Why Should the Naira be Devalued?
Wherever the rhetoric of the Naira devaluation started from, I have no idea. But it seems it has become the favorite past time for many economists to prescribe the devaluation pill as the way to move the Nigerian economy forward. And The Economist made it clear in one of their recent articles they titled "Toothpick Alert". Now, I have no intention of digressing from the talk of devaluation, so I will not dwell on whether the items on the list banned from importation should be banned or not. In a very swift response, the CBN reminded The Economist and the market that it was not interested in devaluing the Naira. Not today.
I believe that the CBN has received too much stick on this devaluation issue. The devaluation prescription is akin to using a short term fix on a long term structural and cultural problem. I forgive the Economist because they simply do not understand the way we Nigerians are wired, or how we have chosen to wired ourselves.
Performance of the Naira over the past one year
The question we need to ask ourselves is this: "After we have devalued the Naira (for the third time in less than seven months), what next?" I have asked many proponents of the devaluation theory this question and nobody has given me a satisfactory response. Nigeria has experienced so many devaluations over the life of the Naira and none of them has brought any succor to the Nigerian economy. None.
The problem Nigeria has right now is more structural and cultural than economy. There is the theory that once Naira is devalued, we will be forced to look inwards to produce those things we import because they will become too expensive.. This idea dwells in the realms of theory, not reality. It would be better to check the pulse of these Nigerians before prescribing this pill for them. I asked on my Twitter timeline a few days ago that Nigerians should stop buying imported goods and buy made in Nigeria goods. I got a few responses that only confirmed my suspicions. Someone told me he'd rather continue to buy imported toothpaste rather than buy Nigerian made toothpaste because he doesn't want his teeth to rot. Another said imported rice tasted better.
Some months ago, I went to a pharmacy shop to buy Actifed, a pill for allergies and cold, and the pharmacist told me they had two types: one was imported and the other was produced in Nigeria. The imported one was twice as expensive as the Nigerian made one. The pharmacist told me that the imported one sells faster than the locally made one. Guess what? They were both made by GlaxoSmithKline. Now this is very interesting. If CBN Governor says he is not going to give us dollars to buy UK made Actifed again, what is wrong with that? The question we should ask ourselves is why do we prefer UK made Actifed to Lagos made Actifed even at double the price? If the Lagos made pill is not as effective as the UK made one, we should make our complaint to Consumer Protection Council and the NAFDAC.
But nobody will do that because we all love imported goods. If Naira is devalued to 500 Naira to the USD, Nigerians would simply stop importing high end goods. They will go to China, import Tumy Hilfinger products and re-brand them as Tommy Hilfiger somewhere on Lagos Island. Abandoned goods in the UK can become luxury products in Nigeria, just as one traffic hawker once tried to push me to buy a UK used Blackberry on the Third Mainland Bridge sometime in 2010. We have an insatiable desire for imported goods and several cycles of devaluation over the years have proven again and again that this will not stop.
The solution to this problem is that Nigerians need to re-orient themselves. We need to hold ourselves to high standards and force ourselves to be mutually accountable. We need to encourage ourselves to produce goods locally. By banning certain things from being purchased using the Nigerian reserves, the CBN is effectively raising tariffs on such goods. Another thing we should also remember is that many Nigerians actually use these goods as avenues to round-trip the USD because of the inherent loopholes. They go to the bank with papers declaring they have goods to import and buy the USD at 198 Naira and then go to the streets to sell to the Mallam at 230 Naira. The CBN may not have mentioned this explicitly but this was actually becoming a problem.
The strange thing is that since the CBN started this banning of things, the foreign reserve has actually crept up by almost $3 billion in just about 40 days! Check out the tail end of the chart below:
Nigerian Foreign Reserves over the past one year
The chart shows that this strategy has been working despite oil prices being in the doldrums.
Another thing we should be pushing our Government for is to diversify the revenue base as quickly as possible. We should stop looking for mineral resources and such stuff. Nigeria depends on the most volatile asset ever in the history of human kind. Oil prices have no understandable fundamentals behind them. The price goes beyond demand and supply - it is driven by politics, whims and caprices of Governments in the West and Middle East.
In summary, my take is: Stop disturbing Godwin Emefiele. Let us put pressure on our Government to diversify our revenue base as quickly as possible and we should try as much as possible to use Lagos made Actifed and toothpaste for starters.