TIME TO BREAK THE SELF-INFLICTED YOKE OF POVERTY
By: Sir Henry Olujimi Boyo (Les Leba), first published in June 2005
During the last four weeks, we republished the series titled “Dollar Certificates Will Banish Chronic Poverty.” The series provides clear steps, rationale and insight into our monetary system, how we as a people are affected by it, and what can be done to stop the devaluation of the naira to improve the standard of living, employment levels, and jumpstart local businesses. If you missed this series, it can be found using the link below.
Today’s article, which is also a republication, is an appropriate follow up to the 4-part series mentioned in the paragraph above. The article begins by pointing out that the issues pertaining to our current economic situation are self-inflicted. As we continue to adopt poor monetary and economic frameworks, we would remain a struggling nation regardless of ‘cosmetic’ changes made. In other words, the numerous problems plaguing this nation can be seen as symptoms of an underlying ‘disease’. The article disabuses the notion most of us have concerning what we believe to be the major cause(s) of poverty in Nigeria. This article was initially published in the year 2005 as a follow up to the 4-part series and remains relevant due to the worsening economic climate in our nation. Kindly read on to learn more.
(See www.betternaijanow.com for this series and more articles by the Late Sir Henry Boyo)
Nigerians find it doubtful and indeed incredible to accept that the current yoke of poverty in our land is self-inflicted! They naturally do not believe that we can willingly promote our own poverty by maintaining an obtuse system of economic and monetary policies that are guaranteed to keep us in bondage. Our people prefer to believe that our deepening state of poverty is brought on us from the outside; for example, the ‘oppressive’ dictates of the IMF to the third world; others believe that we are poor because our leaders and public sector bureaucrats continue to pad their pockets from the public treasury, while some others believe that our sliding descent into the pits of poverty is the result of our nation’s heavy dependence on a single source of export revenue, namely the petrodollars derived from the exploitation of the oil wells and the peoples of the Niger Delta.
Another school of thought would ascribe our abiding poverty to an awkward political system that enthrones mediocrity over merit in the scheme of things, such that the brightest of our youths may be denied entry into government-sponsored educational institutions, while mediocre students walk the red carpet into these heavily subsidized institutions because of their privileged states of origin.
There is no doubt that the climate of poverty in Nigeria could be attributable to a combination of these ‘anti-progress forces mentioned above.
However, it has been my contention for almost three years that even if the impacts of the negative forces outlined above were reversed, our oppressive yoke of poverty will only be marginally mitigated so long as our current monetary framework remains the same! In other words, if the IMF patronage were absent, and our leaders and public bureaucrats were saints, and merit was recognised in our economic and political dispensation and even if we succeeded (highly unlikely with current monetary framework) in developing a multi-cultural export economy, our people’s state of poverty may, in fact, deepen so long as we maintain a monetary system that inherently abuses our national currency, the Naira!
The amplification of this fact was the subject of the series “DOLLAR CERTIFICATES WILL BANISH CHRONIC POVERTY AND ENHANCE EFFICIENT RESOURCE ALLOCATION” which ran in this column in the last four weeks.
There is a universal acceptance that any regulated system that denies the freedom of the market mechanism of demand and supply for price determination would inevitably create distortions and dislocations within the polity. Thus, when the market for determining the external (and conversely the internal) value of the naira is shackled by a monopoly that controls the supply of the naira and also the dollar (our main reserve currency), the resultant rates of exchanges will at best be unrepresentative of the appropriate rate of exchange between the naira and the dollar.
It is for this reason that we have the naira being currently inappropriately undervalued at N133 – $ when at best the naira should exchange for between N10 or 20 – $, considering that N133 can provide you with a nutritious meal of beans and dodo for example in Nigeria. While you may require about $10 to satisfy the same human need in those countries in Europe and America. The same loyal comparisons exist in the relative costs for health, transport, shelter on both sides of the divide. This, our inappropriate price mechanism has succeeded in devaluing our currency, the naira, to about 10% of its real value, if we adopt the universally accepted Purchasing Parity Principle, which compares the composite value of a similar basket of goods on both sides! The implication of a naira devaluation of such magnitude is the abiding poverty since the monetary authorities manipulated the free fall of the value of the naira from about 1985. Nigerians will recall the prevalent affluence in the country before the advent of a continuous devaluation of the national currency, for example, in that period, most fresh graduates would find jobs even before completion of their NYSC service year! A whole frozen chicken of about 1kg size was sold for N2.50, a crate of Coca-Cola cost N2.40, a new 504 Peugeot cost less than N6,000.
Nigerians were eager to return home soon after they completed their studies abroad since the salaries back home were much more reasonable than what they could earn abroad; competent University and Secondary School Lecturers from all over the world were happy to come and work in Nigeria because of the relatively attractive wages; Nigerians were welcomed all over the world as money bags and there was nothing like astringent and selective visa regime before you could go to Europe or the US. Life was generally good and our Universities compared favourably with any in the world!
This paradise existed when the naira exchanged at about parity with the dollar! Maybe, the reader should be reminded that at the time the luxuriant environment described above existed, and miliki held sway, all the negative anti-progress forces which we identified at the beginning of this article were already in place; in other words, the overbearing shadow of the IMF, the enthronement of mediocrity in our body polity, a mono-cultural export economy, corruption of bureaucrats, etc. were all prevalent in our country and yet despite their presence, we thrived much more successfully and could not have earned the title of the third poorest nation! Needless to say, our external reserves even then never approached its current premium level of over $20 billion and yet the naira exchanged at almost parity against the dollar and industrial expansion and consolidation prevailed.
The poverty graph in Nigeria follows very closely the history of naira depreciation until we arrived at the present crossroads of naira rate of N133= $ with the resultant effects that our children are trained locally with our sweat, and yet they abandon their country to earn the dollar doing menial jobs abroad; a 1kg frozen chicken now sells for over N500; a tyre now costs over N6,000 (which would have bought a new 504 just 20 years ago); most Nigerians can now only afford Tokunbo cars (the liabilities of other countries), our industrialists cannot afford to retool in view of the inordinate price levels of new machinery. Raw material costs have gone through the roof and most companies have shut down or downsized. Nigerians are no longer welcome in any part of the world; the 419 scam has cast a shadow over the image of every Nigerian travelling abroad, employment and insecurity now hold sway!
So, how did we get the value of our currency in this mess, especially when we continue to earn a rising income from the export of crude oil and there is little evidence to show that we as a nation are consuming more; at least there is no such evidence of port congestion as was the case in the late 80s.
The explanation for this contradiction is simpler than we think! What is clear is that the good times of the 70s and early 80s can and will come back if the naira exchange rate can be consolidated to about N10-20 = $. The interesting thing is that we do not have to immediately produce more or diversify our export economy overnight! All we have to do is stop the monopoly of the CBN in the foreign exchange market and stop the CBN from unilaterally converting our dollar revenue to naira before sharing it with beneficiaries of the federation pool. The huge amount of naira thrown into the system every month in this fashion creates all the dislocations and distortions that come with the spurious scourge of excess liquidity, very high MRR, high-interest rates, high Treasury bill rates and the odd phenomenon of the Central Bank borrowing back the funds of government agencies lodged in the commercial banks at a cost of over $600 billion to the Nigerian taxpayer every year, all these are compounded by a high level of unemployment, low industrial capacity, pain and suffering in the land.
However, all these ugly clouds can and will vanish if the CBN adopts the instrument of dollar certificates for the payment of the dollar component of distributable federal revenue. The facility and the practicality of adopting this approach was the subject of the series of articles titled “DOLLAR CERTIFICATES WILL BANISH CHRONIC POVERTY AND ENHANCE EFFICIENT RESOURCE ALLOCATION”.
In these essays, we showed how practical and easy it is to improve the value of the naira to between N10-20 = $ within 6 months! The CBN has not denied that the scourge of excess liquidity is concomitant with the monthly payment of federal allocations, nor can it pretend that it does not maintain a stranglehold on the naira value with its control of almost 90% of the dollars traded in the obtuse Dutch Auction market that is currently in place. For as long, therefore, as the CBN is fully aware of the implications of its actions in this regard and persists in perpetuating the system, the CBN would have to explain to all Nigerians dead (from the pressures of poverty) and alive why it has decided to continue to self-inflict national poverty rather than accept the reality of the futility of its current reforms and pursue the real path that can take us to Eldorado before the end of this year.
Save the Naira, Save Nigeria!