My vote against devaluation

I have read many of the published arguments for the devaluation of the Naira but I must confess that I am not persuaded that we should be headed that way at all. Even though the IMF and the World Bank have distanced themselves from prescribing their usual medication for our economic woes this time around, […]

I have read many of the published arguments for the devaluation of the Naira but I must confess that I am not persuaded that we should be headed that way at all. Even though the IMF and the World Bank have distanced themselves from prescribing their usual medication for our economic woes this time around, their acolytes and ideological siblings in academia and the media have picked up the gauntlet insisting that Nigeria is doomed without devaluation.
I don’t pretend to be an economist. But I have been a journalist and social scientist for decades and I love logic. Now, let’s reason things out. If we devalue our currency, our exports will become cheaper; right? What exactly do we produce that the rest of the world would want to buy from us? At the moment our industries are lying prostrate. The textile industries that used to be the envy of the rest of Africa is comatose. Our iron and steel industry is in infancy. Our mineral resources are still largely in the bowels of the earth waiting for exploitation. We don’t have an automobile industry worthy of the name. We import virtually everything we need and even those we don’t need.
Why then would we devalue the Naira? My take is that devaluation will reduce the purchasing power of Nigerians at home and lead to a spiral of agitations and sundry crises. Consider the person who earns N18,000 now. If the Naira is devalued, he will be buying less goods with that sum. His situation will become worse because he will be getting less for more. The labour movement will immediately start agitating for higher wages. Service providers will increase their tariffs naturally. Rents will also go up. Many householders may no longer be able to afford basic utilities. The government will have its hands full containing strife.
We would require more Naira to pay for imports. The N300 to the US dollar mark which we all screamed about a while ago would be a child’s play because it would be a free fall. Those who are advising us to devalue our currency today did not tale that route when their own currency was under pressure. When the economic meltdown hit America, did they devalue the dollar? No, they put policies in place to save industrial sectors which would have gone under. They did everything to keep people in employment. They found ways to produce cheaper goods and be more competitive. Their economists deployed their expertise to guide government on the policy mix that could deliver desired results.
In this connection, what is true of one Western country is true of the rest. They jealously protect their currency. Don’t tell David Cameron to devalue the pound sterling; it will never be on the cards. China is at the other end of the ideological continuum. The US has argued for years that the Chinese currency is undervalued and that China should review its value upwards. But, trust the Chinese, they are laughing their way to the bank because they have so much goods and services to export to the rest of the world at a fraction of what America would charge.
I don’t blame the more developed countries of the world for manning their own corners. What I find unacceptable if their insistence that their economic bulldog can guard several houses at the same time. They don’t bother about the unique intervening variables that would make Aspirin cure one patient and kill the next patient. In their jaundiced worldview, one size fits all.
Last week, the Economist magazine published a piece titled, “Unlucky Buhari Fails to Learn from Past Mistakes” in which it argued inter alia: “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.”
Oh, is that the argument for devaluation? In the absence of any compelling evidence to the contrary, sans cliches, sans veiled blackmail, I think the Nigerian government is right in rejecting the devaluation clamour. We must watch how policies impact on our people’s lives.
A financial expert, Dr. Oluwatobi Oyefeso, recently warned that devaluation would have a negative effect on Nigeria’s capital market. His commonsensical examples drive in his perspective poignantly: Assume that you have invested 10% of your portfolio in Naira-denominated bonds with a current yield of 5%. Now if Naira undergoes a 20% depreciation, your net return from these bonds would be -15% (5% – 20%), rather than +5%. Certainly, the 20% depreciation is a decrease or loss in the value of those bonds.  Consequently, the overall return on your portfolio would decrease by 1.5% (i.e., 15% loss of by 10 weight of the assets portfolio).  However, assuming that you have a total 40% of your portfolio in the Nigerian capital markets assets affected by the Naira depreciation that decreases the assets value by 20%.  The overall portfolio return would plunge by a very substantial 8% (i.e., 20% loss of 40 weight of the assets portfolio). Concisely, the value of assets portfolio usually falls lower, the higher the quantum (weighting) of each asset in the basket and the higher the currency depreciation rate.
Those who think they have equally patriotic alternative viewpoints should please speak up. But there can’t be any alternative to mobilising our people for the task of production, with government providing the enabling environment; and discouraging the wholesale importation of virtually every requirement or luxury item from the cradle to the grave.
SUN CITY’S CREDIBLE POLLS
Perhaps INEC could learn a thing or two from last weekend’s polls to elect new officials to run the Sun City Estate Residents Association, Abuja. From screening and accreditation to actual voting, it was a painstakingly thorough and glitch-free exercise. It was all managed by Nigerians. Who says we can’t get things right if the atmosphere is conducive?