“It will be a disaster if the proposition of further devaluation of Naira is accepted by Buhari led government. To avoid further devaluation, the government is advised to embark on nine deliberate economic and political measures stated herein”
As I stated last week, the devaluation of the Naira over the years and in recent times continue to have adverse effects on Nigeria. This is why I consider the statement of the President that his administration would no longer devalue the naira as welcome and commendable. However I am aware that the issue whether Nigeria should continue on the path of devaluation of its currency is one that continues to attract debate. Several weeks back, Standard & Poor’s (S&P), an American financial services company, stated that Nigeria would still, at some point in time, have to devalue its currency possibly by more than 15 percent. Ravi Bhatia, the firm’s director of sovereign ratings is reported to have stated that:
“Another devaluation is inevitable… they will have no option but to devalue,…I think at this stage the plan is to move in increments, not to do a ‘one big step’ devaluation like they would in the old days,”
Not unsurprisingly this statement and a similar one published in the Economist Magazine brought about reactions from the government and Nigerians. The the CBN in a statement signed by its Director, Corporate Communications, Mr. Ibrahim Mu’azu, maintained that the CBN does not panic and will not resort to desperate measures. According to him, inflation is still within the CBN’s single-digit band, the exchange rate has stabilized around N197 per US Dollar for the last five months, GDP expanded by four per cent in the first quarter of 2015, and 469,070 new jobs were created in the same quarter. Similarly Mr. Henry Boyo, an economist, is reported to have told Daily Independent that it would be a disaster if the proposition of further devaluation is accepted by government. According to him,
“If the government accepts the proposition, then the value of the Naira will go down to around N240 to a dollar. Then, you would have created a ripple that cannot be immediately stopped. That will have an inflation impact and the value of the Naira will continue to drop further and the price of petrol will go up to about N170 or N190 per litre. These two drivers of inflation would create their own ripple that you will have to devalue the Naira the more like between N260 and N280 to a dollar. By the time a dollar is N280, the price of petrol will go up to N200 per litre and that will take us to the precipice”.
PROACTIVE ACTION IS NEEDED
I doubt if the ordinary Nigerian on the street, who is most affected with the effect of the devaluation of the Naira will in reality be concerned with the economics principles surrounding the issue of whether or not to continue with devaluation. Therefore it is clear that only conscientious and deliberate economic and political measures which will turn the fortunes of the country around. This is why I will conclude my discussion of the current crisis with a summary of points which I have made time and time again and which without a doubt deserve urgent consideration by those who are in a position to prevent a recurrence of the difficulties being experienced by Nigerians.
- No more creation of States – The proposal for the creation of more States must be jettisoned immediately. The current 36 States have experienced a drastic drop in revenue accruing from the Federation account to the point where many States are unable to pay salaries.
- Zonal or Regional Governments – There should be a return to the Zonal or Regional arrangement with less emphasis on the States. This will stimulate development faster and reduce the cost of running the several States. This arrangement worked to the benefit of the entire country during the 1st Republic and I see no reason why it should not be explored again.
- Re-examination of cost of running presidential system – The current Presidential System is too expensive. It was recently reported that the three tiers of government spent N82 trillion in the last 15 years of democratic rule, that is between 1999 to 2013 and that this amount was 28 times the amount received in the previous 15 years, between 1984 to 1998. Furthermore, in the period under consideration Nigeria earned an average of N2trillion annually from oil and that 68.3% of the revenue was spent on recurrent expenditure with less than 25.9 percent on development of infrastructure.
- Reduction in emoluments to political office holders–Political office must be made less attractive. The current position in which political office holders earn astronomical amount of money as salary and allowances make such offices too attractive and therefore encourages politicians to adopt a do or die attitude in aspiring to political office.
- Diversification of source of revenue – Government must develop other areas of revenue such as agriculture and other minerals.
- Investment by Nigerians - Government must also encourage Nigerians to invest in the economy of Nigeria. In this respect, efforts must be made to reduce interest rates. There cannot be economic growth if entrepreneurs do not have access to loans at reasonable rates.
- Clamp down on stealing of crude oil–Nigeria currently loses billions of dollars to crude oil theft. To stem the tide, government has licensed some private companies to work with Naval authorities in patrolling the nation’s waterways. However, much still needs to be done as crude oil theft is still an ongoing activity.
- Capital investment by government – Federal government as well as state governments must make deliberate effort to invest in capital projects to stimulate economy thereby increasing wealth and national gross income.
- Encouragement of local industries–Government must encourage local industries by putting in place necessary infrastructures such as good roads and adequate power supply.
It is my view that if the above are implemented and if government adopts an attitude in which it places premium on the welfare of the citizenry, Nigeria will be better positioned to withstand the effect of any economic crisis. With such an attitude, Nigeria and Nigerians will be able to return to the position of prosperity despite any temporary period of economic insecurity.
Aare Afe Babalola, OFR, CON, SAN