Naira Devaluation: Pros And Cons, By Experts

Financial experts, analysts, regulators and stakeholders, last week, converged on Lagos to x-ray the pros and cons of naira devaluation against the backdrop of the rising scarcity of dollars, Daily Trust reports.

It was at the maiden edition of the Cable Colloquium, with the theme, “The Naira on Trial: To Devalue or Not.” It was a serious session which examined the vexatious debate on the exchange rate against the backdrop of mounting pressure on President Muhammadu Buhari to devalue the naira.  The president had made it clear and unequivocal that he was not ready to devalue the naira.

Recent developments in the polity have made the debate even more intense and emotional. Among the developments are the restriction of access to some imported goods of 41 items, the ban on sale of dollars to Bureau De Change (BDC) operators amidst the scarcity of the foreign currency.  Most of these developments are precipitated by the shocking and sharp drop in the price of crude oil from over $140 per barrel to around $30.

Is the devaluation of the naira the solution to the nation’s economic woes? This was the poser experts pontificated about, but with an aggregate view that devaluation would not solve the problems of Nigeria if gleaned from the perspective of the country being an import-dependent economy.  

On the panel were the highly focal Governor Adams Oshiomhole (keynote address speaker), renowned economist and chief executive officer, Financial Derivatives, Mr. Bismarck Rewan, director,  Monetary Policy Department  of the Central Bank of Nigeria (CBN), Moses Tule, Labour leader, Comrade Issa Aremu, director-general of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, and founder and chief executive of BusinessDay, Mr. Frank Aigbogun.

Oshiomhole, who opened the discussion, traced the history of crude oil price fall from $148 per barrel to the current price of about $30. When things were perfect with crude oil at $148 per barrel, there was no debate on whether naira should be devalued or not, he said, adding that unfortunately, government didn’t take a deliberate action to save for the rainy day. Suddenly, oil price dropped to N110, N50 and N30 in quick sequence, with the consequence being the drop in the monthly earning accrued to the nation and the depletion of the country’s foreign reserve.

Given the sharp drop in the price of crude oil, the three tiers of government now find it increasingly difficult to meet their monthly obligations as the amount shared on a monthly basis dropped significantly. This has resorted to the current situation where state governments now owe their workers. 

Quoting a figure from the CBN, Oshiomhole observed that the foreign reserve was $42.8billion as at 2014, and it dropped at the beginning of 2015 to $37.3billion. Currently, it is about $28billion. 

He said foreign reserve was coming down because while the earning from oil dropped, Nigerians’ appetite for imports and foreign goods had not reduced.

He warned that the reserve would be totally depleted in the next one year unless drastic actions were taken to reverse the current trend. 

There is the need, according to Oshiomhole, “to curb the demands for imports and reorder our consumption pattern.”

He, however, said the naira was on trial and those prosecuting it were investment bankers and currency speculators, adding that devaluation would hurt the poor, especially workers. According to him, those who looted government treasury are unconcerned about devaluation. 

He urged the CBN to remain firm in its current stand not to devalue the naira, even as he suggested that the list of items banned from accessing official foreign exchange rate should be increased to include medical tourism and foreign study. 

He said, “We have one million Nigerians studying abroad and consuming about half a billion.’’ 

The CBN director, who agreed with the submissions and figures reeled out by Oshiomhole, said devaluation would definitely come, but it would be anchored on the premise of strong industrial policy. He said there was the need for Nigeria to make the investment climate attractive for foreign direct investment (FDI).

Giving the history of devaluation, which he defined as “a deliberate action of the central bank or the monetary authority of a country to reduce the value of a currency,’’ he disclosed that in 1986, the naira was depreciated by 71.5 per cent; 1989, 23.9 per cent; March 1992, 42.1 per cent; January 1999, 74.65 per cent; January 2001, 3.18 per cent; December 2008, 7.73 per cent; January 2013, 13.23 per cent, November 2014, 5.58  per cent, and February 2015, the country devalued by 14.25 per cent.

He said, “These are the episodes of devaluation of the currency since the Structural Adjustment of 1986. All these have been anchored and premised on the issues raised by His Excellency, the foundation with the hope that if we depreciated, we could accommodate current pressure and build on it. But we have not built on our devaluation overtime. Now is the time. Devaluation is absolutely sound if the fundamentals are right. 

“What we are simply saying is that now, let us lay the foundation, let us initiate development in such a way that when we devalue, there could be a rider, a basis on which the economy can take off to higher heights. Devaluation may come some day, but it will be on the basis of a strong industrial policy.”   

Comrade Aremu, a former vice president of the Nigeria Labour Congress (NLC) was more concerned about the plight of the Nigerian workers, saying any attempt to devalue again would lead to demand for wage increase. Already, the present N18,000 minimum wage ought to be N48,000 on account of depreciation of the naira. He added that the NLC would soon propose a new minimum wage. He recalled that the first minimum wage was N125 in 1981 at the time when the naira was twice more than the value of the dollar. Now, the value has dropped on account of depreciation. 

From the perspective of  the LCCI, however, the CBN Forex policy is hurting the manufacturing sector. According to the director-general, manufactures find it difficult accessing foreign exchange at the official rate, even to import items that have no restriction placed on them.  

He said, “The major problem we have now is access, for even the goods or the raw materials that are not listed in the list. Our members cannot even get dollars to fund the ones that are not in the list.” 

The implication, he warned, is that over 80, 000 manufacturing jobs maybe on the line.

On his part, Rewane said the foreign exchange system was being abused and corrupted. He said the discussion should move “from whether to devalue or not to devalue, to the implications of the absence of an exchange rate policy.” 

“In the end, we have two options: do something and have a policy, or do nothing,” he said.

The organiser and founder of the Cable, Simon Kolawole, explained that the lecture was his own way of finding solution to the Nigerian problems. 

On devaluation, he said, “What I could take out from the contribution today is that devaluation is not a magic formula. If you are going to devalue, do you have infrastructure? Do manufacturers have access to cheap credit? And so many other factors. 

“So devaluation itself is not going to solve any problem. It may, however, address a problem temporarily.”

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