Nations devalue their currencies for several reasons. Some devalue their currencies to combat trade imbalance. Others devalue their currencies to enable their exports become less expensive and competitive globally. This makes imports more expensive such that local consumers are less likely to purchase them. Some industrialized nations devalue their currencies based on the dynamics of the global currency markets.
Some less developing nations however, devalue their currencies to correct past economic mistakes and decrease the volatility of their currencies. Nigeria belongs to this category of nations in its currency devaluation endeavour. Nigeria, a rentier state, with its current macroeconomic challenges bowed to IMF pressures to devalue its currency- the Naira. With the recent devaluation however, the Naira has lost 30 percent of its value.
In this column, I professed early in “Buhari and the Burden of Leadership” that “Devaluation of the Naira is a wrong economic decision for Nigeria.” This is because Nigeria does not belong to the league of industrialized nations. Nigeria has been import dependent economy for more than four decades relying on crude oil for almost 80 percent of its foreign exchange (forex). As long as crude oil remains a major source of revenue for Nigeria, and the economy is mismanaged, there will be volatility in its forex earnings.
On 12 July 2016, when I got my copy of Business Day newspaper it had a headline news titled “Rising Inflation Creating Distress, Shock for Nigerian Consumers.”The story reveals that “the twin effect of soaring inflation and burgeoning unemployment are rapidly grooming a band of distressed consumers whose purchasing power has fallen to record low.” With devaluation of the Naira, the pains borne by most Nigerians may not yet be over.
The pains are not yet over because Nigeria mismanaged its economy. Consequently, the nation cannot meet the demands of its people with production of 3 basic needs- food, shelter and clothing. As long as the story remains same, Nigeria will always devalue its currency. The nation is in deficit of housing, most textile factories have closed down and relocated to other West African countries, while the agricultural diversification program of the federal government is sluggish. It is a challenge doing business in Nigeria with incessant electricity power failure and multiple levies.
Even when the CBN did not devalue the Naira, the nation’s foreign reserves reduced significantly. This scared off investors. But some analysts have argued that militant attacks on Nigeria’s oil installations, and its devastating effects on crude oil production, coupled with forex shortages have undermined Nigeria’s economy making devaluation inevitable. It is up to the CBN to mitigate negative consequences of devaluation- inflation and unemployment, they argued. Perhaps, that is why the CBN has devalued the Naira in order to mitigate these negative consequences. Anyway, this is not the first time that the Naira is being devalued. But there was no time in the history of Nigeria that devaluation of the Naira has reduced inflation and unemployment.
As I write there is shortage of forex. This, according to some analysts, is because devaluation of the Naira is yet to have positive impact on the economy. The US Dollar is now scarcer than it was before. Businesses and individuals who applied for forex are still awaiting response from their banks who usually tell them that “there is no forex to sell.” Consumers do not have the purchasing power, some have not been paid their wages for up to 7 months, and some don’t have jobs. The cycle of poverty in Nigeria is still in motion.
Nigerian politicians like miracles. But policy makers should not be deceived that devaluation of the Naira will miraculously provoke industrialization. It is not too late for Nigeria to start afresh the process of industrialization with consistent policies. Any policy that cannot enhance industrialization in Nigeria so that food, cloth and shelter are produced abundantly should be suspended.
Manufacturing is a key contributor to the economic development of any nation. It creates wealth and self-reliance through provision of jobs. Nigerians do not want to barely exist on the face of the earth. Nigerians want to work and earn a living with dignity, and be respected by their peers globally.
It’s been observed that most industrialized nations like China, Japan, India and South Korea amongst others had unresolved economic and industry-related issues in one form or the other at the time of their industrial take off. But these challenges did not deter them from industrializing. Nigeria has officially been declared as the biggest economy in Africa. However, is the economic growth of Nigeria similar to those of countries listed above to enable us predict that she will join the league of industrialized nations in the next 10 years? If the answer is yes, are we on the path towards economic emancipation? If no, what are these industrialized nations doing that Nigeria has not done?
I share same sentiments with some scholars who argued that “the economic prescriptions of our policy makers and politicians including some intellectuals are not based on solid understanding of the historical process of industrialization.” They argued regrettably though, that Nigeria’s bureaucrats are still “planning without facts.” They reinforced their views on the fact that the nation has descended further down the road of historical and intellectual amnesia of planning without understanding; particularly with respect to the forces behind modern industry.
For Nigeria to join the league of industrialized nations, policy makers must demonstrate accurate understanding and adopt key factors behind industrial revolution- which is the capital goods sector. It is the emergence of the capital goods sector that consolidated and consummated the industrial revolution. Nigeria needs a thriving capital goods sector. This will make industrialization self-generating and irreversible. This sector comprises the machine tools and machine building industry. All machine tools, machines, and plants required by various sectors of the economy- manufacturing, agriculture, power generation, shipbuilding, railways etcetera, have to be built by the capital goods sector.
(To be Continued)
MA Johnson
