Most informed Nigerians are skeptical about the argument that devaluing the Naira is the way out of the nation’s prevailing economic challenges. For them, it is more like the proverbial catch-22. For some yet, it appears easy. But the reality on ground is that nothing good comes easy and that includes building a viable economy based on a sturdy exchange rate mechanism. In a long time, the black-market exchange rate has served as a gauge to value the currency, as absurd as that may sound. But this is no longer tenable for the simple reason that the operators of that market work on the fringes of the economy. It is from this perspective that we argue that in the event that the monetary authorities succumb to the ongoing blackmail of that unofficial market and toe the line of devaluation, there are a lot of implications which this newspaper considers dire.
For the purpose of this editorial, we are compelled to analyse the macroeconomic imperatives of taking the easy way out that devaluation entails. According to fiscal and monetary authorities, government debt service is already over 70 per cent of revenue. The fear is that a devaluation of the Naira by 550 to the dollar as suggested, will make it 100 per cent or more. Even worse, the current inflationary trend put at 17 per cent which, in our opinion, is already high, may go up to 25 per cent.
Without doubt, a number of social issues will certainly arise therefrom. For instance, fixed income earners will see their wages go the Zimbabwean way. This could ignite justifiable calls for salary increases and could cause social unrest in a country where tensions are already high; loans that were indexed on foreign exchange will be immediately repriced and terms made tougher; defaults will be inevitable and may lead to financial system instability just as imports will become much more expensive, translating into higher production costs.
Similarly, producers who can, will pass the higher costs on to consumers who will pay more for the same goods. Those who cannot pass on the cost will shut down their operations over time. We shudder to imagine what that will do to the unemployment situation in the country. Nigerians who buy foreign exchange from the official window for school fees, medical bills, basic travelling allowance, and personal travelling allowance will necessarily have to pay more in Naira.
It is unarguable, in our opinion, that import value will rise astronomically without a corresponding rise in exports and may result in a current account balance going into deficit and thus make the country’s balance sheet much worse.
In the considered opinion of this newspaper, the reliable way to firm up the value of the nation’s medium of exchange is to improve the country’s export trade. It is patently unacceptable that 80 per cent of cargo ships and planes that bring goods to Nigeria for which the country pays in dollars leave our shores empty because we have not much to export to earn dollars.
Furthermore, and to improve the export capabilities of the country, the gridlock at the Ports and the myriad of illegal charges levied by a multiplicity of agencies must be addressed. Similarly, the Nigeria Custom Service must see itself as a strategic institution with plans to improve Nigeria’s international trade and ability to earn foreign exchange. The present toll collector mentality is unhelpful and must be discarded. In like manner, the Nigerian Export-Import (NEXIM) Bank that was set up to specifically finance non-oil exports must be enabled to perform that role to meet the standards of its peers elsewhere.
A major drain of the nation’s foreign exchange is the taste by Nigerian parents for foreign education for their wards. Dependable sources indicate that the country spends over $10 billion as school fees. We could reverse up to half of this huge annual drain if we begin by requiring that the children of all government officials at all levels, career, elected or appointed, be educated in Nigeria.
The situation in the nation’s healthcare sector and the attendant medical tourism is a well-known story that if reversed could save the nation up to $7 billion annually. Time was when the typical basket of food Nigerians ate, clothes and cars were almost totally made in Nigeria. Today, the nation spends billions of dollars annually importing anything and everything. These put a lot of pressure on the value of the currency.
The current fad is the relocation of families abroad where they expect to get better life. But the truth is that the Naira to fund the dollars for family upkeep, mortgages, car loans in those places are made here a process that puts a strain on the nation’s foreign exchange capabilities.
This newspaper is bringing all these to the fore so as to let Nigerians appreciate the fact that devaluation is not the issue but our attitudes and tastes as a people. In our considered opinion, the country’s problems are significant but fixable. The solutions are staring us in the face. We just have to be honest and work diligently to solve them rather than make cheap political statements aimed at scapegoating.