Naira' Strategic Crash!

By

Les Leba

In August 2007, President Yar'Adua shot down the Central Bank’s proposed Strategic Agenda for the Naira (SAN) on the grounds that the Presidency was excluded from its conception.  In spite of the announcement that an adhoc economic team had been constituted to reevaluate the proposal, nothing more was heard of the verdict of government’s economic experts.  This presumably could mean that no merit was discerned in the proposals for naira redenomination and for dollar derived revenue to be paid as dollar allocations to the three tiers of government.  Indeed, the tenets of CBN Governor’s proposed Strategic Agenda for the Naira was a complete somersault from the overt inclinations of Soludo’s prevailing monetary framework, but the proposals were surprisingly in consonance with the framework which I had canvassed unceasingly for over seven years, in spite of the indifference and open derision by the CBN!  We have always insisted that all the permutations for a development agenda, from NEEDS, to SEEDS to LEEDS to NAPEP, etc, etc, would come to naught if the CBN continued to impound federal dollar derived revenue and substitute naira allocations!

To be fair, President Yar'Adua may be excused for his suspicion of CBN’s sudden turnaround in its monetary policy framework after earlier assurances and promises that the Nigerian economy was treading the path of recovery and development under expert professorial guidance.  The issue of redenomination, as canvassed by Soludo, may also have smelt foul to Mr. President, seeing that billions of naira of public funds had just been expended in designing, producing and promoting the acceptance of new currency notes and coins!  The thought of discarding these notes and coins barely six months or so after introduction certainly would not sit well if viewed from the perspective of any rational person.  Indeed, our advice in several articles that the issue is not that of new currencies but that of value or related purchasing power went unheeded!  Our prediction that the coins would not be adopted because of their meaningless values was similarly discountenanced!  Today, the CBN is stuck with container loads of valueless coins for which it has now placed newspaper adverts to solicit for those buyers who may want to recycle the coins into bangles, trinkets, copper pipe and wires or other forms of designs or gift items and artworks!

Not even a hurriedly enacted legislation with prison terms and fines as penalty have induced the public to patronize the new coins or treat our currency notes with respect!  (See our article “RESPECT FOR THE NAIRA”) at www.geocities.com/lesleba.  The CBN’s subdued acceptance of the government’s suspension of its Strategic Agenda for a healthy naira may be seen as an indication of Soludo’s lack of faith even in his own proposal!  If, indeed, the CBN believed in the power and relevance of its ‘new’ agenda in promoting economic development in the face of increasing poverty in the land, the CBN failed to exercise its constitutional duty to promote policies, which will improve the common good and discard policies with negative or adverse consequences for the economy!  In other words, something else other than the desire to serve our people faithfully and productively goaded the CBN Governor to continue in the pursuit of defective monetary policies!

In our paper titled “A LIBERALISED FOREIGN EXCHANGE MARKET: a proposal for a liberalized foreign exchange market in Nigeria and its economic benefits” – Boyo/Ojomaikre, we had insisted that the system where the CBN was the major direct supplier of both naira and dollar to the money market was an unhealthy monopoly with serious consequences for a market determined economy!   Our advice that the three tiers of government be given dollar certificates (not cash) for distributable dollar derived revenue to ensure a market determined naira rate that will stimulate economic growth was discountenanced and the CBN subsequently responded with its farcical so-called ‘liberalized foreign exchange market’, which in reality was no different from the earlier and existing market frameworks, called DAS, WDAS, IFEM, AFEM, etc. 

The common denominator of all these foreign exchange market contraptions was the maintenance of the CBN’s stranglehold on the dollar market and the consolidation of a market system which ultimately instigated increasing poverty with increasing wealth!  The evidence of this correlation was amplified when our dollar reserves rose to over $60bn at a time we became classified amongst the world’s poorest nations!  In fact, monetary policy in that period became so confused that the CBN appeared embarrassed by our sudden healthy reserve balances and decided that the best way to use up the reserves was to allocate over $3bn every month to Bureaus de Change (BDCs) patrons.  Our entreaties in various articles of the suicidal consequences of this profligacy were ignored as the BDCs became an easy pool for capital flight as looters of public treasury and smugglers of contraband had a field day.

The result is now plain for all to see – divestment by such multinationals like Dunlop and Michelin and the suffocation of indigenous small and medium enterprises which are generally regarded as the engine of growth in all economies!  The admission of increasing unemployment and insecurity by various agencies of government can only be a confirmation that our monetary policy experts failed woefully to turn our years of plenty into meaningful welfare improvement for our people.  Now that the locust years are at hand, Nigerians should be ready to finally lay undisputed claim to the lowest rung of the world’s poverty ladder!  Indeed, in spite of the sustained increase in reserves from less than $20bn a few years back to over $60bn in November 2008, Nigerians ignored our clarion observation that the naira rate of exchange to the dollar remained resistant rather than its touted state of stability by all and sundry, including the poorly informed Chambers of Commerce and Association of Manufacturers! 

Our sometimes irreverent overtures to these pillars of the private sector to see reality were unceremoniously rebuffed!  Regrettably, the chickens have now come home to roost!  In less than six weeks, the naira rate has depreciated by almost 50% with no end yet in sight!  The CBN has once again suddenly accepted our enduring observation that it is not in its mandate to sell dollars to BDCs, while our foreign reserves have quickly fallen by almost 15% in six weeks; at this rate of depletion, we may inexplicably have zero reserves before year end and we may need to go borrowing big time before the end of 2009; never mind the CBN’s often expressed notions of over 30 months of imports cover provided by our level of reserves!

The tragic thing about the above scenario is that the CBN Governor confidently confirms that the devaluation of the naira is deliberate and designed to ensure a balance in government revenue against projected expenditure!  In other words, the depletion in our oil revenue will be countered by deliberate devaluation of the naira so as to ameliorate any potential deficit in the quantum naira available for monthly allocation!  In this wise, we may see the naira rate fall to almost N200/$ before year end!  This would be no surprise as the government’s economic bible, NEEDS 1 & 2, had projected a naira value of over N180/$1 as the appropriate exchange level that will drive economic development! 

It was a tragedy of epic proportions to watch the standing ovation by members of the National Assembly in response to Prof Soludo’s presentation in defence of the deliberate policy to devalue the naira!  One day, one day, their abysmal ignorance or complicity in deceit will be blown wide open, but regrettably, millions of lives would have been depraved by the self interest of a few Nigerians!

SAVE THE NAIRA, SAVE NIGERIANS!