Last week in this column, it was stated that democracy is an event that should not collapse the nation’s economy, rather institutions should drive the process to ensure continuity in governance. Whilst assembly members are jostling for leadership positions, the nation’s democracy, regrettably, is pockmarked by poverty instead of development. In the past few weeks, there are two main issues in the public domain that have attracted the attention of policy analysts within the country. These issues are devaluation of the naira and zero fuel subsidy.
The Naira
There is a report that since June 2014 the nation’s foreign reserves have declined by 21 percent to US$29.67 billion. This decline in foreign reserves is as a result of low price of oil in the international market. Before writing this piece, it was reported that foreign reserves stood at US$29.1 billion. On 9 July, 2015, the CBN was reported to have affirmed that the foreign reserves have gradually increased to US$31.89 billion. This writer believes that the sudden increase in the foreign reserves is not politically enthused. It would be a commendable achievement if steps taken by the apex bank to block wastages in the economy are yielding positive results.
The concern of this writer though is that reduced foreign reserves have weighty implications for the economy of the nation with 170 million people. This is because Nigeria is an import-dependent economy with huge demands for foreign exchange in addition to a debt profile of about US$63.7 billion. Is the debt of the government reducing? Only the CBN has the answer, but if foreign reserves are low, the nation will find it difficult to meet its financial obligations. If adequate fiscal and monetary measures are not taken, chances are that the country will as usual adopt the ‘begging bowl’ approach with foreign creditors for survival. Report has it that some CEOs of banks are calling for a further devaluation of the naira on grounds that the currency needs to have a fair value. Are CEOs of banks in Nigeria capable of convincing Nigerians that if the exchange rate is N1000 to the dollar today, nobody will request for the dollar? They should have told the nation what the real value of the naira ought to be.
The motivation for the call by bank CEOs is not known. They have, however, forgotten that the devaluation in December 2014 eroded Nigerians’ income, especially those that are still earning the minimum wage of N18,000 and pensioners. The fact is that an economy where the naira has been devalued by about 20 percent in the last one year will not endure as most entrepreneurs lost huge sums of money. Strong foreign reserves would have strengthened Nigeria’s economy. But monies in the foreign reserves were squandered.
The good news is that the CBN governor said there will be no further devaluation of the naira. But promise alone cannot do the magic. What will be the implication of a devalued naira against price of food items, petroleum products, locally-manufactured goods, housing, transportation, and other services? The CBN knows that further devaluation will increase the price of goods and services. And that the cost of imported petroleum products will increase. An inflation rate above 10 percent, bank interest rate of 22 percent, and outrageous foreign exchange rate will definitely increase the price of goods and services. The result will be increase in unemployment. How will those left working and pensioners survive?
Fuel subsidy
This writer is in favour of subsidy removal but what is the strategy to be adopted for removal? Should government remove fuel subsidy at once or gradually? What does this policy shift portend for Nigeria? How many homes, hospitals, and offices as well as manufacturing concerns can afford the new price of petroleum products based on zero subsidy and devalued naira? Can anyone predict how long it will take Nigerians to stabilize with zero fuel subsidy? Economists and financial management experts in Nigeria who claim they understand macroeconomic management have expressed various opinions on fuel subsidy removal. It is instructive to state that some are not favourably disposed to fuel subsidy removal. There are those who argue that it must be removed at once while others say ‘remove fuel subsidy gradually’. Yet there are those who argue that the removal of fuel subsidy should be done alongside repair of the nation’s four refineries such that they are working at optimal capacity, while encouraging private organizations to invest in operation of new refineries. The call to encourage new investors in refining crude oil in Nigeria is accepted but there is a request to government that the crude oil to be supplied to them will be at the prevailing international price, not subsidized price. It is expected that this new government will do all within its constitutional powers to save Nigerians and also save the naira. Why devalue the naira when no other nation will add value to your currency? Is the concurrent devaluation of the naira and zero fuel subsidy in the interest of Nigerians? The answer is negative as complete removal of fuel subsidy and concurrent devaluation of the naira will be catastrophic. It will not be in the interest of the nation.
Suggestions
The current economic situation of the nation may not accommodate zero fuel subsidy and devaluation of the naira simultaneously. The removal of fuel subsidy must be gradual and it must be done in consultation with the organized private sector and other stakeholders. While further devaluation of the naira is abhorred, the government must make concerted effort to vigorously promote and encourage the export of non-oil commodities; protect local industry from stiff competition from foreign products; and develop agricultural sector of the economy. In the interest of the nation, policymakers must detach themselves from sentiments as these issues need critical assessment before decisions are taken. The quintessence of national development is to improve the quality of lives through the provision of basic necessities such as quality education, healthcare, housing and above all providing employment opportunities as well as security of lives and property. (Concluded)
MA Johnson
