Now, let’s look at the way out. First, my president, never sell our dollar assets to anybody at a discount to market, especially now that recession is knocking. Your enhanced naira revenue will help you to focus on improving the fundamentals of the economy.
For one, with more naira resources available, you as a government now have more money at your disposal (unlike choking the government at N199), subject to money supply requirements and inflationary constraints, to jumpstart infrastructural development (education, health, transportation, etc.), provide incentives to the private sector through industrial, trade and tax policies to subsidize production based on the sectors you want to promote, etc., subsidize consumption through various forms of welfare benefits if you so choose. These are best achieved at this industrial/fiscal policy level than at the monetary policy/exchange rate manipulation level which creates all forms of distortions and arbitrage.
Secondly, with more naira available and the improved governance environment you have instituted, the government will borrow less (as long as stealing is not a significant variable in this equation) which will reduce interest rates in the country. When interest rates are low, enterprises will be encouraged to engage in new business activities without the suffocating effect of high interest rates and the riskiness of business ventures will reduce. The beautiful scenario that emerges from this approach is that because foreign exchange is now very expensive, for good reasons, foreign currency-dependent enterprises and consumption will be less competitive (your vaunted goal, again!) and attract less capital and patronage, simply because purchasing power has reduced. New capital will flow to business ventures focused less on foreign exchange and local content enterprises will get a strong fillip. The last thing you want to do is to continue to subsidize foreign consumption in any form with N199.
Thirdly and the ultimate, the irony is that the more you sell your dollar assets at full price to get full naira value, the less foreign earnings you would need to sell to meet your bill needs and, as such, the more you’ll be able to conserve more foreign exchange to buoy up the foreign reserves and invariably lower the exchange rate and maintain a stable macro.
You get to kill three birds with one stone. Of course, things will be expensive in the short term; expectedly so because our income has shrunk drastically but medium to long term, a platform for sustainable economic development would have been established.
Linked to this is my second point in our conversation: corruption. You have sent such a strong signal against corruption but you know what, a system whereby you allow some select private sector players to access our dollar earnings at the magical N199 while all others are forced out of the market leads to the type of insidious corruption that you are trying to stamp out. Unfortunately in this instance, you would be accused of festering it, ironically. In any market, when the same asset (yam, cattle, petrol or dollars) trades at significantly different prices with little conversion and search costs within the same market, it is natural and rational to expect economic players to marshal resources to acquire the same asset in the lower-price market and sell or convert in the higher-price market. The losers are both the sellers in the lower-price market (the Federal Government of Nigeria in this instance) and the purchasers in the higher-price market (the taxpaying consumer citizens of Nigeria in this instance). The only beneficiary of this system is the arbitrageur between both markets who makes so much money without engaging in any productive activity apart from “transporting” the asset from one market to the other. In this naira/dollar scenario, the people who will be unwillingly and unwittingly corrupted are the CBN goons and other bureaucrats who will be saddled with the responsibility of ascertaining “essential goods” requests for foreign exchange and the bankers who will benefit in various unproductive ways. It’s a bureaucratic nightmare the likes of which you don’t need in a struggling economy. I understand that Form “M” processing now takes upwards of a month for legitimate “essential goods” requests for foreign exchange. The word “scarcity” is beginning to rear its head again in our economic management lingo.
My president, the third and final point in this our conversation has to do with the tendency to essentially proscribe businesses simply because they don’t manufacture “essential goods”. While it is within the acceptable realm of policy debates to discuss the appropriate pricing of our dollar earnings, what is not within that realm is the tendency now to asphyxiate businesses that we seem to have determined not to be “essential commodities”. When the CBN instructs that these businesses are precluded from accessing foreign exchange from the Nigerian foreign exchange market (not just CBN forex), it amounts to proscribing such businesses out of existence. Needlessly so. Let all businesses pay the true cost of their businesses. The extent of champagne consumption at a $1/N160 exchange rate will significantly reduce at a $1/N230 exchange rate. In any case, you can then apply trade and tariff policies to make such unbridled consumption unviable rather than using monetary policy discrimination that creates unnecessary distortions. These businesses are legitimate enterprises creating employment and paying taxes. Most foreign currency-dependent enterprises are already facing very tough economic fortunes (except those who get N199 subsidies), the government should not add to their woes by practically asphyxiating them to death. Let everybody pay the correct competitive cost that the environment can afford.
I commend your sincerity and fidelity of purpose in navigating these difficult times in the management of our economic resources. We should, however, not allow an unnecessary emotional phobia to prevent us from doing things “the simple and proper way” in getting full value for our resources.
It’s been nice talking to you.
Shola Ojelade
