Stop borrowing dollars, borrow sense: Naira on its way to a thousand to a dollar

BY OLUGBENGA JAIYESIMI

Suddenly the naira shot through to five hundred and twenty five to the dollar at the unencumbered parallel market after the announcement that CBN would no longer sell dollars to Bureau de Changes (BDCs). No doubt owners of BDCs have been enjoying the arbitrage between CBN rates and parallel market rates.

President Buhari said he saw no benefits from currency depreciation or more precisely devaluation and he was applauded. CBN governor proclaims he will defend the naira another applause. Suddenly there was to be a Yuan-Naira swap and a largely Chinese produced Samsung Galaxy phone would soon be selling at a ridiculously low price because the dollar had been circumvented.

That was six years ago, all types of shenanigans and charades. Another one for the gallery- lets ban 41 items from importation and was applauded. ” Produce what you consume and consume what you produce”. Maximum applause for an economic policy that amounts to becoming a SUBSISTENCE ECONOMY.

Yet the naira is on its way to a thousand naira buying a dollar in two to three years by simple projection. If in six years it scaled from #165 naira buying a dollar to #500 which is a 200% increase then a 100% increase to a thousand naira will be in two to three years. What will hasten this is the new foreign debt load on the nation. This rose from around $10 billion dollars in 2015 and is projected to go beyond $50 billion dollars by 2023( much more than the $30 billion debt we had difficulty in paying off for over two decades) Am I harsh in calling all CBN efforts shenanigans or charades knowing that the value of a currency judged against the dollar, is determined ultimately by the supply of the dollar matching or exceeding demand for the dollar by that nations economy.

Yes there was a time when we were aflush with dollars after us winning a jumbo lottery in oil income and the dollar exchanged for fifty five kobo (55 kobo). I submit that that was when we planted the seeds of our current economic crises because that was the perfect recipe for Dutch Disease from which we are afflicted by to this very day. By pursuing a strong naira’ policy we embraced Dutch Disease( subject for another day). Let’s return to reasons a thousand naira will buy a single dollar willy nilly.

This is because we refuse to address the solution side of the forex problem and just attend to the demand side of the dollar to the naira by government actions, policies, and pronouncements. Meanwhile the solution lies solely in the supply side of the price equation. For a long time now our balance of payment problems have been a dollar supply one, a crash in oil prices and then the whole economy starts reeling. The authorities bring in policies that are to curb imports especially of consumables. Being an import substitution industrial policy driven economy wishing to produce those forty one banned items and others we will have to bring in new machinery and plants, spares, chemical reagents and locally unavailable raw material like wheat or barley etc. All the above and others need much injection of forex meaning added pressure on the value of the naira. This also plays out in our efforts to diversify the economy or becoming more productive which are regular mantras given out whenever the economy is in trouble. So our import bills will simply move from consumables to capital goods including combined harvesters and pesticides to boost our agricultural production. No way you are getting away from imports and the demand surge on the dollar. Meanwhile what the fiscal and monetary authorities do is ‘demand control’ and other cosmetics.

China the world’s largest exporter is the world’s 2nd largest importer, almost matching US imports in 2018. India with the world’s fourth largest foreign reserves imports more than it exports up until 2020. In no serious country does imports really go down for long, the nature of imports might change from consumables to capital goods so the demand for forex goes up.

Meaning, managing the naira value from the demand side is a lost battle and it’s a war we have been losing since the 1980s when 55 kobo purchased a dollar and we later went into our first recession. Yet we refuse to change strategy hence a thousand naira to dollar is inevitable.

SUPPLY SIDE. Is it rocket science? No, then why have we refused to address adequately this side of our forex market? As I have explained this is the side of the equation that can stem the fast declining value of the naira. We can see that all the gibberish science on the defending the naira has not worked any magic. It is time to move to this side of the equation by diversifying our exports away from crude oil, by encouraging higher value non-oil exports.

I have used harsh words on the CBN because their policies apart from being demand control has also reduced the supply of dollars from other sources such as Foreign Direct Investments(FDIs), remittances and the reparation of the little non-export proceeds back to the country. This means we have been struck by double whammy CBN policies.

Efforts were made in the Structural Adjustment Program(SAP) years to address the supply side of the equation with the setting up of EPZs (Exporting Processing Zones) and NEXIM (Nigerian Export-Import Bank) to no avail because Nigerian business elite refused to buy into the export program. This is after many, including top notch economists, had said we should peg the naira because we had nothing to export. This is forty years later and we still have very little to export. This needs to be investigated and expunged from our psyche. No doubt the Import Substitution Industrial Policy(ISIP) we adopted post Independence has succeeded in entrenching a non-export culture in the Nigerian business elite, without the requisite export of their products to help with the supply side of forex into the larger economy.

To help illustrate the neglect of this aspect of managing our forex debacle I would make an observation with a question. How often have the heads of our export bodies been featured in this debate? The media is as guilty as everyone else, their focus being on the razzmatazz from the CBN.

Another reason I am confident the dollar will trade for a thousand naira is that if we decide to join the global supply chain as suppliers and move from ISIP to ELIP( Export Led Industrial Policy) we will craze for a drive towards a thousand naira exchanging for a dollar because it drives exports and reduces imports, especially of consumables thus killing two birds with one stone. It also helps iron out all the other inadequacies of the economy like industries having to provide their own power and other infrastructural deficiencies. This time around we will be subsidizing exporters as it were, drawing more people into exports. Our industrial goods will edge into global markets keeping our factories at fuller capacity thus creating more jobs.

What economics is this? It is called Emulation Economics by Erik Reinert author of the book “How Rich Countries got Rich and Why poor countries stay poor” Whom are we emulating by this? The Chinese and Asians of course and there is enough empirical data to back this up. The Chinese RMB/Yuan depreciated three folds over ten years when they started to conquer the world, from Three Chinese Yuan buying the dollar in 1985 to eight Yuan in 1995.
Toyota, Honda, Panasonic, Sony et al conquered the world on the back of a weak Yen, three hundred (300) Yen to the dollar in the 70s until they reluctantly acceded to Yen appreciation only after Japan had moved to very Hi-Tech goods leaving the low end toys’ to China. Later, Japan also accepted to float the Yen. China, despite having a war chest of close to 4 trillion dollars reserves are not allowing the Yuan to strengthen up back to three Yuan buying the dollar.

Meanwhile Nigerians are yearning for #1=$1.00 We might be tempted to say that we are too unlike these North East Asian countries and yes we are, so let’s look no further than Bangladesh whose trajectory is on the rise by emulating the Asian tigers in policy choices of an export led industrialising economy. They have chosen the Ready Made Garment(RMG) sector to drive their exports. Starting forty years ago they have succeeded in reducing extreme poverty from 40% to 14% in…..

I have postulated that there are two ways to the inevitable thousand naira dollar, it could be by strategic choice or it could be thrust on us by dire economic situations. If we get there through the latter we will not reap the benefits that accompany such a decline in the value of our currency. It is not all gloom on the supply side as we see polished sesame seeds export from Nigeria knocking cocoa beans off the pedestal of leading non-oil exports. Also let’s look no further than Dangote Industrial Group who have factored in selling its fertilizer, cement and refined petroleum products to countries beyond Africa.

Another windfall from depreciating the naira to beyond a thousand naira to the dollar is that it forestalls Dutch Disease. Interestingly we had a period when this scenario was in play, 2000-2014. The currency was allowed to depreciate from around #80 naira to around #140 in 2014 even as we had rising reserves from rising oil prices (it also helps government revenues). Yet this was the period in our history when our economic performance was at its best with 6-8% GDP growth for most of those years, subject of my book

NIGERIA ATTAINING TRILLION DOLLAR STATUS.

In my estimation getting to a thousand naira dollar should not be the issue for much discussion at Nigeria’s current level of development, only mature developed countries have the luxury of an appreciating currency. The issue at hand is how we get there, is it by accepting it as a policy strategy to drive the supply side of the forex market or is it by having a thousand naira dollar thrust upon us by dire economic circumstances that bring periodic devaluations. It is time to break the hold of the import substitution industrial policy ONLY on our industrialist and policy makers. This policy has been at the heart of our inability to export from our industries thus limiting our exports to primary raw materials.

At the end, there is a more pertinent question for us Nigerians. HOW DO WE AVOID GETTING ON THE ROAD TO OIL RICH VENEZUELA?

Jaiyesimi writes from Lagos