Naira in tatters! ‘Buhari must act now or lose control completely’

By Dele Sobowale . . . .

“Love and business and family and religion and art and patriotism are nothing but shadows of words when a man is starving.” -O. Henry, 1862-1910.
The Federal Government of Nigeria is doing a wonderful job fighting corruption. The last time this monster was tackled, head-on in this country, was in 1984, by the same Head of State Buhari. Then as now, the price of crude oil created the havoc. Then, as now, there were discordant views about whether or not the government should devalue the currency or not. Those on the left wing of Nigerian politics, the Nigerian Labour Congress and socialists who arrogated to themselves the love of the masses, were against devaluation of the currency.

Indeed, Naira devaluation is probably the most potent weapon against the prosperity of Nigerians. Nigeria’s migration from a potential industrial power house with bustling social affluence, to a subdued and stumbling economy clearly began with the adoption of IMF’s Structural Adjustment Programme during Babangida’s regime: the chorus from International Agencies, at that time, was also that falling oil prices with an unserviced debt burden and the consequent restriction of trade credit to Nigeria, were the products of an allegedly overvalued Naira exchange rate.

The usual argument is that it will lead to inflation which will negatively impact the masses. The only price increase the NLC favours is wage increase because in their own books of economics wage increases don’t increase the cost of production of goods and services. That one sided and somehow inaccurate reading of economics has always been at play in this country – led by many who either never studied the subject or failed it.

However, the Federal Government might be making a drastic mistake if the leaders think that fighting corruption is substitute for putting food on the table. The two are not mutually exclusive and prolonged starvation might even undermine the fight against corruption. Hungry people everywhere don’t care who is jailed. Unless, this perceived monomania is corrected, neither the battle against corruption nor mass starvation will succeed in the long run. President Buhari must turn his attention to the economy. NOW!

The truth is “No government deficit [or any other measure known to man] can create inflation unless the quantity of money [in circulation] goes up.” (G. Haberter, in INFLATION, ITS CAUSES AND CURES, VBQ, p 103). Everybody knows that the classical definition of inflation means too much money chasing too few goods – irrespective of whether those goods are imported or produced locally. Nigeria remains an import-dependent nation; and we all contributed to making it that way and we have not even started to control our appetite for imports. As long as imported goods constitute a significant percentage of our consumption, we must be prepared to find the dollars to import those products.

On Wednesday, February 17, 2016, the PUNCH tucked into page 28 a story which should have been headline news instead of the usual “EFCC said” stuff. The report by Femi Asu read as follows. “Nigeria’s March crude programme is struggling to find outlets, with some 25 million barrels still unsold even as the April programme is expected to start arriving this week.” For those who might not fully grasp the meaning of that report, it needs to be explained fully because it illustrates the catastrophe confronting us as a nation.

Twenty five million barrels unsold, given a budget calling for export of 2.2 million barrels a day means that the country might not dispose of eleven days production. So on volume alone the deficit is 35 per cent. Simultaneously, the budget was benchmarked on $38 per barrel. Instead the March deliveries are going for $32 per barrel or 16 per cent less. Altogether, Nigeria will suffer revenue deficit on account of crude oil of close 22 per cent, after all deductions have been made.

That would have been bad news enough. But, January and February sales were also below budget levels. So, by the end of the first quarter, the nation would have suffered a deficit of close to 25 per cent for the period under review. Meanwhile, the non-oil revenue sources have not started to deliver the surplus that would cushion the impact of the fall in crud oil income.

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Adding to the nation’s economic woes is the rapidly dwindling external reserves which had been reduced by close to 23% in the last one year and are unlikely to rise in 2016.

Every economic index known to man calls for an urgent decision to be made by the Federal Government before all control is lost. A conference held last week had the Governor of Edo State stating his opposition to devaluation. He was ably supported by the Labour representatives present. However, they failed to tell Nigerians what government is supposed to do when imports exceed the foreign exchange earnings of the country and what is to be done when the external reserves run out or get so low as not to be able to support our level of imports or external payments. Often forgotten is the fact that some states of Nigeria, the Federal Government, banks and private companies have incurred loans denominated in dollars and which they must find dollars to repay. The dollars are not forthcoming in the quantum required to meet our obligations.

President Buhari had been focusing on the battle against corruption and on external affairs. There is no discernible individual in government who is responsible for the economy. The Vice President who had made some comments on economic policy had ended up confusing the nation. He was the one who first announced that N8 trillion would be spent in 2016; that the 2016 Budget now languishing in the National Assembly, will be based on Zero Sum method and that the nation targets $25 billion loan to help fund the budget. The first two had turned out to be mere play on words the third will depend on whether or not foreigners and even Nigerian investors have confidence in our ability to manage our economy.

The acid test of whether a nation can manage its economy is the health of its currency. Right now, even the best propagandist the Federal Government can appoint cannot convince Nigerians and the global community that all is well. A free-falling currency is a sign of deep trouble and nothing keeps investors away better than that. Even now, the free-fall of the naira is partly caused by capital flight. Those who had adopted a wait and see attitude, wanting to see how this government will manage the economy, are no longer waiting because they have seen enough.

Dr Arthur Burns, the Chairman of the Federal Reserve Bank in the USA, equivalent to our Governor of the Central Bank, once said that if a nation allowed an untenable economic situation to persist for too long, suddenly, there are no good options left.

Nigeria is slowly but surely approaching a situation where there are no good options left. Even now, the options have been reduced to few. But, another delay will spell doom.

The Federal Government must act now – or hand Nigerians to unpredictable fate.

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