By John Savok
On the matter of devaluing the Naira, I do not see any objectivity in the theories being canvassed. I am clearly on the side of the Government keeping the Naira at its present value and if possible, find means of making it gain more value against the foreign currencies. I will start by commenting on some of the reasons given by “the experts” on the need to devalue the currency:
• An erudite economist asserted that we do not have sufficient Foreign Reserves to back up the value of the Naira. At the present state of the world financial economy particularly as it pertains to oil export dependent nations, I do not see us building up our foreign reserves until the economy recovers.
If the value of the Naira is greatly dependent on the ability to have huge foreign reserve, then the Naira will continue on the downward trend, and I wonder at what point it will stop. Maybe the experts can advise us on the ratio of foreign reserve that is required to keep the Naira at a determined value.
The value of the Naira keeps fluctuating as our foreign reserve fluctuates. Please let the experts advise us and tell us the multiplication factor. It is needful to recall that we never heard of anything called foreign reserves during the military era and we were a nation that was greatly indebted at that time. Still, the Naira had more value than it does today.
• Another expert postulated that if we devalue our currency it would bring in foreign investors into the country. I do not understand how. The main reasons why foreign investors have not come into Nigeria is simply because of our unstable economic policies and ever-changing government position on goods and services. Moreover, the issue of insecurity and corruption are major factors debarring foreign investors from coming. Government policies and restrictions keep changing depending on the mood of the person at the helm of affairs in that industry.
Every minister comes with his own ideas and policies changing what is on ground overnight without minding the commitments of individuals or companies on those matters and how it affects their investments. An item can be legit to import today and by the time you wake up tomorrow, it has been banned. Even when embargoes are lifted, the Custom boys wait for a year to receive the government circular lifting the embargo. Meanwhile a mere announcement by a newscaster on an embargo is sufficient for implementation the next day.
Until security of lives and properties, and also security of investments are guaranteed, the expert postulation of a devalued Naira attracting foreign investors is a sham. Most oil companies pulled out of on shore drilling because of the incessant kidnapping of their staff. The experts may wish to tell us when last he went to his home town or village without any form of upgraded security and he felt comfortable walking around on the streets without being scared of getting kidnapped.
Additionally, corruption also prevents investors from coming to Nigeria because there are several cases of companies intending to invest in Nigeria and the government officials were already demanding bribe and shares in the venture. How will a devalued Naira change this?
Moreover, the processes involved in getting approval for legitimate ventures and obtaining licences can be very frustrating. I know of an investor who came from the UK to invest in Nigeria and four years later, he still could not get the necessary approvals he needs to commence his business legitimately. He felt he had wasted his resources in the country.
With the present state of the Nation, which the present administration is doing everything possible to fix, investors in Nigeria are only those who come for short-term investments, carry their funds away immediately and the greater beneficiaries are themselves and not Nigerian citizens. Basic approvals they will gladly grant you in developed countries once you have successfully scaled through their security screening process is an insurmountable mountain in Nigeria, except of course, the venture belongs to a top public official or his cohorts.
All these problems cannot be solved by a devalued Naira. Until these issues are addressed, the economic theory postulated by the professor is a fallacy.
• Another reason stated by critics is that a devalued Naira will enable the Government have more cash flow to implement its policies. What a joke! We all know that the inflation rate in Nigeria is firstly artificial in most cases because value of goods and services really has no pricing index.
A house can be bought today for N20 million and sold for N150 million the next year. Yet the road to the house or estate is untarred and lacks basic infrastructure. Same value will get you a house in Beverly Hills in the United States with swimming pool and all other amenities. The value of things in Nigeria is premised on how much people have “gotten from the Government” at any point in time.
Service providers in whatever capacity look for the slightest opportunity to increase their prices with any increase in fuel, dollar tariff which are not usually commensurate with the items raised. Already, without an official declaration of an increase in the US Dollars, prices are beginning to sky rocket. Even orange sellers have increased their prices, much less, the organised sector that really needs the Dollar. This will definitely have a corresponding effect on the ability of the Government to execute its policies.
Yes! the Government may be able to pay off its local creditors but subsequent contract execution may not be achievable. For instance, if the price of a car the government intends to purchase right now is N4.5 million at the present value of the dollar, if the Naira is devalued, the price may increase to N6 million and the extra cash the government has would be useless became the unit cost the government would have been able to buy at the current exchange rate would be unachievable at the escalated rate. But how about the creditors themselves, the money is no longer worth what it was by any standard of measure because of the devalued currency and the corresponding hyper inflation. So who is fooling who? Hence work done is zero.
This is my argument. In the last 10 years or more prior to 2015, people had free access to Forex which they could acquire at seemingly reasonable rates. But how much investments did our would-be investors bring into the country. The normal habit of a typical Nigerian is to keep whatever proceeds he gets from his transactions abroad and then return to Nigeria to buy more dollars; make money abroad, keep the money there and return back to Nigeria to buy more dollars for his business. Sometimes, they only come back with enough money to change at the black market and buy more money from central bank for their transactions. The Nation does not necessarily benefit from their businesses. Most of them don’t even pay taxes on the transactions they carry out abroad. It’s a vicious circle to the detriment of the Government.
Secondly, a lot of companies that hide under the guise of importing machineries either inflate the price and cash in on the excess or end up changing the reason for their transfer and use the money for other things as soon as the funds have reached the destination. The truth is that there is a lot of scam going on in the forex trading.
I do not believe that an unorganised money sector like the Nigerian Bureau de change (BDC) which is popularly referred to as the parallel market should form the basis for assessing the value of the Naira. We are all aware that there are lots of ill-gotten wealth in hundreds of billions in people’s houses in Nigeria today. Since, they did not work for this money they are willing to buy the dollar at any price it goes for, hence, no matter the value, once they have a requirement for the Dollar they just buy at whatever the cost. It then becomes announced that dollar sold at X amount today. I think it will be unfair for a serious nation to benchmark the value of its currency on the type of arrangement in our nation.
In developed economies, the BDC are meant for tourists and not business men. People change the insignificant amount of money in this sector. However, in Nigeria, business men change millions of dollars at BDCs because they always claim they are not able to purchase the money from the commercial banks. I believe tax paying Nigerians who do legitimate businesses and engage in transactions and engage in services and goods not prohibited by the government always (at least in the past) get their moneys from the CBN. Check and you will observe that most investors complaining seriously don’t even pay tax and have not done anything to contribute to the influx of dollars into Nigeria to enable the CBN resell.
What I will encourage would-be buyers of dollars for business to do is also to look for how they can purchase local items and process them properly so they can export outside the Country and whatever they get from their proceeds is in turn, used to buy what they need for their projects. This would go a long way in reducing the pressure on the Naira. Also, Nigerians need to become patriotic in their thinking. A lot of Nigerians that have benefited from the System should also render their returns in contributing to the nation. For instance, Nigerians that were given oil blocks and other profitable ventures on a platter of gold end up buying super luxurious houses and estates in the UK, USA, Dubai Switzerland to mention a few instead of bringing back the proceeds back home to Nigeria, which would increase our FOREX earnings. These houses and estates are worth hundreds of millions of GB Pounds, dollars etc and would significantly boost our FOREX earnings. Instead, they keep their proceeds in investments abroad and still come back to Nigeria to struggle for the little dollars left at home for their luxurious conveniences, haba. Government needs to institute policies that will make local beneficiaries of our oil wells and other national collective ventures invest more at home. They got the wealth at home, hence, they should invest at home. Some people I know personally benefited from huge contracts in the last five years and never had any investment in the country. All their proceeds were taken out for further investment abroad. We all need to become patriotic.
To ensure that foreign investors keep coming into the Country, the Government needs to guarantee the safety of their returns. But they must be genuine investment and not the quick turnaround that does not put any form of development into the economy. I would even suggest that the kind of foreign investment we should encourage more are those that will help process our raw materials in Country, thereby creating jobs and for their returns they export. Hence they will not require buying dollars locally. Nonetheless, the investors that genuinely need to take their funds home should. But within the capacity of the economy. A devalued Naira will not generate more forex automatically.
The Naira/Dollar issue in my sincere opinion is just a game of wits. Given the present disposition of the Government where significant progress is being made to check corruption, the amount of excess liquidity within the country will be minimised and people will no longer be willing to buy foreign currency at any price. If the Government keeps its position on the Naira, and tightens its noose on how people can round trip the Forex, it’s just a matter of time that the dollar will begin to drop.
With all the noise of import and export and the need for money, all we need in life to survive is food and clothing. All these we can provide for ourselves locally. It’s about time our big men cut down on their expenditures and stop wailing at every policy of the Government that does not favour them.
Savok, a civil servant, is resident in Abuja. [The Guardian]
