esident Mohamadu Buhari may have, so far, given the clearest preview of his blueprint for the revival and sustenance of inclusive growth of the Nigerian economy, in a recent interview with a French media house, in Paris. Buhari’s observation on the Nigerian currency was that “the naira has been devalued, as it used to be around N140/$ and now it is hovering around N200/$ and above”. Consequently, the President cautioned that “I don’t think it is healthy for us to have the Naira further devalued”.
Furthermore, PMB explained that, “we are therefore getting the
Central Bank to make modifications in terms of foreign exchange
availability for essential industries, spare parts, essential raw
materials and so on, while liberal access to “CBN’s depleting forex
reserves” will be denied to importers of such things like toothpick and
rice for which Nigeria has adequate capacity”. The President therefore
concluded that “we don’t need to give our hard earned currency for that,
but those who insist on toothpick from Europe or from China, instead of
using Nigerian toothpick, they can go and source their (own) foreign
What is clearly evident from the above narrative, is Buhari’s firm
endorsement of the CBN Governor’s recent steps to reduce pressure of
dollar demand on ‘CBN’s reserves’ and Naira exchange rate’.
Indeed, PMB’s historical antecedent suggests that he was never
enamored by the usually extravagant promises that a weaker naira would
jump start or successfully stimulate economic prosperity.
Indeed, Daily Independent Newspaper of 17/9/15 reported that Buhari
had recalled at a Town Hall election campaign in Abuja, that “he
(Buhari) refused to remove subsidies on petrol and devalue the Naira
when he was Head of State (1983-5), because it would destroy the
economy”. PMB also revealed that “when we came into power in December
1983, we were approached by the world powers at some stage to devalue
the Naira, remove petrol subsidy and remove subsidy on flour, but we
refused”. According to Buhari, “the issue was that if we get plenty of
Naira, what are we going to do with it? We (had) even stopped farming
and the only thing we get money from was oil and that was being paid in
In retrospect, however, soon after he was ousted from power, the IMF
came calling with a Structural Adjustment Economic Plan which they
boasted would chart our course to El Dorado! Regrettably, the succeeding
regime of Ibrahim Babangida, ultimately, smuggled in SAP under the
guise of a home grown variant which horrifyingly debased the Naira and
kick-started the odious brain drain of some of our best human assets to
Europe and America and inadvertently triggered the steady descent of our
economy and our national values.
Ironically, PMB is back as President, thirty years later, when the
Naira exchange rate has alarmingly climbed down from less than N1=$1 in
1985 to N200/$ today; curiously, however, appropriate pricing of Naira
and fuel subsidy still remain pivotal issues. There is also, growing
international pressure, once again, to further devalue the Naira by
between 15-20% i.e. to N230-240=$1, with the carrot of more portfolio
investment inflow, despite their fickle disposition.
Nonetheless, President Buhari’s observations in the France 24
interview, may be an early reiteration of his position thirty years ago,
that “devaluation would destroy the economy”.
Nevertheless, we need to ask, whether Buhari’s claim of the
destructive capacity of devaluation can be substantiated. For this
purpose, let us assume, for arithmetic ease, that the dollar appreciates
100% against the naira to exchange for N400=$, even if such rate of
appreciation may deceptively appear presently, unrealistic; however, we
must remember that the same dollar exchange rate appreciated from 50k=$
to N200=$ between 1975 and 2015, i.e. a 20,000 percent rise despite
relatively increasing surplus forex earnings!
In reality, N400=$1 exchange rate will reduce the current minimum
wage to less than $50 per month! Thus, the minimum wage earner, may have
to work 2X10 hour shifts in a 24 hour day to earn the income required
to maintain his old consumption pattern before devaluation! Similarly,
all other income earners, including savings, would also lose up to 50%
of the value of their incomes; while, all equity in the stock market
will be reduced by 50% of their current dollar value if the dollar
appreciates to N400=$1.
Incidentally, the inflationary spiral which comes with weaker Naira
exchange rates will also reduce consumer demand with adverse
consequences on industrial capacity utilisation, fresh direct investment
and the already oppressive rate of employment. For example, while the
manufacturing sector contributed more than 10% to our gross domestic
product in 1986 when the Naira was N2.02=$, regrettably, however,
manufacturing barely contributes less than 5% to the GDP; with today’s
exchange rate of N200=$1, thus by extrapolation, a N400=$1 exchange rate
will inevitably also further weaken the contribution of the industrial
subsector well below 5% of GDP.
Furthermore, higher raw material costs will be induced by weaker
Naira exchange rates and indisputably make “made in Nigeria” goods
uncompetitive and therefore promote Nigeria as an inviting dumping
ground for myriad imports.
Similarly, sustainable fiscal plans, will clearly become a challenge
if dollar appreciates 100% against the current Naira rate; for example,
although the annual budget size may nominally double, but such bloated
budgets would barely command less than 50% of their former real values
Incidentally, if the dollar appreciates to N400=$1, our celebrated
GDP of about $510bn with N155=$1 exchange rate, would clearly become
embarrassingly devalued to just above $200bn.
Worse still, fuel price will also double beyond N200/litre (even with
production from local refineries) if N400=$1, while such price hike
will surely make the removal of subsidy very unpopular. Instructively,
also, if fuel remains subsidized, we may need to dedicate over 20% of
our annual budgets to payment of subsidy.
Evidently, from the preceding narrative, President Buhari’s phobia
for Naira devaluation may be justified. However, it is difficult to see
how further Naira devaluation can be avoided if low crude oil prices
deplete dollar inflow while indiscriminate naira liquidity conversely
The CBN’s recent notice of its intention to mop up over N800bn
surplus naira values from the money market before December 2015,
therefore, clearly portend potentially dark days for naira exchange
rate. Furthermore, the threat from excess liquidity and inflation would
similarly propel CBN’s borrowing of billions of Naira that it would
simply store away as idle funds, despite the attendant oppressive
interest rates of about 12-15% and the crying need of the real sector
for cheap funds.