The year of eco­nomic van­dal­ism

ECON­OMY Feyi Fawe­hinmi

The Guardian (Nigeria) - - PANORAMA - @dou­bleeph

PRES­I­DENT Buhari has de­clared his in­ten­tion, as is his right, to run for a 2nd term. Un­like the last time when he ran on vague prom­ises and against a hap­less in­cum­bent, this time there is a clear record by which Nige­ri­ans can take an ob­jec­tive mea­sure of the man and his party. In my own view, the cur­rent gov­ern­ment’s han­dling of the forex cri­sis in 2016 did in­cred­i­ble and need­less dam­age to the Nige­rian econ­omy. In 2016, Nige­ria went through its first re­ces­sion in 25 years and is yet to re­cover from that con­trac­tion.

Al­most from day one, the pres­i­dent pub­licly stated his strong opin­ion on what the ex­change rate should be, re­gard­less of any ex­oge­nous fac­tors. The logic be­hind this was to pro­tect Nige­ri­ans from some pain they were in­ca­pable of han­dling. But in­ten­tion is one thing, re­al­ity is quite an­other be­cause the con­se­quence of hav­ing mon­e­tary pol­icy be­ing set by the pres­i­dent was that the econ­omy froze and was taken over by in­de­ci­sion and un­pre­dictabil­ity. I am no fan of the CBN gover­nor but in fair­ness to him, he had de­val­ued twice be­fore the cur­rent gov­ern­ment came to power. To be ab­so­lutely clear - de­val­u­a­tion is and was never an eco­nomic magic bul­let. It is a painful op­tion to have to take but it is the least bad be­cause it al­lows the econ­omy ad­just to a new re­al­ity and con­tinue to grow. The only thing worse than low or un­even growth is no growth at all.

The ex­cuse given is that the pre­vi­ous gov­ern­ment left noth­ing in re­serves and as such the only re­sponse was to keep a fixed ex­change rate that could not clear the mar­ket. This is com­i­cal. In 2008, when oil prices crashed and Nige­ria had well over $60bn in re­serves, Gover­nor Soludo still de­val­ued the naira. Why? Be­cause re­serves are a sign of con­fi­dence. If oil prices crash and you start spend­ing re­serves to de­fend an ar­ti­fi­cial ex­change rate, you in­vite spec­u­la­tors to test how far you can go and spec­u­late on your cur­rency. What if oil prices don’t go back up? Re­serves are not in­fi­nite so you might end up with no re­serves and still de­value. Who has not heard of those Nige­rian politi­cians who leave of­fice and try to con­tinue ‘main­tain­ing their life­style’ and then go broke rapidly? But the pres­i­dent went to Doha and Lon­don and ev­ery­where else vow­ing not to de­value the naira.

The re­sult was that a com­plex econ­omy with mil­lions of daily in­ter­ac­tions was re­duced to man-know-man as the means of ob­tain­ing scarce forex. Pas­tor Lag­baja and Al­haji Tame­dun, who both im­port diesel, would ap­ply for forex and the Pas­tor would get while the Al­haji wouldn’t. There was no logic or sci­ence to it and cor­rup­tion flour­ished. It was im­pos­si­ble to plan your busi­ness given you didn’t know if you would get forex or not. Those who got forex reg­u­larly were those who had been cho­sen as spe­cial. In 2016, Nige­ria’s big­gest com­pany, Dan­gote Ce­ment, re­ported a to­tal in­come of N287bn but out of that, an in­cred­i­ble N101bn came from gains made from forex.

One un­der­re­ported ef­fect of all this was the sheer amount of eco­nomic dis­trac­tion it caused. Ev­ery Nige­rian was turned into a forex spec­u­la­tor overnight. The dol­lar was the most talked about thing on so­cial me­dia - peo­ple were check­ing the dol­lar rate ev­ery 5 min­utes. It was like try­ing to study for an exam and hav­ing face­book open in front of you. Spec­u­lat­ing on the dol­lar be­came more profitable than any other busi­ness in the coun­try.

And then gov­ern­ment of­fi­cials, per­haps re­al­is­ing their mis­take, dou­bled down. ‘In­tel­lec­tual’ or ‘econ­o­mist’ be­came an in­sult. One for­mer gover­nor - who prob­a­bly thinks an eco­nomic model is some­thing that is tall, light skinned and beau­ti­ful - led the charge in prais­ing the pres­i­dent and ques­tion­ing the mo­tives and pa­tri­o­tism of any­one who dis­agreed. The APC has some of the most in­tel­li­gent minds in Nige­ria yet it was pin drop si­lence from them as the pres­i­dent per­formed open heart surgery on the econ­omy us­ing a blade and no anaes­the­sia. What else could rea­son­ably be ex­pected from a year like that? The eco­nomic re­ces­sion was man made and wholly avoid­able. The year where Nige­ria tried to keep an un­re­al­is­tic rate of N199/$1 ended with a painful re­ces­sion. Af­ter de­valu­ing to N360/$1, the econ­omy man­aged to grow last year slightly. The irony is rich and thick. But to­day, what we are be­ing told is that the re­ces­sion was in­evitable and it was be­cause PDP left noth­ing in re­serves. The peo­ple who vowed never to do the thing they have now done are now col­lect­ing awards for it. What ex­actly was the point?

All this leaves one ques­tion to an­swer. What will hap­pen if and when the Nige­rian econ­omy suf­fers an­other ex­ter­nal shock? These things hap­pen fairly of­ten and with­out warn­ing so it will be good to ask the Pres­i­dent and his party how they will re­act to such an event and en­sure the Nige­rian econ­omy is not put through an­other need­less and painful con­trac­tion.

Any­thing else is just pure eco­nomic van­dal­ism.

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