Vice President Yemi Osinbajo’s call for a further devaluation of the naira by the monetary authorities has been described as a temporary measure with the potential of undermining the recent gains of the nation’s economy.
Economic experts and other stakeholders who reacted to the call say another devaluation is a recipe for high poverty and unemployment levels.
Economic experts say the implications of devaluing the naira now are quite scary, even though they agree that it will force down the volume of imports and reduce the pressure in the forex market temporarily.
Professor Osinbajo had urged the Central Bank of Nigeria (CBN) to allow the naira to reflect the realities of the market in view of the falling exchange rate in the market.
He made the statement yesterday at the Mid-Term Ministerial Performance Review Retreat at the Presidential Villa, Abuja.
Osinbajo said the exchange rate is artificially low, and this is deterring investors from bringing foreign exchange into the country.
“As for the exchange rate, I think we need to move our rates to [be] as reflective of the market as possible. This, in my own respective view, is the only way to improve supply. We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is just my view,” he stated.
Those who spoke on the vice president’s proposal say the first casualty will be the 2022 Appropriation Bill. It means the 2022 budget, which is predicated on N410.15 per dollar, is dead on arrival.
Nigeria’s first professor of capital market, Uche Uwaleke, said while the vice president obviously means well, “this statement is capable of triggering panic buying and speculation in the forex market (official and parallel) and further complicating things for the CBN.”
Economic analyst, Stephen Kanabe, said Prof Osinbajo should have thought of the impact it would have on the pump price of fuel and the multiplier effects.
Corroborating Uwaleke, Kanabe said such a move would have knock-on effects with regard to inflation and interest rates especially at a time when inflation rate remains elevated. High inflation rate not inimical to investments whether local or foreign.
The argument that naira devaluation will incentivise foreign investors remains to be seen as other factors such as insecurity equally play a part.
“It will make imports more expensive. And we don’t have alternatives to most of the imported products today,” he said.
Mr Kanabe said the authorities need to create the enabling environment for industries to thrive and produce for local consumption and export. He said a country without export value ends up creating more economic hardship for the people by devaluing its currency. “What options are you giving the people?” he queries.
To be sure, the naira has suffered several devaluations in the recent past. Professor Uwaleke said devaluation of the naira has neither solved the fundamental problem of helping to diversify the export base nor curbed unbridled imports. Doing so yet again will not change anything. Rather, it’s a recipe for high poverty and unemployment levels.
The CBN had said it has sufficient external reserves to meet genuine demands for forex at the Investors and exporters’ window. This much they have told Nigerians several times.
Uwaleke said the CBN should continue to manage it while joining hands with the fiscal authorities to create multiple sources of forex beyond oil.
However, a vice presidential aide said Osinbajo did not call for Naira devaluation.
“He only called for an official rate reflective of market reality. The current dual exchange rates allow for arbitrage and blocks inflow/supply of dollars from investors,” he said.
Notwithstanding, the Better Arewa Forum (TBAF) and the South East Youth Progressives have faulted the position of the vice president, saying such advice is counter-productive and should be rejected.
In a statement by its spokesman, Abdulmalik Sani, the group said with the present state of the nation’s economy it is highly dangerous to start a policy reversal from nowhere, hence such advice should be ignored.
The forum said Osinbajo should not work against a system that made him what he is in the pursuit of his 2023 plans.
“The VP should know that going through the backdoor to pull down the system will be totally unacceptable to us as Northerners who have been getting legitimate access to CBN support for agricultural loans and other forms of support for our farmers.
“Every Nigerian is aware that insecurity is the real problem giving a deadly blow to the survival of the naira and not ” artificially low” value placement. This argument of “artificially low” value does not sound sensible to even a novice.
“With the growing security challenge in the country, everyone knows that most investors would like to pause for a while before pumping their resources in any part of this country, because of the activities of bandits, IPOB and the Igbohos of this nation. It is a straight-jacket that insecurity is responsible for the fall of the naira and not some imaginary “artificially low value”.
“We, as Northerners, feel greatly concerned that any artificial tinkering with the current economic situation of the country on the premise of a personal belief would worsen the economic gains of the current administration, thereby amounting to something like a stab on the back.
“It is evident that, already, the country is struggling with a multiplicity of problems and cannot afford new and avoidable ones at this point. Let wisdom prevail over rash decisions. We have done our duty – warning against a potentially regrettable decision-making,” the forum stated.
On its part, the South East Youth Progressives, through its coordinator, Moses Gabriel Ogonna, said, “We only hope that the relevant stakeholders will rally around the men and women of democratic decency to appeal to the conscience of our VP back to order before our naira is completely killed through the advice of a green horn in economic policies.
“We have regard for him as a legal guru but never as an economist with the sound knowledge of how a Third World economy works,”
The South East youth group said it “rejects advice capable of further weakening the naira, just because our VP wants to say something at a public function. We say no to naira devaluation, especially at this point.”