohammed led a coup that toppled the government of General Gowon; and with it, a marked divergence in foreign policy: Nigeria, from thence onward would use its oil revenue generated economic power to liberate the rest of Africa, particularly the southern region of Africa, from colonialism. Though Murtala Mohammed did not live long, his successor, the then General Obasanjo, continued with the same gusto. Britain, however, was in the way. To get Britain acquiesce in a worldwide effort against apartheid, Obasanjo went ahead to nationalize all British holdings in Nigeria. We were all proud of what he did, though those countries hardly remember Nigeria's sacrifice.

In doing so, the likes of Barclays Bank; Standard Bank; British Petroleum; Shell Oil, and etc. became Union Bank; First Bank; African Petroleum; National Oil, etc, all to the dismay of the capitalist West. Britain was, however, incapacitated to retaliate, because the balance of trade, at the time, was still in Britain's favor. There was a strong supposition that Nigeria needed to be punished for that audacity, or at least its wings, clipped. Margret Thatcher, the British Prime Minister then, had an exceptional relationship with President Reagan of the U.S. The U.S. at the time was buying over 80% of Nigeria's oil, but the U.S. in the period 1979 to 1980, halved its oil imports from Nigeria for some reasons. Could this be a coincidence, or what? By this time, Obasanjo had handed over to President Shewu Shagari, whose government was somewhat slow to react to the effect of the reduced oil receipts.

From the beginning of the oil boom in 1973, government spending (both recurrent and capital expenditures) became largely funded by oil receipts. This meant that traditional taxation that ought to be the primary funding of government treasury was not encouraged. Taxation should have made the government accountable to the people, the taxpayers, were it to be. Using the proceeds of oil to run government is an anomaly, because it is open-ended: government is run in naira and not in dollars; government then auctions the petrodollars to obtain naira from the people to run government, which government spends. The next time the naira travels back to the government treasury; it is through auctioning of petrodollars again and not through taxation. The politicians, or the soldiers before them, realize that the money in the government treasury is the oil receipt, and not taxpayers' money; because nobody pays any tax. Yet, the people prefer to call it taxpayers' money, even when they do not pay tax.

Such openhandedness in the chain creates a disconnect between the government and the people: That was the difficulty the Shagari's government encountered in the face of the unexpected reduced oil receipts in 1982. By 1985, though Shagari had been toppled, the financial situation of the government was pathetic, and Nigeria was defaulting in its payments, as the government was almost insolvent: meeting its financial obligations, both locally and externally became a struggle. The World Bank and the IMF heeded calls to help: the two Washington organizations concluded that Nigeria had a flawed tax system that needed to be reformed; but in the interim, the government should go ahead and devalue the naira. This was expected to recapitalize government treasury immediately, in order to meet its financial obligation since workers and local contractors were being owed in naira. At that critical junction, Nigeria was to become unlucky, and it is still paying the price: Babangida came in.

There is no gainsaying that Nigeria needed someone with a strong political will, at the time, to change that course of our history: only he, Babangida, could have done it. The evil genius and his Midas touch economists, however, chose the wrong option for whatever reason: this was after they had made all Nigerians believe that it was our collective decision; to make it look real, they orchestrated a national debate on the issue that was Greek to 99% of Nigerians, including this author. The IMF had suggested a fiat devaluation of the naira, but "we" chose to allow market forces to determine the value of the naira through the auctioning of the petrodollars. The impact was immediate – the national treasury was recapitalized; awash with so much naira, the government did not even know what to do with it. It was turning out to be the elixir for our sick economy. Was it? It has, however, turned out to be chemotherapy – attacking both the bad and the healthy cells of our economy; and it is killing the whole body.

It was a different story outside of government in terms of success. In the general society, there was erosion of wealth. People watched helplessly as their hard earned wealth were being transferred to the government, unproductively, through the auction generated exchange rate. Nigerians were waking up to see those who had made cheap money through inflated contracts determine the exchange rate for all of us, by willing to buy the petrodollar at unreasonable rates. Wealth producers (factories, farmlands and education) were worse hit: firstly, it was retrenchment of workers but finally closures of factories; the standard of education was seriously affected. As the naira started chasing less and less wealth, those that could take flight took flight: investors divested- the likes of the motor assemblies, etc. our best brains also took flight. Capital and human flights became the order of the day. With the cream of the society taking off, the rest of us were left with charlatans, some of whom would gravitate towards governance, where the money is.

The link between the exchange rate mechanism, tax reform and possible reform in the insurance industry is interwoven and will have to be a topic for a future date. It is my understanding that the innocuous exchange rate mechanism that was seemingly introduced in 1986 should be revisited: it could be cause of all our problems.

Samuel Akinyele Caulcrick