Devaluation: CBN, Naira and matters arising

CBN Governor, Godwin Emefiele used to illustrate the story.
By Sani Adamu

Entrenching a realistic and sustainable micro-economic policy in Nigeria has been a huge challenge for years.

Although successive administrations have considered various micro-economic policies to strengthen the economy, reduce inflation and stabilise the Naira, economists say much still needed to be done to get it right.

A financial analyst, Gideon James, said many of the measures by previous administrations did not yield the desired results, as the Naira remained unstable.

Although the Naira recently strengthened against the dollar after weeks of free fall at the parallel market, Mr. James said the currency was still exchanging at the black market at more than N280 to a dollar.

Apparently determined to rescue the Naira from further depreciation, the Central Bank of Nigeria (CBN) governor, Goodwin Emefiele, said the Bank would evolve additional measures to boost the nation’s economy and stabilise the Naira.

During an interactive session with editors recently in Abuja, Mr. Emefiele, however, declined to give details of the modalities for the implementation of the new measures.

The CBN boss explained that the Nigerian economy was not as bad as being portrayed, compared with other economies in Africa.

He advised importers to restrict their imports to raw materials and equipment, rather than finished products and food items, to reduce the pressure on the nation’s scarce foreign exchange.

“CBN will soon start a nationwide campaign to sensitise Nigerians on items excluded from importation as part of efforts to save more foreign exchange and stabilise the nation’s currency,” he said.

“If we are able to reduce importation, the demand for the dollar will fall automatically. The country should go back to the farm to produce what was needed.

“Public servants should also engage in farming, because that is the only business public servants are allowed to engage in,’’ Mr. Emefiele said.

According to him, the CBN has ensured reasonable stability in the value of the Naira, by keeping official exchange rate to the dollar at between N196 and N197 to the dollar.

Mr. Emefiele advised Nigerians to always request foreign exchange from their banks at the official rate.

The CBN boss, however, insisted the 22 per cent depreciation of the Naira was reasonable compared with other emerging economies adversely affected by global economic recession.

“for example, Zambia has depreciated its currency by about 48 per cent; same Brazil from October last year till now, while Angola has equally done so by 25 per cent.

He said Nigeria’s situation was not as bad as people think, pointing out that with devaluation, there must be a structural adjustment.

The CBN, he explained, has never followed up with structural adjustment, pointing out that the approach adopted at the moment was to have a 22-per cent adjustment in the currency.

“Let us stop importing tooth pick, tomato from South Africa. That is what we are saying. Nigeria can do without these items. The truth is that the reserves are no longer there,’’ he said.

Mr. Emefiele said the CBN had created the enabling environment to encourage growth of small scale businesses through grant of soft loans to operators.

He said only N60 billion of the more than N200 billion soft loans meant for SMEs had been accessed so far.

Nigerians, he advised, must be patient with the Buhari administration in its efforts to ease the sufferings of Nigerians, noting that savings from the Treasury Single Account, TSA, was so far more than N2 trillion.

Regardless, the National Leader of the All Progressives Party, Bola Tinubu, urged the Federal Government to evolve policies that would stop the Naira-to-dollar link economic operation, to facilitate more economic growth and fiscal stability in the country.

Mr. Tinubu spoke at a conference organised by the Centre for Democratic Development, Research and Training in memory of the late Bala Usman in Kaduna recently.

“Regarding fiscal policy, I advocate the close dollar linkage be explicitly broken. Nigeria operates a Naira, not a dollar-based economy.

“The Federal Government has the sole power and sovereign right to issue Naira without the approval of the American Federal Reserve, the Bank of England or of the host of global oil buyers.

“There is no legal or moral restriction strictly limiting the amount of Naira placed in the system to spawn employment, to match the amount of dollars collected via oil sales.

“For decades, Nigeria has danced in close confines with economic disaster. We have survived, but not thrived; improvised, but not planned.

“Unless we embrace the truth that shaped the Bala Usman’s prescriptions, Nigeria will remain a land of false mirrors, where we look at ourselves, but see something else; a land of past potentials, with a future gone astray.

“The past administrations claimed tremendous gross domestic growth, but all around we see more factories closing than opening.

“Too many projects left undone, many homes unlit, many roads unpaved, and many people with few jobs,’’ Mr. Tinubu said.

He said the country needed economic liberation to free the economy, noting that “before we can free our economy, we must free ourselves of the economic myths consigning us to our current predicament.

“The task before us is grave and daunting. With oil prices declining so steeply, the question is: how will the Federal Government shape fiscal policy so that we achieve optimal economic production and employment under the given circumstance’’.

However, Evans Osabouhien of the Department of Economics and Development Studies, Covenant University, Ota, Ogun state, predicted the Naira would regain its strength again because many Nigerians living abroad had been coming to Nigeria with foreign currencies.

Mr. Osabouhien said this would reduce the pressure on the foreign exchange market and strengthen the Naira.



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  • Invictus

    There is too much talking about diversification but information on items, industries, and what support the government is willing to provide to stimulate interests and investment in local manufacturing of unnecessary imports is unclear. It took well articulated policies, several years of investment and spoon feeding for even the US to stimulate interest of average citizens to start the Micro and SMEs businesses that have produced some world class businesses in the early 90’s. They provided free business coaching/planning to anyone interested in starting a business; they provided grants, cheap and accessible loans, built industrial parks and offered to the startups, gave tax holidays, and nurtured the businesses till they are well establishes… Asian countries followed same path too… Until Nigeria is truly serious by coming up well articulated policies and pursue it with strong determination, Nigeria will continue to import toothpick! This is one best ways to truly provide jobs, cure the country of unnecessary demand for forex that is putting pressure on the Naira, and stimulate the economy. Most of past initiatives have failed because of the lazy approach adopted by government and its agencies. They need to actively seek out new entrepreneurs and nurtured them through the whole stage of business development to achieve this strategic objective.

    • Life is Good

      God bless you a billion times. I have echoed this sentiment to many. This Govt has no blueprint on anything just how much they wanted to spend and possibly steal because they will pay their election sponsors no doubt. Look at power, our greatest bottleneck to jumpstarting an industrial re-awakening for instance, they don’t started by increasing tariffs and so far have I’ve heard about their impossible dream on solar energy generating what was never achieved anywhere in the world till date in more advanced countries being produced in an Africa country that imports common electric components! No vision! No Direction! Just Talk and Talk and Talk… getting fed up with this govt gradually.