Exchange Rate Unification: President Tinubu’s Poisoned Chalice (Part 2)


The current economic crisis provides Nigeria the perfect opportunity to redefine its economic future by itself. But this can only happen if the IMF and the World Bank are interested in a better future for Nigeria. Yet the time is overdue to review and discard the undesirable consequences of SAP which we have been coerced to live with it in the last 37 years. As it is well known, the exchange rate is the major driver of the economy in an import dependent environment as Nigeria. The realistic exchange rate can only be determined through an interplay of both monetary policies and fiscal policies where the weight of importance does not tilt in favour of any side. Right now the monetary authority, the CBN, is taking unfair advantage of its position. It is through the application of the Keynesian economic model that the fiscal authorities are able to stand up to the monetary agencies. A good question to ask is why must both the federal and state governments be schooled in the lazy and false doctrine that “government has no business in business”? Examples from China, Russia, Malaysia, France, Indonesia and Bangladesh contradict this statement. Growth strategy that defined Nigeria in the 1st, 2nd, 3rd and 4th national development planning years must be reenacted. Such similar growth strategy has made Morocco, Egypt, Algeria, and Tunisia the successful economies they have become today. There is a solemn need to critically and objectively examine the contributions of public enterprises that made Nigeria a great economy in the years prior to September 1986. The SAP we implemented, taught us that only the private sector can develop the economy and therefore all commercial public enterprises must be privatized. The experience has been a calamity. It remains a mystery how the public enterprise sector which harbours the public wealth of this economy has been made redundant in the development of the country’s economy. Even the basic side of the economy, the social services, are not any better. Privatization has killed job creation in Nigeria, it has encouraged government corruption, idleness and waste, and has promoted the flight of young Nigerian professionals. The reason is that, while it is steadily developing, the private sector is yet in its infancy because most private wealth in Nigeria is derived from public resources, one way or the other. In the preamble to the 1986 SAP, the Breton woods institutions did not blame Nigeria for corruption, it only noted that Nigeria invested its petrol dollars in public enterprises that its people could not manage and therefore the enterprises did not do well. But it is not correct to say that all the public enterprises did not do well. Judging by the success of the commodity boards, the vehicle assembly plants and the rolling mills and steel companies, etc. it is correct to say that many of these enterprises did well. The public enterprises existed side by side with Lever Brothers, PZ, Flour Mills, Cadbury, John Holt, and others. However, the financial crisis that Nigeria encountered in the years of a downturn in the crude oil market in the period 1983 to 1985 affected both the public and private enterprises. A loan request of only US1 billion in 1983 to the International Monetary Fund (IMF), to address a temporary balance of payment problem and renewed in 1985 was over exploited to wreck Africa’s most prosperous economy. Nigeria was given poison to cure malaria. And years later, the oil market recovered but the Nigerian prosperity had gone for good. That was how darkness enveloped Nigeria till this day.

In its report on July 12, 2021, the Director-General of Bureau of Public Enterprises (BPE), announced that between the years of 1989 and 2020, a total of 234 federal public enterprises were privatized and the federal government realized a princely sum of one trillion naira as proceeds from the exercise. The affected privatized sectors were in agriculture (32), banking and finance (31), cement (15), energy, construction and services (14), hotels and tourism (13), industry and manufacturing (9), oil and gas (1), ports (31), mines and steel (38), automobile (8), paper and packaging (4), sugar (4), and telecoms (1). Companies that could have benefited from sensible recapitalization efforts, like NAFCON, Nigeria Shipping Company, Newsprint Manufacturing Company, Delta steel company, Volkswagen of Nigeria, Peugeot Automobile of Nigeria, ALSCON, Nigeria Airways and a myriad of others were sold off. The jobs created by these companies were laid to waste because many of the buyers merely stripped these companies and deposited the proceeds in their foreign bank accounts. Monies realized as privatization proceeds were embezzled, and/or wasted, workers were retrenched in their millions and no replacement has come ever since. University graduates are being produced into an unemployment market in tens of thousands annually. Nigerians have become “hewers of wood and drawers of water.”  In 37 years, we have lived with these consequences. And most tragically, the raw materials used by most of the so-called private sector companies in Nigeria are imported and because they are not grown or made in Nigeria, they have created no new skilled jobs except in sales/marketing, finance, and accounting. A quick look at the pharmaceutical companies, as an example, will note that their research and development (R&D) departments are located, in their corporate headquarters in home countries and therefore the biochemists, biological sciences, chemistry and physics graduates and pharmacists produced by Nigerian universities are either teaching in schools or in sales department but not in their defined area of study. Yet this mindless privatization exercise continues as we speak. If an economic prescription has brought more problems than solution, why can we not change it? Are we welded to the discredited recommendations of the Breton Woods with no capacity to forge a new path? Nigeria has lost both ways – first in job creation and in foreign exchange loss. Why must we remain in this blind alley? President Tinubu’s government has a unique opportunity to redress this bad situation and possibly call for a new economic dialogue.

The sole reliance on private sector as the Nigerian engine of economic growth is unconstitutional. In Article 16 (1)(a) to (d); (2)a, b, c, and d; (3)a and b; and (4)a, b and c; of the 1999 Nigerian constitution, as amended, the role of government in the economic life of the country is clearly defined. The constitution prescribes the involvement of government in all aspects of ownership, production, distribution and control of “economic activities.” So why is the State, at federal, state and local government levels shying away from their fiscal responsibilities? The 1972 and 1977 indigenization decrees (Acts), were designed to specifically create jobs for Nigerians. Therefore, both federal and state governments must return to the constitution so that the youths can regain their buoyancy in accessing quality jobs and be able to make their contributions to the nation’s economic growth. At present there exists a code of professional conduct for company directors, well trained, experienced and knowledgeable managers of the economy exist all over the land, and the anti-corruption agencies like the EFCC and ICPC are available to look into the conduct and operations of government companies, when directed to do so. Public accounting firms exist at both small and large scale levels. No on can claim any dearth of executive capacity now. Can anyone imagine what the involvement of local government, state government and federal government authorities would mean to job creation if the 774 local government areas, 36 state governments plus FCT, 108 senatorial districts, and the federal government begin to set up properly programmed companies, along side the private sector, in their various localities in Nigeria? These companies would have been carefully planned out as revealed in a feasibility study and if they are cottage industries based on local raw materials, the government can go it alone and if needed, partnership with private individuals and other private corporate entities would be adequate. The LNG model is recommended for medium scale and large enterprises and will be ideal for government participation in these companies. Government can always provide land, infrastructure, or funds as their share of equity in companies they wish to invest in. The present situation where governors play with security votes and privatise a sizeable share of the monthly statutory allocations is unhealthy. The effect of this corruption on the naira exchange rate and the instability it creates in the black market is killing the economy. Let these monies be put into productive use as was the practice in the days of the four Nigerian regions and the 12-state structure in Nigeria. Contributions to the nation’s GDP from the new jobs and prosperity that will arise from government participation in industry plus the steady development of the private sector in its contribution to the economy will be good for Nigeria. The initial dislocation caused by the exchange rate unification can become an impetus for a radical transformation of the economy under President Tinubu. This poisoned chalice should be neutralized.

Both the Nigerian private and public sectors  must produce to achieve a usable and dynamic exchange rate. It is impossible to hold down the public sector so that the private sector can grow. It is akin to the outcome of the quota system we have practiced over several decades. It has failed. The wonderful example of former governor Udom Emmanuel of Akwa Ibom state in the establishment of the “IBOM AIR” is an example of a public enterprise project. The expected national carrier, Nigeria Airline, currently mired in an unending controversy is a must for Nigeria. The interview granted by Yemi Cardoso, CBN governor, to AriseTV on Monday, February 5, 2024, specifically mentioned the huge arrears of debt the CBN held before he became the CBN chief. It was estimated at US$7 billion and after a forensic audit by Deloitte management consultancy, a total of US$2.3 billions was found to be fraudulent or invalid while US$2.4 billion had been paid. All the companies that submitted the fraudulent claims must be investigated to determine other fraudulent foreign exchange activities they have been involved in the past eight years. The banks that acted as the channels to submit these invalid claims must be penalized and fined up to the amount of the claims. To date, the sum of US$2.2 billion remains outstanding but to be settled soon. Of the paid and outstanding debt were hundreds of millions of debt owed to foreign airlines. Nigerians can only imagine what a properly managed national airline, with flights to major capital cities of the world,  would do in reducing debts arising from remittances of ticket sales and profits to foreign airlines. A Nigerian airline will operate using the local currency and only bothers to access foreign exchange to buy spares and repatriate dividends to foreign equity partners.  This economy has a huge potential for growth. However, the naira exchange rate cannot be treated in a cavalier manner if a sustained growth is anticipated. The current exchange rate management style is inimical to economic growth. Despite the CBN governor’s explanation in his recent interview, it is totally beyond comprehension how the official exchange rate moved from N463/$ to N785/$ on June 14, 2023 and then to N1,456/$ on January 30, 2024? This rate has made life unbearable for both rich and poor Nigerians and has created a permanent structure for the immiseration of the people. The Nigerian economy cannot recover from this blow in the next several decades except it is part of a strategy to revalue the currency. Many of us do not support running a race with the black market in the dollar chase. It is also unethical and immoral to allow a shallow and supply starved black market to determine the exchange rate of the naira. The idea that the parallel market woke up to N1,400/$ and the official CBN rate followed it with a rate of N1,482.57/$ in a race of supremacy is distressing to this economy. It is obvious that the naira has finally lost whatever honour and value it previously held even in the eyes of the CBN. The clamp down of the excessive net open positions for Nigerian banks and the new restrictions placed on IMTOs (International Money Transfer Operators) banning them from outward foreign exchange transfers are steps in the right direction. Similarly, mandating banks to pay inward foreign exchange transfers only in naira into payees bank accounts is a good step. Similarly, restricting dollar payment of US$200 maximum to beneficiaries of inward foreign exchange transfer is encouraging. But the big fish in the waters remains the government officials – state governors, NASS members, ministers, local government chairmen and assembly speakers who give strength and vitality to the black market after every statutory allocation. Corruption and corruption and corruption is killing Nigeria.

The delay in reconstituting the full board of the CBN and in calling a meeting of the MPC (Monetary Policy Committee) by the CBN governor is not acceptable as it denies the CBN of guidance and diverse perspectives.  It was gladdening, when Cardoso announced at his interview, that a meeting of the MPC would be called before the end of February. The exchange rate of the naira is important to the citizens of this country not only in the determination of the general price levels but in the assessment of the personal worth of individuals. Every move that devalues the naira devalues its citizens and sinks the poor deeper in poverty. In the structural adjustment programme commencing in 1986 the second-tier foreign exchange market (SFEM) was the mechanism that was used to systematically devalue the currency over several years. The CBN and the Finance Ministry should now consider introducing a variant of SFEM and use the mechanism to achieve a revaluation of the naira. The CBN governor agrees that the naira is undervalued. Experts believe that the naira is currently undervalued by as much as 65%. A new SFEM should be used to promote the productive sectors of the economy and should not allow frivolous imports in the market. The guidelines to banks under the new SFEM should clearly indicate the list of items not eligible on the market, such as foreign school fees, tooth picks, matches, electronics, food items available locally, and only airline remittances for tickets where the users are resident in and flights originating from Nigeria and not anywhere else.

Exporters who remit their export proceeds as mandated and make the appropriate CBN returns are allowed to bid. Nobody should be tempted to hurriedly devalue the currency by fiat as the CBN has done consistently since June 2023. Let it be known that this economy will not recover in another 25 years at any exchange rate above N550/$ to N600/$. Even the national assembly rate of N800/$ will not help in economic recovery. If SFEM could be an instrument for the gradual devaluation of the naira, we can as well apply that mechanism in the gradual revaluation of the naira while other measures of  economic growth and production are being implemented. The application of a reverse SFEM can help us to climb back from sitting on the tiger’s tail. It is also time for a Presidential Economic Adviser who can proffer alternative solutions to be appointed.

As the CBN begins to twitch the portfolio of measures it is currently implementing in the foreign exchange market, the country needs to determine whether the black market as it is currently positioned is a tolerable institution. The Nigerian government needs to consider whether the idea of hordes of men in various city centers like Abuja, Lagos, Kano and Port harcourt wearing ‘babariga’ and moving up and down the streets in certain areas while hawking dollars is decent enough in a society that desires order and progress. How long shall the nation tolerate the black market for dollars? Granting operating licenses to bureau de change (BDC) was supposed to be the first step in eclipsing the black market but the market has even grown to feed the BDCs. The new restrictions placed on the the BDCs and IMTOs are commendable. Once certain aspects of the BDC operations are criminalised, offenders can be prosecuted and jailed which will serve as a deterrence to others.  At this stage in the crisis of naira exchange rate the black market needs to be banned. A free enterprise system does not mean that there shall be no rules and neither does it imply that sacred cows must be allowed to exist. The experience of the late music maestro, Fela Anikulapo Kuti, in the controversial foreign exchange episode and subsequent short imprisonment is a clear example of how the black market can be treated. It should be declared illegal and anyone patronising it should be declared illegitimate and appropriate punishment meted out. The personalities behind the black market are known and can be fished out and encouraged to cooperate with government. Those senior government officials whose proteges frequent the black market soon after monthly statutory allocations on their behalf should be unmasked. The unbridled corruption, unchecked and un-policed government statutory and budgetary allocations have become an albatross strangulating our economic well-being. A new war should be waged on corruption and the current EFCC chairman should be commended for the bold steps he has taken in the war against corruption.

The President Bola Tinubu’s government can become a key figure in the nation’s economic transformation if he consciously intermarries dynamic fiscal and monetary considerations in driving the economy. While the suggested palliatives are being implemented, the real question confronting Nigeria remains. This nation needs to be restructured so that it can become a country of law and order where progress is possible. The disorderliness in the society is affecting every facet of life. The idea of an all-controlling central government in Abuja has lost its appeal. Immunity clause in the constitution needs to be removed except for the president and vice president. The governors should be exposed to the vagaries of legal prosecution for criminal offenses. A lot of powers in the exclusive list must now go to the concurrent list in the constitution. It does not matter how the restructuring is done but let it be done urgently. State police under the powers of the state governor and the supervision of the state assembly based on the legal provisions for operating the state police will be an effective tool in arresting terrorism and banditry. The revival of industries by allowing both the private and public sectors to jointly participate in the production and distribution of goods and services will help this country. Export promotion is key and NEXIM (Nigeria Export and Import Bank) has to be challenged to revive export business at all levels.  Efforts must be made to ensure that our institutions begin to work. The unstable Nigerian university system has also mounted pressure on the pockets of Nigerians who have had to send their wards to schools in far away land, sourcing foreign exchange at unbearable rates to keep them in school. The new students’ loan scheme set up by President Tinubu and the recent deliberate ‘rapproachment’ between federal government and ASUU is most commendable. Imagine the joy that this country can become when the university school system works well and the job market thrives as it did in the seventies and eighties!!! When my mates and I left the university in the 1970s each of us had a minimum of three job offers as we left the NYSC camp. Please, let our children see the joy of being Nigerians. As things stand today this country is a living hell. The poor and the downtrodden can neither eat nor drink. The inflation rate at 28% will soon cross the 35% mark and the youth joblessness rate of 33% will become unbearable if urgent action is not taken. The exchange rate is the driving force now. It could change as the Dangote, NNPCL and Bua refineries begin to make their contributions to the stability of the economy. But right now, It has distorted the pricing structure of the economy.  Its effect is felt in the price of yam as it is felt in the price of electronics. Devaluing the currency the way the CBN has decided to go is counterproductive. With the CBN competing and using the same parameters of the shallow black market in rate determination of the naira exchange rate, the future may be bleak. Except a strategy of rate revaluation is urgently implemented by the CBN, it would be safe to conclude that the monetary authorities have placed a poisoned chalice on the dinning table of the president. He should not drink from it.

*Chief Lawson Omokhodion, KSM, the author of Powered by Poverty, is the immediate past Pro-Chancellor/Governing Council Chairman, Ambrose Alli University, Ekpoma.   

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