THE ECONOMY AND PANDORA’S BOX
BY HENRY BOYO
In popular Greek mythology, “Pandora’s Box was actually a large jar given to Pandora by the gods, the box contained all the evils of the World, and when Pandora opened it, all the evils flew out, leaving only hope inside when she closed it again” (paraphrased from Wikipedia).
“Poverty will clearly deepen nationwide and severe level of unemployment will persist with serious social consequences, if the preferred strategy for rescuing our economy implies further Naira devaluation and outright deregulation of fuel price, as recommended by the IMF and other likeminded experts. (see “Devalue Naira, Remove Subsidy and Kill Nigerians”, Economic Renaissance of 02/11/2015 www.lesleba.com).
Incidentally, the dreaded twin evils of Naira devaluation and deregulated fuel price are presently widely celebrated as right steps towards economic restoration and diversification; thus, with the evolving policy thrusts, Nigeria has moved closer to IMF’s recommendations.
However, international financial media and Banking moguls, and their Nigerian associates and partners, still insist on a steeper slide in the Naira exchange rate and a further hike also in fuel price to reflect market forces of demand and supply. The advocates of these harsh policies, often boisterously warn of dire social and economic consequences, if we do not fast track bastardization of the Naira and further pump up fuel price.
Unfortunately, the unfolding trends instigated by government’s concessions on Naira and fuel prices, do not auger well, as rising prices for food, transport and other basic needs have begun to stoke inflation beyond the already, very disenabling rate of about 13percent, to deplete purchasing power of all income earners. Nonetheless, despite the collaterals of reduced consumer demand and industrial contraction, employers of Labour are still confronted with demands for higher wages to cushion the harsh economic realities. Conversely, it would, be clearly unconscionable, to defend N18,000 ($65)/month as an appropriate minimum wage, if Naira exchange rate hovers between N280-300/$, as currently speculated, under CBN’s proposed flexible exchange rate model.
Nonetheless, there is an orchestrated call for patience, with ceaseless assurances from advocates of a weaker Naira and fuel price hike that progressive change will come. Nigerians, recall that similar soothing calls and assurances preceded the suicidal IMF inspired SAP devaluations; sadly, our industrial landscape is yet to recover from the devastation caused by SAP. We similarly bear witness to devaluation’s instigation of higher fuel prices, which also decimated our lifestyles and values and ultimately induced the horrendous neocolonial brain drain.
Unfortunately, the relationship between Naira Exchange rate and fuel price seem to have surprisingly eluded Nigeria’s policy makers. However, ‘perverse’ critics may suggest that the mute official denial of this relationship is deliberate and actually sets the stage for state condoned corruption and liberal rent seeking opportunities. Albeit, it cannot be denied that bankers and their associates in the public and private sectors made vast fortunes, from a price mechanism and forex market that discourages inclusive growth, but rather, aggressively promotes the interest of a small rentier class. The result is clearly evident, as liberal forex supply and inappropriately contrived regular CBN dollar auctions actively promote currency racketeering, round tripping, money laundering and also fund most of the smuggled imports, which cause considerable damage to the growth of Nigeria’s industrial base, while facilitating significant revenue loss also to government from duty and tax evasion.
Indeed, despite serious malpractices and huge leakages from the Treasury for several years, the fuel subsidy programme was sustained without remedial modification until subsidy values rose astronomically beyond 20percent of 2011-2012 budgets! Surely, government cannot still be in denial that lower Naira exchange rates will invariably instigate higher fuel prices and provoke public demand for some relief. Historically, government would first devalue the Naira, and then belatedly recognize the adverse impact on fuel price! For example, the most recent increase in pump price to N145/litre was certainly not caused by prevailing depressed crude oil prices below $50/barrel! Indeed, it is rather surreal that while Nigerians currently groan under the burden of higher fuel prices, motorists abroad happily enjoy up to 50percent drop in the pump price of fuel, because of low crude oil prices!
It is similarly inexplicable, that higher crude prices and the related increasing dollar revenue should challenge the Naira exchange rate, and also pump up fuel prices; sadly, this is an unusual case of heads they win and tails we lose! The question, is whether the economy is gradually been primed to take off as we are encouraged to believe by financial experts and bankers with the hike in petrol prices to N145/litre and the concurrent notice of a flexible exchange rate model which would further devalue the Naira.
Nonetheless, the N145/litre fuel price may have been designed to take advantage of low crude prices to wipe out fuel subsidy, with Naira exchange rate of N197/$. However, the NNPC GMD’s recent suggestion that, henceforth, funds for fuel import would be sourced at N280/$1, may imply that fuel price will invariably rapidly approach N200/litre, and trigger another serious inflationary spiral. Furthermore, the heavy cost burden of internal power generation borne by industrialists, may exceed 20percent of total production cost, with the increase in the price of diesel(AGO) from about N125/litre to about N180/litre, and invariably subdue competitiveness of Nigerian products.
It is not yet clear what concessions will accrue to manufacturers with the proposed flexible exchange system, but it is possible that any such gain would be consumed by the higher cost of diesel for powering our factories and commercial establishments. Indeed, if N280/$ is designated for very crucial imports like fuel, industrial raw material imports may not be supported with cheaper dollar rates.
Consequently, the early impact of a weaker Naira and ‘deregulated’ fuel price do not augur well as antidote for a comatose economy, despite passionate calls for more patience from the advocates of the twin evils. Surely, so long as CBN continues its auctions of dollar rations in a market which is undeniably awash with Naira liquidity, the exchange rate will remain under pressure and the parallel market will also set the pace for the official rate, as systemic surplus Naira will further dispel confidence in holding Naira, and reduce its market patronage as a safe store of value. Ultimately, the odious, regressive impulsive cycle of further devaluation and higher fuel prices will persist to finally lay the economy and its people prostrate, while we wait endlessly on hope that things would get better!
Instead, the Naira will depreciate in serial leaps of N100 or more to exchange for over N1,000=$ by 2017, with serious social consequences, unless CBN’s sponsored ‘Treasury bill’ scam ceases to gift banks with extremely generous returns for doing nothing. If you think this projection is farfetched, then check Ghana, where the Bank of Ghana currently pays over 20percent on Treasury bills sold to mop up excess Cedi liquidity to restrain inflation below 18percent, while the dollar also now tragically exchanges for about 4 new Ghana Cedis (i.e. about 40,000 old Ghana Cedis before the 4 decimal point redenomination in 2006, when 10,000 Cedis =$1).
Buhari’s resolve not to further devalue the Naira may be our only hope against this calamity. However, Mr. President increasingly appears intimidated and pressured to devalue the Naira by economic experts, whom he describes as always making explanations which are above his head, even when they have inexplicably also failed to identify any advantage for Naira devaluation in their advocacy.” Ultimately, if President Buhari, however unfortunately buckles under pressure from IMF and these experts, then our hope of rescue may truly be gone.
SAVE THE NAIRA,SAVE NIGERIANS!!