I am trying to make sense of the current economic woes Nigeria currently faces. In a series of reflective introspection, I wonder if President Muhammadu Buhari could not have been swifter and more proactive instead of reactive.

I would try to make a little analogy of the current economic situation. Global drop in crude oil price means that Nigeria’s foreign exchange earnings have dropped sharply. With Crude oil forming over 80 per cent of its earnings, Nigeria is facing acute shortage of foreign exchange that will enable it finance its import bill and other foreign exchange (forex)-dominated obligations.

In simpler terms, Nigeria depends on importing manufactured goods from other countries, to be able to meet her consumption needs. These include staple needs as well. Its traders/importers need foreign currency – Dollar, Pounds sterling and the Euro – in order to keep the import trade going and sustain itself.

Let us liken this to a family whose source of income starts dwindling because its products no longer command as much earnings in the market as before. Before now, this family buys everything it needs and took vacations at will.

But it must now decide whether it wants to buy a washing machine to help them in their laundry, or still use dry cleaners. It must decide whether it wants to keep buying garri, egusi, yam, cassava, or go to their farmlands and cultivate these things. If it chooses to keep buying, sooner than later, it will go bankrupt and not meet its financial obligations. This is exactly Nigeria’s situation.

For the avoidance of doubt, every government in Nigeria has faced this challenge. So it is not peculiar to this government. In the same vein, different governments have tried to address this as much as it could.

From the days of IBB’s structural adjustment programme (SAP) to the National Economic Empowerment and Development Strategy (NEEDS) of the Obasanjo regime, to date, it has always been a question of trying to match up the value of the Naira, to that of other currencies.

Because we depend wholly on importation, matching up the value with other global trading currencies, determines to a large extent how much we buy these goods in Nigeria. It contributes to our inflation rate and consequently standard of living. Sadly, we have never gotten it right.

Naira and Devaluation – Short History

The Naira’s relationship with other foreign currencies has been very erratic, unpredictable, even violent, filled with heartbreak and tears. It is also a very dysfunctional system that has benefited some people and made quite a number of people VERY rich.

Ibrahim Babangida (1985 – 1993)

Under IBB, Nigeria established the Second Tier Foreign Exchange Market (SFEM), as part of the reforms suggested by the International Monetary Fund (IMF) given the quandary Nigeria landed in. The implication was an epic drop in the value of the Naira. It would normally exchange for seventy to eighty kobo to one dollar in the 1970s to early 1980s. By the time IBB was ‘stepping aside’, it was trading at N17 to $1. It was also at this point that Bureau de Change (BDC) businesses came into being. The industrialization we were meant to champion given a weaker currency never happened.

Sani Abacha (1993 – 1998)

If IBB started the rigmarole with devaluation, it was under Abacha that everything terrible happened with the value of the naira. While the official rate traded at N22 to $1, it was trading for N88 to $1 at the parallel market. This wide gap gave room for all forms of arbitration and created a lot of fortune for bankers since government could not meet all the forex needs. It is also important to note that oil traded for $20 per barrel at this time.

It was a rigid posture by Abacha to peg the dollar at N22 that gave rise to the current mainstreaming of the forex and parallel market. With price difference as much as four times the cost at the official rate, you need no soothsayer to tell you the sort of fortune there is to make.

Olusegun Obasanjo – (1999 – 2007)

Under Obasanjo, two persons served as CBN Governor; Joseph Sanusi and Chukwuma Soludo. Joseph Sanusi made an effort to close the gap between the CBN market and the parallel market. The dollar traded for N85 at the CBN rate and then N105, at the parallel market.

Under Chukwuma Soludo, the naira experienced its best reprieve. With Oil prices rising to as much as $140 for a barrel at some point in July 2008 and Nigeria exiting the Paris club of creditors, it was the best moment to shore up the currency. He deployed various techniques to manage the currency value including a deliberate devaluation, to fund the budget in 2007 and 2008. Soludo took office when the Dollar traded for N127 and left it at N147, not forgetting the fact that at some point in 2008, it traded for N115. He also left behind a healthy reserve that stood in excess $60bn.

Umaru Yar’adua – 2007 – 2010

Sanusi Lamido Sanusi, the current Emir of Kano partly oversaw the CBN at this period. It was a relatively uneventful period, but one which showed plenty of oil income but very little savings. Worse still, part of Soludo’s savings started to deplete at this period. It was, presumably, no direct fault of Sanusi, but partly owing to theft and frivolous spending.

But in order to sustain forex liquidity so as to defend a depreciating Naira, Sanusi had to adjust Nigeria’s bond market regulations. This occasioned forex inflows. This enabled him to manage the market. He took office with the Naira trading at N148 to $1 and left it at N164 to $1

Goodluck Jonathan 2010 – 2015 and Muhammadu Buhari – 2015 – date

Because Nigeria could not save enough when the oil prices traded above $110, we were greatly exposed when it came crashing. Godwin Emefiele saw out the GEJ government and is the current CBN governor. It can be argued that Nigeria is earning next to nothing from crude oil now, since it costs approximately $30 to produce a barrel of crude oil. So from an initial $80 profit per barrel of crude, to almost nothing today, Nigeria is in dire straits.

At the advent of the GEJ government, it traded at about N164 and currently trades at N197 at the CBN window and close to N400 to $1 at the parallel market. Now the gap has widened again, meaning that loads of arbitrage will currently be ongoing, and lots of round tripping.

To forestall this drop, plenty of imported goods were removed from the list of items to be financed by CBN while also stopping direct sale of USD to BDCs and parallel market operators. Government has now mandated BDC to find alternative sources of forex to sell to their clients.

CBN now rations forex to banks, some of which are also looking to alternative sources to shore up their forex liquidity. It has also led to the debate of whether to devalue the current or not. By devaluation, government will now increase the amount with which one can buy forex at the official window. But how exactly is this a sustainable solution?

Devaluate or not to Devaluate?

Going by the narrative above, it is quite clear that devaluation has not fared well with us. There has been a consistent fall in the value of the naira, because for some reason, we tend to think of devaluation as a solution or an end in itself. There has to go with it, commensurate industrial and infrastructural-development actions to ensure the Naira regains value at some point. This is the gap in previous devaluation exercises and we cannot afford another of such gaffes.

Devaluation is also usually a strategy when we need to raise more naira and embark of several development projects. Arguments are rife, that it will induce inflation. But I am also yet to see how the current situation will not trigger inflation, since the bulk of importers we have do not access forex through the official window. It is the parallel market that plugs shortfall in government supplies.

We can also see from the history above, that we have always made an effort to control the forex and ‘defend’ the Naira. But what if we allowed this to be controlled by market forces? In a way this is devaluation, but will it not rid us of these huge gaps between the official rate and the parallel market and also help prevent the interference of politicians and make it less attractive to hoard?

Another critical factor we are battling with in the face of all these is currency substitution. This is the use of a foreign currency for transactions in place of the local currency. This is a prevalent issue in our system. Business concerns fix prices with the exchange rate at the back of their minds. Some are brazen enough to demand payment in dollar.

This is a regulatory oversight that the CBN must conclusively address since it adds to the mounting pressure on the value of the local currency. It is also very hard to contain, realizing that there exist several means of forex inflow into the economy which may not be captured on any of the formal platforms.

It is also likely that the CBN’s expansionary approach is contributing to the current pressure on the Naira. With banks indicating a very liquid economy, one cannot look past the effects of that on the economy. However I do not consider this as being the major cause.

But for every argument we have on the above matter, we need to keep two things in mind; if our currency will ever match up in value to other global trading currencies, we must increase our effort towards earning more forex and ensuring we reduce the demand for dollar by driving up production locally.

Devaluation should also give us excess naira, to be able to drive up local production and encourage manufacturing and exporting. If devaluation does not speak to these two approaches, then we will never leave this situation.

Driving up Government Response

I have tried to position the two sides of the devaluation argument. But the Federal government insists it will not devalue the Naira. Just on Saturday, in Egypt, the President reiterated his stance, arguing that Nigeria does not produce to compete in the global market. Prior to this, it has shut out forex supply to BDCs and removed certain products from items to be funded by forex at the CBN window. Indirectly, this is stifling importation or banning some products. It has chosen a spot, but it is not digging.

I believe that every government decision must have been properly thought through before implementation. The decision to stifle forex supply is an incomplete thought-process. It is now looking like an end in itself, which is the error of previous government.

To respond, the government needs to move faster than it is going now. It needs to constitute an economic team to start engaging these issues. Previous governments did it with positive results. Some reflection into the past will help demonstrate what has been done by previous leaderships in this regard.

Obasanjo’s approach from 2003 to 2007 has been the best blue print on how to approach economic development that anyone can adopt and replicate. With a core economic team, OBJ focused on critical areas he wanted to drive up; microeconomics, macroeconomics, debt management, privatisation, anti-corruption, civil service reforms, budget management and private sector-led development and governance.

With these in mind, he went ahead to recruit sound technocrats to lead these critical areas; Obiageli Ezekwesili, Ngozi Okonjo-Iweala, Chukwuma Soludo, Nasir El-Rufai, Mansur Muktar, Frank Nweke Jnr, Nuhu Ribadu, Shamsudeen Usman, Ifueko Okauru Omoigui.

These men and women drafted the NEEDS strategy which served as its foothold for a holistic approach. We saw an $18bn debt relief, privatisation, and the first ever meaningful approach to fighting corruption, which yielded dividends. You might want to criticize a number of the approaches but you can never deny the gains. Nigeria within this period grew its reserves in excess of $60bn. We have never reached these heights since then.

In his time, Umaru Musa Yar’adua, constituted his team to address the global economic meltdown and also provide a strategy to implement his seven point agenda. His team was headed by Dr Mansur Muktah, Dr Remi Babalola, Dr Shamsudeen Usman, Dr Tanimu Yakubu, Dr Doyin Salami, Mrs Sarah Alade, Bright Okogu, Dr Obadiah Malaifa, Mr Steve Oronsaye and Atedo Peterside. Given the short time existence of his government owing to his death in office, not much could be gleaned in terms of achievements of this team. But it was well on course, responding to the global economic meltdown.

Dr. Goodluck Jonathan also assembled his economic team pretty early, even though it was bloated and made up of persons with questionable character. But its economic engagement had form and approach. It focused mainly on job creation and infrastructure development. It could also boast of short term gains.

But the same cannot be said of this present government. Unless there are works in the pipeline to start off something, then we are in for tougher times. Its silence is also sending very negative signals to those willing to engage us and support us in opening up the economy.

For instance, Samsung Electronics announced it was setting up a manufacturing plant in Egypt to cater to the middle east and Africa region, completely ignoring its biggest market; Nigeria. Now imagine the amount of tech job we have lost to Egypt as a result of our forex stance. In trying to curtail the taste of the elite class, you end up hurting genuine business people who will usually be in the majority.

What are this government’s economic programmes? Is there any plan to plug the gap this indirect import ban will create? What are the plans to drive up local manufacturing? We have car assembly plants in Nigeria- at least two. Why sell forex to importers when you can comfortably promote the local assembling the previous government started? What is the plan for agriculture and agro-business expansion? Pictures surfaced last week, indicating Nigeria is experiencing a tomato glut with tonnes of produce rotting away.

We cannot afford to encourage this negative speculation on our economy. It will run us aground. The President, through his ‘body language’ does not seem to be giving his Ministers the liberty to be creative, express themselves and run their race. Everyone seems to be watching and looking over his/her shoulder. This is evidenced by several discordant tunes.

Secondly, it needs to change the narrative on this devaluation issue. It has always been all about imports. Unfortunately that’s not the problem unless we focus on the reserves. But the Nigerian economy is more than just the reserves.

Focus needs to centre on how homes and businesses can continue to earn and produce without being significantly affected by oil volatility, while creating new industries and businesses. The path to that might not necessarily be through a stubbornly fixed exchange rate. In fact, the fixation on it is becoming the problem. A marshall plan to grow local production is more like a sustainable solution.

Whatever be the case, Mr President needs to start running now. It is three months to one year in office and Nigerians crave for the results that show that he is in the field and has begun the race.

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Op–ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija

Chinedu Anarado writes in from Abuja.