Audu Ogbeh’s devaluation message

Audu Ogbeh, a veteran politician and Nigeria’s agricultural and rural development minister since 2015 has been trending lately. There are two videos of him trending on social media platforms. The first was the very laughable video about Nigerians importing Pizza from London with the help of British Airways. The second is of him in the national assembly, I suspect at a public hearing, providing a convoluted narrative of naira’s devaluation and its implications for the Nigerian economy. It is worth reiterating here.

In the video, he argued that the tragedy of Nigeria started in 1986 with the introduction of the Structural Adjustment Programme (SAP) under President Ibrahim Babaginda. According to the programme, with persuasion from Harvard trained economists, the naira should be devalued, and we have devalued our currency virtually every week for over 32 years. Consequently, the naira that was the equivalent to the dollar then, and close to parity with the UK sterling is now about 357 and 469, respectively.

According to the Minister, following the devaluation of the naira, Nigerians are now so poor and dependent on imports for food and toothpicks. As a result of these devaluation episodes, interest rates rose to 30 percent in the country and no one could build factories to make the things that Nigerians need.

Before we begin to interrogate Ogbeh’s narratives, let me point out that the motivation for this piece is not the narrative provided by him, but the reception by many Nigerians. The video is trending and very popular, even amongst many educated Nigerians. If we are not careful, even in a country of many educated people, populist narratives have the potential to drive us down a pathway to economic ruin. Just ask Venezuelans.

The first is that the exchanges referred to by Ogbeh are two important points in 1986 and today. But the two exchange points do not tell us much. What tells us much is how the exchange has changed over time because that reflects the values of the comparative currencies over time, which depends on the underlining fundamentals – economic growth and inflation, both underlined by changes in productivity. Coincidentally, as I write this piece from South Korea, the US $ is currently equivalent to 1144 South Korean Won. That is, on paper, the Won is weaker than the naira. However, the per capita income in South Korea is currently about US$30,000, about the same with the US.

Now, let me complete my response by noting that I am not a believer in devaluation as the answer to all balance of payment problems. Yes, currency adjustments help in the short time, but the long-term work required is a policy response that increases productivity overtime. So, while I do not think Ogbeh is right in blaming naira’s devaluation for all our economic woes, the World Bank and IMF were not right to focus almost entirely on the adjustments as the means towards sustainable economic recovery. Mere adjustments do not work because it often seems to only address aggregate demand in the short time.

The second point is the narrative that devaluation led to poverty. Devaluation in itself does not lead to poverty. However, in the absence of growth, reflecting low productivity in the first place, countries are forced to adjust their rates in order to remain competitive and continue to be able to import the goods they need for their industries. The problem is that, as often as Nigeria devalues, we fail to put in place and pursue the policies that make countries richer. Instead, we engage in populist economic policies such as subsidising petroleum consumption, subsidising rail tickets from Abuja to Kaduna, wastage of oil resources by the same ministers providing devaluation excuses, provide no concrete investment in education, and continue to tolerate an unproductive civil service.

I have noticed that our politicians are very quick to make populist statements, and this government has mastered the act more than any other. In the same statement in which the Minister is complaining about too much importation, he’s also complaining that the “Harvard” economists want the government to devalue its currency further. That’s inconsistent, because further devaluation is expected to lead to increase in exports. And in the same week the video came out, Bloomberg did a very interesting story about US $300 million worth of cashew bound exports wasting at our ports. Instead of the minister ranting about imports, he should tell us how the government is helping exporters, for which their progress will mean increasing our capacity to keep our exchange rates stable.

It is the policies that drive exports, competitiveness, and productivity that countries focus on. But here, we refuse to learn and our trade policies over the years have been limited to either ban or increase in tariffs. While these trade policies are in place, a sensible government would have a plan to drive up production and competitiveness, but not in Nigeria. Economics don’t work that way. The only way successful importers and even smugglers can make money is because it’s still competitive to do so.

Finally, as the minister is particularly interested in the rate at which we trade, can someone please ask him where is Nigeria’s comprehensive trade strategy?Because how we want to trade is more important, and it’s broader than at the rate we want to trade. But we do not have one. That’s why when we do not know what we stand to gain with the African Continental Free Trade Agreement (AfCTA), we cried wolf in response. But serious countries are formulating their comprehensive strategies for engagement.

I thank you.

Ogho Okiti