The debate
on whether or not to devalue the Naira in Nigeria is as old
as the second republic. Economists of the time vehemently kicked
against it on technical ground. Their argument was that Nigeria
was a highly import dependent economy
and has an export that was mainly raw material with
weak elasticity.
This means
that devaluation was likely to usurp the living standard of the
citizens because it was not going to increase exports to earn more foreign
exchange but liable to make imports of necessities dear. Strategically speaking,
a country having weak elasticity of export and import and is aspiring
to industrialise through the import of technological equipment
and know-how should not make the blunder of devaluing its currency.
Although currency
devaluation, depreciation, and redenomination are different,
they originate from same source – economic policy slip. For
example, trade deficit causes naira depreciation.
This happens when foreign exchange realised from export
lag behind the amount required to accomplish the desired
import. Consequently, the competitions over scarce foreign exchange
pull-down the price of domestic currency. Currency
depreciation is therefore caused by falling domestic production of
exportable commodities, falling price of exports, decreasing output of
necessities, and a corresponding increase of imports.
Continuous
depreciation can suffocate economic activities
and compel the monetary authorities to opt
for naira devaluation. This is possible when the
persistent currency depreciation go beyond the capacity of the
monetary authorities to use the traditional measure of stabilising
the domestic currency through providing subsidy for imports from the
foreign reserve. Invariably, the government may have to continue
subsidising imports in order to avert the political implication of
the unpopular devaluation but at the expense of depleting
the foreign reserve. This forces the economy into
dire straits and a serious dilemma akin to the proverbial statement –
between the devil and the deep blue sea: devalue and enslave the
economy, not devalue and remain economically wobbly.
In any case,
Nigeria has been devaluing Naira from its official exchange rate of $1: N0.75k
in 1980 to the current rate of about $1: N200. Usually spurious promise is
made to entice the populace that the devaluation can increase export, reduce
imports, increase foreign reserve, attract foreign direct investment,
create employment and promote economic growth and development. Despite the
fact that Naira was devalued severally since 1986 when the Structural
Adjustment Programme (SAP) of
the Babangida Administration was introduced, the promise of
economic progress has not been realised. The cataclysmic
effect of devaluation compounded the debt burden, made
repayment of debts difficult and depressed the economy. For this
reason, we should have a second thought about devaluation
otherwise we may eventually redenominate the Naira.
Redenomination is
caused by excessive devaluation just as the latter is caused by
excessive depreciation. For example, assume an exchange
rate of Naira to the USA
Dollar to be 1:1 and eventually Naira is devalued to
$1:N10, leading to policy redenomination of Naira back to $1:N1. This
means that the new one Naira can only purchase same commodities the former N10
used to purchase before the redenomination. In the same
reasoning, suppose we are to redenominate $1: N200 by
introducing a new Naira with ratio $1: N2, it means that the
new one Naira can only purchase what the old N100
used to purchase.
Opting against redenomination requires guarding the
Naira against series of devaluation. This entails a concerted
effort using both economic and
social measures to revive the Naira. Economically, the
government can reinvigorate the productive sectors through instituting
the appropriate measures on industries, agriculture, mining, use of
research in development by
especially laying emphasis on youth employment
and the substitution of imports.
No
matter how inconsequential, the production of goods should be
encouraged. Even production of teaspoon, tissue paper, locally sewed clothes,
and so on can generate employment and reduce imports. Socially, it is high
time we understood that Nigerians have low taste for domestic
products thereby affecting demand, profitability, and
sustainability of local industries. This dangerous habit
cannot reduce imports to strengthen the Naira.
Therefore, this should be corrected
through proper national orientation. Alternatively, heavy
custom duties should be imposed on the undesirable goods.
From the
foregoing, devaluation and any of its elements is a defeatist
position. The government should not only kick against it but also
take appropriate measures to revaluate the Naira. This is
necessary because the extreme case of devaluation is indebtedness, import
dependency, unemployment, loss of patriotism, disrespect
of constituted authorities, and triggering on large
scale poverty, insecurity, low literacy level and
diseases. In fact, the manifestation of these negative
indices has been the major challenge
for Nigeria. Therefore, the government should be extremely
cautious in order not to be cajoled by the creditors. In
effect, Nigeria should not succumb to a calamitous Naira
devaluation. (Source: Guardian)
No comments:
Post a Comment