It’s official: Nigeria is in recession as we enter the last quarter of 2016. This is no doubt a big blow and a bad addition to the myriad of crises in its economy. The assessment by the National Bureau of Statistics (NBS) reflected the dwindling oil fortunes and rebased economy, which earlier placed it as Africa’s largest economy and a candidate for world’s best 20 economies in the next four years. The grim statistics marked a symbolic reversal of fortunes after more than a decade of robust growth.
Sampler: The 2.6% contraction in gross domestic product from a year earlier follows a 0.4% annual decline in the first three months of the year, meeting the shorthand definition of a recession as two consecutive quarters of economic contraction. The most violent hit to the economy came from the oil sector, where income plummeted by more than 17% from a year earlier. Acute energy and power scarcity occasioned by destruction of oil and gas pipelines are further signs that even more businesses will shut down and the few companies operating may be checking out better and more clement climates within the sub-region like neighbouring Ghana and even less fanciful Togo and Benin Republic. The next day, Aero Contractors, the country’s oldest working airline grounded its flights. Established in 1959, the airline is suspending operations indefinitely. Naira has not fared better. Its light dims everyday against all known currencies, especially, the US dollar. Now, a dollar exchanges for an unprecedented N430.
A particularly hard situation often needs a radical solution. The “Strategic Agenda for the Naira” espoused by a former Governor of the Central Bank of Nigeria (CBN) Prof. Charles Chukwuma Soludo in 2007 could be dusted up. We believe the proposal to redenominate the Naira may deal with the worsening inflation occasioned by the dollar crunch and a drop in oil earnings and non-oil exports. The present administration should muster enough resolve to tackle the issues. With nearly two years of its term over, it cannot continue to blame all the problems on its predecessors. We are confident that the Muhammadu Buhari administration has the political will to reverse the dismal fortunes of the Naira and the economy.
The policy of devaluation of the national currency initiated by former President Ibrahim Babangida in 1986 as part of the IMF-inspired Structural Adjustment Programme (SAP) is not a sacred theory. Patriotic analysts vainly alerted the government that devaluation can only favour countries with large and well-established manufacturing basis. In 1985, a year before SAP, the Naira was exchanging for N0.894 but it went up to N2.02 to the dollar after SAP in 1986. Since then, the Naira has suffered constant devaluation with increasing poverty and de-industrialisation as the only results to show for it. Nigeria’s co-travelers such as Argentina, Brazil, Indonesia and Malaysia have had to jettison the fit-for-all-problems prescription of the Brettonwoods institutions. Today, they have some of the strongest economies in the world.
There is no way in which the free fall devaluation of the Naira will lead Nigeria out of its present dire economic doldrums. Devaluing the currency for any reason at this time is simply compounding poverty, hunger, disease, illiteracy which have ravaged mainly the youths, women and workers. What makes an economy thrive is its level of productivity. The government should urgently embark on policies that will reverse the current trend of low productivity; including structural reforms, to raise non-oil export forex earnings and reduce import dependency.
Instructively, redenomination may be one of the ways out. It only requires changing the nominal value of a currency by moving the decimal point. In which case, if the naira is restructured by two decimal points, N1000, which is the highest in our current currency profile, will be replaced by a N10 denomination. Similarly, existing N100 note will become N1; consequently, the new N1 denomination can then be fabricated as a coin, and still have the same purchasing value as the old N100 note. In this manner, a new redenominated currency profile, would not only accommodate the desired quality of portability, it would also increase the purchasing power of coin denominations and make them attractive for transactions and for provision of change. Furthermore, consumer products can become more competitively priced in steps of plus or minus 1kobo, rather than the unusually wide leap of N5 or more, because of scarcity of primary coins.
The advantages of redenomination may, however, be short-lived if the abiding economic instigators of inflation are not adequately tackled. For example, the Ghanaian currency, the Cedi, was redenominated with four decimal points, about seven years ago, so that C10,000, became just one new Ghana cedi and consequently, became equal to almost US$1.2. However, since the root causes of Ghana’s average annual inflation rate of about 15% remained unresolved, inevitably, the Cedi has depreciated by over 50% within five years to Ghc1.8=US$1.
Pricing the Naira lower than other currencies is not a good option at this time. Similarly, it is clear that if electricity rate continue to skyrocket like kerosene prices, petrol pump prices, prices of vehicle spare parts and other imported products and services, the inflation rate may rise. We see the need for necessary safety valves such as social welfare infrastructures, food and human security; a framework to plug the cesspit of corruption and general mismanagement of the economy foolproof alternative sources of power and strengthening the purchasing power of the Naira will deflate the prices of goods and reflate the economy.