Where Bismarck Rewane Got It Wrong – 2

Femi Akintunde-Johnson

We conclude the seminal ‘treatise’ of a rejoinder by Oluwaseun Theophilus Tubi, an economist, which probes certain economic elements and prognoses in the 86-page foundational ‘treatise’ of the respected economist and banker, Rewane J. Bismarck recently delivered at a session of Lagos Business School programme. Over to Tubi…: 

 “On page 32 of 86: WHY IS THE NAIRA DEPRECIATING?

1. On High Naira speculation. The following quote says it all, “The amount by which the parallel-market exchange rate exceeds the official rate, known as the parallel-market premium, will depend upon a host of factors, in particular, the penalty structure and the volume of resources devoted to apprehension and prosecution of violators.” (Pierre-Richard Agenor, Princeton University Essays in International Finance, 1992.) 

Suggested counter-measures on this: Nigeria as a sovereign republic cannot and should never allow itself to be at the mercy of speculators. Such a situation is anathema to nationhood and erodes the very concept, as it subjects the country to the vagaries of economic subjugation. 

The Nigeria Naira is the only legal tender within Nigeria, and it is time our laws were dutifully enforced. Therefore, a timeline should be set for all Forex within the Nigerian economy to be lodged at DMBs for onward transfer and domiciliation/lodgement with CBN. Owners are at full liberty to access and transact legitimate transactions with their domiciliary accounts, other than cash withdrawal of USD$. 

All Forex not within the banking system after the set timeline shall become forfeit to the federal government. This shall be added to the current whistle-blower system and the same reward condition shall be extended to it. Set up a Special Forex Recovery Task Squad for enforcement. 

All foreign currency remittances should be cashed/credited to Nigeria and be domiciled with CBN. 

Forex speculators causing unreasonably high (phantom) demand causing Naira depreciation will be effectively neutralised by CBN insisting on proper documentation of all Forex requests, disbursement, and usage. Collusion to circumvent this provision in any way should be treated as economic sabotage. 

 Any and all regulatory restrictions placed on import of Forex is therefore counter-productive and should be removed. 

CBN to retain within its vaults (all bullion) and to keep Forex balances on its books against keeping the majority of it abroad.  

Forex allocation should follow approved and well-defined national priorities. 

The Banking Sector needs another round of integrity tests. Most are essentially not financially sound. 

CBN must be financially re-engineered to deliver on its mandate to fund development programs. The current bullion purchase must be strengthened as well as the proper management of its Forex reserve.

2. On Low Forex Liquidity as Gross External Reserves down 13% to $33.24bn in September (y-o-y) despite higher oil prices. Oil production (OPEC quota – 1.6mbpd), and Average Forex turnover down 8.85% to $84.60m. According to a study, Nigeria’s main forex revenue is haemorrhaging on two fronts: Lack of accurate data on the actual number of producing Oil Wells and Active Rigs operating within its territorial economic zone, caused by administrative inadequacies.

Dearth of verified actual crude oil and condensate production figures even from amongst so-called authoritative sources, both local and international. 

Analysis under the Drilled and Completed Oil Wells Category found that between 1999 and 2017, a cumulative total discrepancy of ₦12.478 trillion or better still, when adjusted for inflation, ₦14.786 trillion in 2022 value. That is an average annual revenue loss of ₦1.643 trillion. 

Analysis under the Active Rigs Category revealed that the Nigerian economy lost, in just nine years, between 2010 to 2018, a cumulative total of ₦28.358 trillion or better still, when adjusted for inflation, ₦34.170 trillion in 2022 value, an average annual revenue loss of ₦3.797 trillion. 

 Analysis under the Crude Oil and Condensate Production Category showed that for the period between 2010 and 2019, a cumulative total of $21.265 billion or better still, when adjusted for inflation, $22.967 billion in 2022 value, this translates to a consistent average revenue loss of $2.2billion annually. (Tubi & Adenikinju, 2023) 

Nigeria is owed by international oil companies (IOCs) operating within its shores. According to Chevron Nigeria Limited (CNL) 2019 Annual Report, it was observed that “the latest years for which income tax examinations had been finalized for Nigeria was year 2000”. Meaning Chevron Nigeria Limited is in arrears of 21-year income tax remittance! 

Add to that the sum of $62 billion judgment debt being owed to Nigeria by IOCs in line with the Production Sharing Contract (PSC) law. 

  On page 33 of 86: WHAT IS THE FAIR VALUE OF THE NAIRA? 

With due respect, BRJ’s assertion and the ‘way’ he used purchasing power parity (PPP) to determine the fair value of the Naira is subjective and violates one of the cardinal rules and principles prescribing under what conditions absolute purchasing power parity holds, to wit: “absolute purchasing power parity holds when the purchasing power of a unit of currency is exactly equal in the domestic economy and in a foreign economy, once it is converted into foreign currency at the market exchange rate.” (Gabriel Zucman, 2005). 

Put in another way, PPP is a simple theory that holds that “the nominal exchange rate between two currencies should be equal to the ratio of aggregate price levels between the two countries, so that a unit of currency of one country will have the same purchasing power in a foreign country. (Taylor & Taylor, 2004). Emphasis mine. 

In essence, PPP suggests that the value of one Naira in Nigeria should ordinarily be at par (short form of ‘at parity’); that is, equal to one Dollar in the US, or one GB Pounds in the UK. It is the reason why local currencies like the Naira can easily be classified as weak or strong against other major currencies. Whatever value the Naira assumes against other world currencies is ultimately a decision of the monetary authorities, using standard templates. Therefore, if a Big Mac costs one unit of the dollar ($1) in the US (dollar being their unit of currency), it should ordinarily cost one unit of the Naira (₦1) in Nigeria; NOT what one Naira has weakened to against the dollar. That is the point. 

 Again, and more importantly, PPP measurement index is not an end in itself but a means to an end, and as such, it is an indicator (one of many) used as a metric for comparing/measuring the standard of living conditions between two countries. The corresponding argument is, therefore, what wage rate (minimum wage) would afford a citizen at least one square meal a day in either economy? This is universally acknowledged as the barest minimum to keep citizens at least on, if not above, the poverty line. So, if you do not earn up to $1.20 a day (not per hour, for a whole day’s work), you are considered living below the poverty line. US minimum wage is $7.50 per hour, while minimum wage in Nigeria is N30,000 – that is, N1,000 for a whole day’s work, not an hour (less than $1 at parallel market rate), which equates to a low standard of living. 

The PPP model assumes the value of each county’s unit of currency must give an equal level of utility satisfaction. So, to isolate the current weakened value of the Naira, and ascribe it as its true or close to its true value, that I respectfully disagree with. 

Finally, it was an enjoyable experience reading through the renowned expert’s presentation, and learning from his wealth of invaluable experience.”

(Tubi is a Consultant Economist and Energy Expert – tubiotesq@yahoo.co.uk,) 

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