Immediate past President of the Institute of Chartered Accountants of Nigeria (ICAN) speaks on wide range of economic issues in an encounter with Olaseni Durojaiye and bares his mind on varied issues bordering on the economy
Even with the economic hardship that adopting devaluation will bring to workers in the country, the policy has been described as inevitable if the country must navigate out of the current economic crisis it is faced with. This assertion was made by the Chief Executive Officer of Heritage Capital Markets Limited, Chide Ajaegbu, who pointed out that there is no easy way out of the current crisis.
Ajaegbu, who is the immediate past President of Institute of Chartered Accountants of Nigeria (ICAN), stated this in a state of the economy interview with THISDAY. While calling for a dispassionate and transparent handling of the forex regime, he however, cautioned that devaluing the naira should not be totally left to the dynamics of the market.
“The continued hold on the value of the naira in the forex market, particularly against the greenback in my view is unsustainable; it is doing a terrible harm to foreign direct investment to this country. It is actually a policy that must be revisited immediately. The President must be told that economics does not obey orders. We have to ultimately devalue. We can’t be deluding ourselves selling dollar N199 to $1 when the market rate is N307 (as at when the time of this interview) to $1. You know that it is not sustainable; it is unrealistic. The international community knows the right rate. I am not saying you should completely deregulate the currency but you need to make an attempt towards achieving what the market dynamics is saying. But for you to sit somewhere and say you are going to sell N199 when the market is saying N307 is ridiculous and unsustainable,” he stated.
Lamenting the effect of the tight hold of the CBN on the forex market, Ajaegbu stressed that, “because the capital market is made up largely of foreign investors, they are exiting the market. So you have an oversupply of most of the stocks and then you have glut in the market. Of course that is basic economics; when you have excess supply over demand, price will go down. That is what we are experiencing and until we are able to get the right value for our currency they will not be able to come in because they are not going to go through the black market. So, we need to devalue to be able to encourage foreign investors to come in not just in the capital market but also in other facets of the Nigerian economy.
“Saying that you will not devalue the currency when you truly know that the true value of the currency is about 50 per cent more than you are using to transact is simply ridiculous; it absolutely doesn’t make sense. And ultimately we must devalue if the price of crude oil continues to decline. By the time our foreign reserves come below $20 billion government will start looking for realistic measures to deal with issue of the devaluation of the naira. As it is now, we are just in a utopian world in terms of the exchange rate that we are using to transact business vis-à-vis the dollar.”
Tracing the genesis of the current crisis to age-long over-reliance on oil, Ajaegbu said Nigeria was also opting for the easy way which explained why the country failed to diversify at the height of the oil boom. He explained that even after the current crisis abate, the country runs the risk of another slump if the country’s economy managers failed to diversify the economy.
He explained that shale oil, and other renewable energy source pose similar threat as that of fall in oil price adding that unless the country’s economy is diversified, it risks a return of the current economic challenge when other less expensive sources of energy are discovered in 10 to 15years time.
“Today we are grappling with a very dramatic drop in crude oil price and because successive governments had not dealt with the issue of diversification of our economy and corruption, we consistently seem to fall into major crisis when there is volatility in the crude oil market.
“There is no doubt that things are going to get worse in the economy before it gets better. There will be massive loss of jobs across all sectors irrespective of whatever policy you bring in place. The key thing I think government has got right is the recovery of looted funds and the focus on effective tax collection. A lot of countries in the world today depend essentially on taxation for the running of their government. But we, Nigerians, have a way of going for the easy way out – crude oil is the cheapest way. It made everybody lazy to think, to work and now there is no crude oil.
“Besides, ultimately, in the next 10 to 15 years, there will be alternative sources of energy to crude oil and if truly we are serious about the viability of this project called Nigeria, I think this is the right time, if not late, for government to start thinking seriously about how to actually diversify the economy because in 15years time, it is either crude oil will sell for $5 – $10 or there will be far cheaper alternative sources of energy to crude oil. The only reason we are still talking about export of crude oil today is because the cost of crude per barrel is lower than the cost of production of Shale Gas and Oil in the United States of America because these things have been discovered in massive quantities in the US. The moment crude oil sells for may be $50 – $55, our ability to export crude oil or refined products will drop dramatically because the competition coming from Shale Gas and Oil will totally overtake us,” he stressed.
Reacting to the refund of cautionary fees to Bureaux de Change operators after the CBN stopped sale of forex to them, he hailed the initiative but responding to the appropriateness or otherwise of such fund being channeled to financing infrastructure deficit he responded thus:
“If investing in any form of infrastructure is going to give you the desired returns, why not? But the key thing in a capitalist set-up is profitability; so nobody is going to run a charity with his or her refund. And it is actually the responsibility of government to provide or renew infrastructure in a country. If government does not have enough funds to meet this responsibility, they have a lot of options like the PPP and concessions. So, whether the estimated N100 billion refund to the BDC operators will be invested on infrastructure will depend on the direction they want to go. But I know that most of them will try and diversify their businesses.
However, N35 million is not a lot of money. If you are talking about infrastructure, you are talking about trillions and government knows where to go. We have the pension fund which is over N5 trillion, the TETFund, which is also over N5 trillion, there is the options of PPP and concessions,” he explained.
While maintaining that devaluation is an eventuality that is bound to happen, he, however, declined to put a date to when the government will come round. “I don’t know; I can’t put a date to it. As you know we have a very opinionated President. I think he needs to be convinced. I also think we need to remove the toga of ‘I won’t listen to the IMF’ because it is a global village and the direction is that you have to devalue the currency because you are not earning enough to sustain the value of the naira. That is essentially what it is all about and there is nothing else to it. We will devalue but whether it will happen in March or April I don’t know. But I know we will do it, not because we want to do it but because we will be forced to do it because that is the right thing to do. However, the right thing to do is to allow the market to determine the value but that will be dangerous. It needs to be managed. Nobody ever advocates 100 per cent devaluation. So, it has to be managed. So, the percentage will depend on how that fits into the overall strategy of the government to manage the economy in the next one, two, three years. I am sure that the technocrats are by now simulating the impact whatever percentage of devaluation will have on the economy in case the President makes up his mind,” he concluded.