Saturday 31 October 2015

Devaluation: Sanusi’s Faux Pas

Nigeria Naira
by: Tony Ademiluyi

The legendary Afrobeat maestro, the irrepressible Fela Anikulapo-Kuti, had a hit song with a resounding theme “… dem don release you but you never release yourself.” His immortal words enraptured in the rhythm of poetry encapsulate the tragedy of leadership in the “dark continent” which always seeks validation from external forces to solve our problems.

Many Nigerians still remember the debates propped up by the then military Head of State, Gen. Ibrahim Babangida, over the country’s decision to devalue the naira. The street referendum was in total opposition to the agenda and the wily General hurriedly instituted a homegrown economic blueprint which he named Structural Adjustment Programme that did what exactly his bosses in the International Monetary Fund wanted him to do – the devaluation of the naira. This arguably, is the remote cause of all the nation’s economic woes till date.

It is sad that the erstwhile Governor of the Central Bank and now Emir of Kano, Lamido Sanusi, made a call for the devaluation of the naira at the All Africa Business Leaders Awards in Lagos. He raised two key issues – the removal of the fuel subsidy and naira devaluation. We will focus only on the latter and leave the former for another day.

Sanusi took a swipe at his successor in the CBN when he opined, “It is wrong to think that you can keep the naira at a certain level when the price of oil is falling without depleting your reserves.” Going down the history lane once more, devaluation of the naira has been a dismal failure since 1986. It has led to a downward spiral of the economy and kept it on her knees. It raises the base lending rate of loanable funds which will make job creation worse than a mirage thereby worsening the already terrible state of unemployment in the country. It also massively increases the prices of goods and services which will make life worse than a living hell for the downtrodden who do not have a safety net by the callous system.

In Chinua Achebe’s “Anthills of the Savannah”, John Kent a.k.a. Mad Medico, a Caucasian hospital administrator in the fictional state of Kangan blasted African bankers for wearing suits in the scotching sun of Africa reminding them that it was high time they adjusted to the realities of working in the tropics. Sanusi, a representative of the confused “intelligentsia” is symbolic of the Judge in another of Fela’s hit song, “Colonial mentality”, who will wear a European wig and jail his brother away.

Currency devaluations work best with export-dependent countries who want to fuel their export base by tinkering with their local currencies in order to make their exports more attractive and competitive in the global markets. Japan was able to rise from the ashes in just 20 years after the battering they suffered from the 1945 bombing of Hiroshima and Nagasaki because they understood this economic parlance. By making the yen near worthless, they were able to take over the automobile market all over the globe giving Ford and Chevrolet a fierce run in the American home market. The shift of the British economy from manufacturing to service is attributable to the reality that the Morris Minor and Jaguar could no longer compete with the Honda, Toyota, Mitsubishi and other range of Japanese cars that took the world by storm. The devaluation of the yen made a whole of economic sense as the revenue generated from exports created a lot of jobs back home and created an unprecedented spread of wealth so much so that they hosted the world in the 1964 Olympics in Tokyo and it’s the country with the strongest job security in the world. The cat and mouse relationship between China and the United States of America is as a result of the potent use of the devaluation of the Yuan or Renminbi by the former. The US complains incessantly about China’s incentives that have created a large export base with a poorly valued currency which has given America a trade imbalance because of their insatiable appetite for cheap Chinese imports. China is also a major creditor to Uncle Sam as she sturdily supports her deficit financing.

Nigeria, the most populous nation in Africa, does not export anything other than crude oil whose price is not even within our control. This export is made further a piddling because of our massive importation of the finished products and the gargantuan costs associated with it. We also import everything from matches to toothpicks and even food items that could be produced for export here. What then is the sense in a devaluation? For our how long will we continue to outsource our thinking faculties to the West? Ghana was a victim of it when her former President Jerry John Rawlings bowed to intense pressure from the Bretton Woods Institutions in the 1980’s to devalue the cedi. The progressive administration of John Agyekum Kuffour revalued the currency to 10 cedis to $1 in 2007 and their economy has been in an upward swing. The port congestion which has been a constant source of headache to government of all shades has its roots in devaluation and its rumours which have left importers at the mercy of their bankers and the vagaries of the economy that is largely unpredictable.

It was commendable that the Central Bank rebuffed the call by its ex helmsman to cause another gargantuan economic woe by turning down his suggestion. President Muhammadu Buhari has once kicked against it and his current body language still suggests that he is sticking to his guns in the interest of Nigerians.

Sanusi has failed to completely metamorphose into a sage which his new position is meant to confer on him. Often times, many things are better left unsaid by some people. It is high time he woke up to this new reality and stopped stoking the embers of needless controversies.

- Tony Ademiluyi is a policy analyst

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