Why Economic Palliative Measures Won’t Work in Nigeria

(By Nasiru Suwaid)

Indeed, despite the official devaluation of ‘Naira’ from 155 to the 168 point and the consistent draining of the Nigerian foreign reserve, as a counter measure to support and prop-up the national currency, it seems it has not been able to halt the slide, so much so that by the beginning of this week, the price of ‘Naira’ to ‘Dollar’ at the interbank foreign exchange market stood at 181 point. Thus creating the situation of before, that caused the devaluation of the national currency in the first place, which is the too much widening of the prices between the official rate and the commercial bank rate.

“Also, given the level of excess liquidity in the banking system, it becomes imperative for the Bank (CBN) to address the sources of the foreign exchange demand pressure.”

-Godwin Emefiele, Governor of the Central Bank of Nigeria, giving a breakdown of the Monetary Policy Committee decisions.

The question that immediately comes to mind is whether Nigerian economy is different from other oil dependant countries in Africa and beyond, because unlike many of them, it’s national currency, the ‘Naira’ is taking a beating in so short a time, loosing value so much that by the official announced devaluation of the apex bank, in a day it singularly lost 8% eight percent of its worth and as according to Reuters, it has shed and stripped over 40 billion dollars from the Nigerian economy. But that is not the case with other countries, despite the fact our country shares similar economic system with them and they are also largely defendant on oil for much of their source of exchangeable dollars, in fact, most the Arabian Gulf countries seemed not to be facing any currency fluctuation, as they seemed quite stable. Coming home closer, the Algerian ‘Dinar’ looked virtually shielded from the turbulence in the global oil market, while although that could not said of the Angolan currency the ‘Kwanza’, because, it has lost over 3% three percent of its value but the loss was not ‘shocking’ as in the case of Nigeria, it took months of gradual depreciation of value thus not catching the economy unawares.

It is most noteworthy to observe the case of the Libyan economy, because, it is purely an oil dependant country, a fellow Organization Petroleum Exporting Countries member, in fact, it is its junior minister of petroleum resources our own Diezani Allison Madueke is succeeding unto the presidency of the oil cartel. Most glaringly, it is a nation presently in a state of a civil war, having two governments highly antagonistic to each other, with the one international recognized despite being aligned to Muslim extremist based in Benghazi, while the other government having secularist orientation is based in Tripoli, which is surely a recipe for economic chaos and confusion, thus a threat to the local currency yet as of this week, the Libyan ‘Dinar’ is much stronger than most global exchange currencies and most importantly, it has not lost an ounce of value despite the fall in crude oil prices. Of course, there are many oil producing countries like Nigerian having currency depreciation problems, here, Russia and Venezuela immediately comes to mind but looking much closer at their economy, it could be seen that it is not solely the lower price of their crude oil that is the problem.

Because, the coming down in the price of the crude oil in such a ‘sharp’ bend is a most recent phenomena, but the persistent depreciation of the Russian currency the ‘Ruble’ has been on for months, denoting that perhaps it is the imposed sanctions for the invasion of Ukraine, which banned external trading in most of its ‘exportable goods’, could have been the reason for the bad fortune of the national currency. For the fate of the Venezuelan currency the ‘Bolivar’, the slide is also not a most recent occurrence, as it started since the beginning of the current year we are about to depart from, thus not solely a recent thing, tied to the movement in the price of the crude oil. It is worth noting that Venezuela is facing sanction and economic ostracism from a very powerful American neighbor and its friends, also, the outdated welfarist model of a benevolent state, seems too set as a policy program for capitalist saboteurs to corrupt and subvert, if for nothing else, than the chivalrous right to proclaim that it is an anachronistic economic choice and option not fit for a modern state.

Indeed, despite the official devaluation of ‘Naira’ from 155 to the 168 point and the consistent draining of the Nigerian foreign reserve, as a counter measure to support and prop-up the national currency, it seems it has not been able to halt the slide, so much so that by the beginning of this week, the price of ‘Naira’ to ‘Dollar’ at the interbank foreign exchange market stood at 181 point. Thus creating the situation of before, that caused the devaluation of the national currency in the first place, which is the too much widening of the prices between the official rate and the commercial bank rate. But what is the solution, if devaluation is not to become a Russian Roulette, it is very simple; “address sources of foreign exchange demand pressure”, not merely in raised interbank lending rates, that could ‘stipple’ productive borrowing as well but making every ‘Naira’ to be taxable, accountable and productive. This can only be done when the government ‘diligently’ fights corruption and money laundering, the regret is that when the security vote was disappearing, when the national oil company cannot account for remittances, when the Nigerian leadership said ‘corruption is not stealing’, ‘nobody gave a damn’, just imagine the country having a corruption fighter as president, surely our current economic state would have been sane.

Follow me on twitter: @neeswaid

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