My dear President, this piece is really just an innocent attempt to engage you in a conversation on the management of our national resources and assets, especially our dollar earnings. Positive changes are currently being wrought in the governance of the Nigerian society under your leadership and I am particularly amazed at the suddenness and alacrity with which the various positive changes are being effected by just ensuring that basic, ordinary day-to-day functions are performed the simple and proper way.
It is on the basis of the same “simple and proper way” concept that I want to have a conversation with you on the concept of the devaluation of the naira. Actually, this conversation is really not about devaluation (that’s a word that brings out some visceral, rabid reactions that tend to becloud the issues) but about how we manage our national assets, including and especially our dollar earnings. It really doesn’t matter to me whether we make an official announcement about devaluing the naira or not but it does matter to me how we get full naira value for our dollar earnings.
Getting straight to the point, Mr. President, why should we be selling our hard-earned foreign currency earnings at a phantom “magical” figure of N199 when legitimate, active economic players will purchase from us at a much higher price to maintain their economic activities? It amounts to double jeopardy when the quantum of our crude oil dollar revenue has reduced significantly and we still go ahead, against all opportunities, to receive less in naira value for the sake of a magical fixation on N199? Who legislated that? What’s the basis? For perspective, extrapolating from total Central Bank of Nigeria (CBN) forex sales for six months from February to July this year and applying the mid-price between the official rate and the parallel market rate, total revenue forgone is about N164 billion. That’s more than any state’s annual (annual!) FAAC allocation apart from Rivers, Bayelsa, Delta and Akwa Ibom States’ and more than the annual budget of 23 out of our 36 states (64 percent). And that’s just for six months! Why? It doesn’t matter, at this stage, what our views are about foreign exchange policy or about devaluation but it should be prima facie unacceptable at the policy level to sell our assets at below market price, especially now that the country’s fiscal position needs it most and when the price differential is significant (about 15 percent now) and growing.
In commodity economies and a mono-product revenue line like ours, especially one that is buffeted by dwindling proceeds of sale, the first line of survival is the maximization of our proceeds of sale. This can only tidy up the government’s balance sheet and afford you more resources and leeway to tackle the multifarious problems you are currently diligently tackling through various investment, trade, industrial and, I daresay, subsidy policies. The same way you are currently putting all efforts to increase tax revenues and plug all revenue leakages, the same way you should maximize the naira value of the proceeds of sale of your commodity. So, why allow the revenue loss?
This out-of-a-hat figure of N199 runs contrary to the concept of transparency you are instilling in the country. Frankly, I don’t think any public official should have such rights to prescribe a sales price for our proceeds at a whim, and it’s also not a precedent you want to set. Imagine if another president, after you, says it must be at N122 irrespective of the needs and opportunities. Who does that? With the prudence and probity that you are acclaimed for, and as a naira president saddled with maintaining naira macro stability, why allow such revenue loss? Honestly, we need to address that question about our governance at the primary, existential level. An exchange rate figure is just a nominal representation of the underlying economy. The focus should not be on the nominal figure but on the fundamentals (from which the exchange rate is derived), a job you seem to be doing very well so far.
Secondly, by selling our dollar earnings at the available price thus ensuring you get full value for our money, you also would have sent a strong signal of not encouraging or subsidizing unbridled foreign consumption, a vaunted goal of yours. One of the beautiful things you have done is to signal a policy that discourages unbridled consumption, especially those that cannot be anchored on the productive capacity of the economy. I cannot agree more! But why achieve that at an unnecessary cost of denying us the badly needed income when the same thing can be achieved without the revenue loss.
The often-touted reasoning behind this “N199” policy is that the government needs to reserve the foreign exchange for essential goods so that the populace can afford them in these difficult times. The fallacy in this argument is yawning.
Apart from the thoroughly unacceptable revenue loss, to the extent that the “N199” dollar sale is to profit-maximizing, private sector players, it amounts to transferring taxpayers’ money to the profits of a few select lucky private sector players. That might not necessarily be a bad thing but unfortunately, the so-called essential goods will not be produced and sold at your desirable “affordable price” unless you want to start getting government officials to inspect companies’ books and begin a policy of price controls. You don’t want to do that, sir! It won’t work anyway. What it effectively means is that you would have ended up donating easy money to a select few, while you and I (your government and the people) struggle for resources to manage the economy better. It’s a terrible way to allocate resources.
You are currently setting a strong foundation to improve governance in this country, a badly-needed reform without which no policy will succeed. The success of building on that foundation will, however, depend on the well thought-out economic policies that we adopt.
Shola Ojelade
