Save Nigeria's economy, halt naira depreciation

2024-03-13 03:02:12

The Guardian

Nigeria's economy is bleeding profusely. The bleeding didn't start recently. It started in trickles many years ago when the knowledge of Nigerian economic managers was relatively low and resources were sufficiently in abundance to overwhelm the avoidable leakages.

Nigeria's economy is bleeding profusely. The bleeding didn't start recently. It started in trickles many years ago when the knowledge of Nigerian economic managers was relatively low and resources were sufficiently in abundance to overwhelm the avoidable leakages. However, times have changed, so remarkably that resources are lacking to cover the least of leakages.

Every leakage results in aggravated suffering, especially by the poor and vulnerable population which now forms the vast majority of Nigeria's 230 million population. It has never been so bad. The whole world is watching and we ourselves are struggling to demonstrate that hope is not lost.

I share this hope and strongly believe we can fix the Nigerian economy. However, if this must happen, we need to urgently steer clear of the normative dictates of textbook economics. We need original thinking in these times of economic emergency.

John Maynard Keynes did it when faced with unprecedented depression in England in the 1930s, and today we celebrate him for his original and insightful advocacy of increasing total spending to get out of depression (i.e., boosting aggregate demand to stimulate production and employment). This was the origin of modern day macroeconomics.

Prior to this, what matters to notable countries of the world, were the production systems and their associated infrastructure that provide employment and ensure buoyancy in domestic and international trade.

Getting production right was thus necessary for building strong institutions that would later sustain macroeconomic management.

As knowledge increases, macroeconomic management under strong institutions in industrial economies was made to support production in a mutually reinforcing interactive processes that ensure economic competitiveness and shared prosperity.

Nigeria has over the years mimicked industrial economies' approach to economic management. Because we have been unable to build and sustain strong production systems, every approach in managing the economy in accordance with the dictates of industrial economies and/or their proxies is bound to fail.

Countries that have tackled pervasive poverty in the last half a century provide vivid exemplars (e.g., China, Singapore, South Korea, Malaysia, etc.).

As rational economic agents, it is unlikely any industrial economy will 'help' Nigeria in producing goods and services that will displace its products in the international market. Hence, it is most naïve for Nigeria, in its current parlous economic state, to assume any country doing better than Nigeria will support economic policies that provide genuine solutions. The fear that a rising Nigeria will remarkably challenge their dominance in many spheres, as unexpectedly done by China, cannot be wished off.

Two major economic policies in recent months, which were meant to frontally tackle endemic corruption and fiscal imbalances, have resulted in aggravated haemorrhage of the Nigerian economy. There is unprecedented suffering in the land.

We are in an emergency that is akin to an outcome of war. Hunger and destitution are increasing by the day as inflation across board continues to soar. Official inflation figures (latest at 29.9 per cent for January 2024) are scaring, but more scaring is the reality that a loaf of bread that sold for N700 may sell for N1000 the following day! Garri, the most common and cheapest of Nigeria's food staples, has not been spared: a pan which sold for N500 in December 2023 now goes for N900 in February 2024. Cement which sold for N5,000 per bag in January, now sells for between N9,000 and N10,000 depending on point of purchase. Similarly, price of iron rods for building and road projects has taken a flight to over N1 million/tonne.

The first of the two policies was the audacious and commendable removal of subsidy on Premium Motor Spirit (PMS), aka, petrol subsidy removal. This was a well-conceived and needful policy to rescue the economy from bleeding beyond control by stopping the subsidy monster from further damaging the dwindling economy, and by redirecting subsidy savings to improve fiscal stance and cushion the effects of subsidy removal on the poor and vulnerable groups.

Nigeria got this right. However, the show was spoilt by the mismatch of floating the naira. Floating the naira, which involves allowing the forces of demand and supply to determine the value of the naira, is very unhelpful to an import-reliant economy and without a strong production system.

I respect colleagues who have advocated for allowing the value of the naira to be determined by the market. The World Bank and International Monetary Fund (IMF) have also made market determined naira value a major component of their policy advice to Nigeria over the years.

I have always disagreed with this policy for the obvious reason that it has never helped Nigeria's economy and has no good prospects of contributing to solving Nigeria's economic problems at this stage of her development.

The policy of naira devaluation destroyed Nigeria import-substitution industrialisation in 1986 when the World Bank/IMF Structural Adjustment Programme (SAP) was implemented in Nigeria. Many sub-Saharan African countries that adopted SAP became victim of a 'one jacket fits all' policy and ended up with de-industrialisation. Many African economies came under unprecedented stress with mass unemployment largely due to factory closures.

In Nigeria, industries collapsed in quick succession because they depended largely on foreign inputs which weak naira could not purchase as access to foreign exchange became more restrictive and expensive in the open market.

Nigeria has been unable to overcome the tendency to weaken the naira and Nigeria's economic managers appear to be captive to the axiom that a weak naira and market-determined value of naira will do a superlative re-ordering of the economy for good. This is very wrong. There is an urgent need to tackle naira depreciation to save Nigeria from bleeding to death.

The Central Bank Governor recently and authoritatively declared that 'naira is undervalued'. This confirms that the market cannot lead to a fair value for the naira in the present circumstances. This is a very unusual time and requires very unusual actions.

Halting naira depreciation immediately will provide a sigh of relief from the current price escalation and possibly reduce inflation however modest.

It will also demonstrate that government cares about the plight of citizens. The current government is in dire need of citizen's trust. It should provide clear indications that it is not here for business as usual.

To be continued tomorrow.

Adeoti is Professor of Development Economics, Nigerian Institute of Social and Economic Research (NISER), Ibadan.

2024-03-13 News