According to a new article by International News magazine, The Economist, they believe that President Buhari is making the same mistake now he made with the falling Naira when he was Military leader 30 years ago.
Read the article below ...
Give me lucky generals,” Napoleon is supposed to have said, preferring them to talented ones. Muhammadu Buhari, a former general, has not had much luck when it comes to the oil price. Between 1983 and 1985 he was Nigeria’s military ruler. Just before he took over, oil prices began a lengthy collapse; the country’s export earnings fell by more than half.
The economy went into a deep recession and Mr Buhari, unable to cope, was overthrown in a coup. Now he is president again. (He won a fair election last year against a woeful opponent; The Economist endorsed him.) And once again, oil prices have slumped, from $64 a barrel on the day he was sworn in to $32 eight months later. Growth probably fell by half in 2015, from 6.3% to little more than 3%
Oil accounts for 70% of the government’s revenues and 95% of export earnings. The government deficit will widen this year to about 3.5% of GDP. The currency, the naira, is under pressure. The central bank insists on an exchange rate of 197-199 naira to the dollar. On the black market, dollars sell for 300 naira or more. Instead of letting the naira depreciate to reflect the country’s loss of purchasing power, Mr Buhari’s government is trying to keep it aloft.
The central bank has restricted the supply of dollars and banned the import of a long list of goods, from shovels and rice to toothpicks. It hopes that this will maintain reserves and stimulate domestic production. When the currency is devalued, all imports become more expensive.
But under Mr Buhari’s system the restrictions on imports are by government fiat. Factory bosses complain they cannot import raw materials such as chemicals and fret that, if this continues, they may have to shut down. Many have turned to the black market to obtain dollars, and are doubtless smuggling in some of the goods that have been banned. Nigerians have heard this tune before. Indeed, Mr Buhari tried something similar the last time he was president. Then, as now, he resisted what he called the “bitter pill” of devaluation.
When, as a result, foreign currency ran short, he rationed it and slashed imports by more than half. When Nigerians turned to the black market he sealed the country’s borders. When unemployment surged he expelled 700,000 migrants. Barking orders at markets did not work then, and it will not work now. Mr Buhari is right that devaluation will lead to inflation—as it has in other commodity exporters. But Nigeria’s policy of limiting imports and creating scarcity will be even more inflationary. A weaker currency would spur domestic production more than import bans can and, in the long run, hurt consumers less.
The country needs foreign capital to finance its deficits but, under today’s policies, it will struggle to get any. Foreign investors assume that any Nigerian asset they buy in naira now will cost less later, after the currency has devalued. So they wait. Those who fail to learn from history... Mr Buhari’s tenure has in some ways been impressive. He has restored a semblance of security to swathes of northern Nigeria that were overrun by schoolgirl-abducting jihadists. He has won some early battles against corruption. Some of his economic policies are sound, too. He has indicated that he will stop subsidising fuel and selling it at below-market prices.
This is brave, since the subsidies are popular, even though they have been a disaster (the cheap fuel was often sold abroad and petrol stations frequently ran dry). If Mr Buhari can find the courage to let fuel cost what the market says it should, why not the currency, too? You can forgive the general for being unlucky; but not for failing to learn from past mistakes.
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I am not convinced about devaluation and weak currency stimulating local production.
ReplyDeleteBaba Buhati beware! This people don't come again ooo! Remember what they did to your regime back then.This time around God pass them.
ReplyDeleteWe are roped in by depending on one source of revenue - oil. Though past administrations realized that and did something to diversify the economy their corrupt practices failed them. The Vice President said this recently. We support every move of this administration to pick our naira wherever past administrations mismanagely dropped them, as well as conserving our foreign reserve as much it makes for our economy to still run without grounding. Manufacturers, indigenous and foreign, doing business in Nigeria should understand our tight situation and cooperate by sourcing raw materials at best prices, instead of at the rate they did when the economy was better.
ReplyDeleteGhanaian cedis is 4 to 1 dollars. What economic fundamentals support such an exchange rate in a less productive economy. Giving that Shagari/GEJ messed up the economy toward the tail end of their regimes which accounted for the recession that follows but submitting to currency devaluation will lead to endless devaluation after all under PDP it was adjusted more than three times. Diversifying the economy is not a job and discouraging import also takes time where there are absence of local substitutes. I commend GEJ rice programme but Nigerians craze for foreign rice has not abated. There is a need for wisdom in handling the exchange rate debacle
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