One
of the prominent political scientists in Nigeria, Dr. Olugbemiga
Afolabi has penned down an interesting piece on the unstable value of
the naira in the parallel market.
Dr. Olugbemiga Afolabi
Looking at the above title tells us that there are several
connections between an economy or economic life of a country and foreign
currency, especially the dollar in an increasing globalized world.
A country’s economy at its base represent the total package of day
to day life (daily living) and how income and expenditure of individuals
and groups are structured. It is a system and processes that defines
the wealth and poverty of individuals and nations. Without being too
simplistic, a country economic structures and processes captures the
essence and existence of any given people of a particular country.
That explains why some countries would, ceteris paribus, remain
backroom players and some would remain the front runner, given the
competitive edge inbuilt in economic processes and systems, intra and
inter states. That explains the wealth and poverty of nations, apologies
to Adam Smith, Acemoglu and Robinson.
The above preamble would readily suggest to the reader that
economic issues are better not to be left to the whims and caprices of
the novice, nor should they be left to those who are faint-hearted to
take important and hard decisions to better the lot of the generality of
the people. Directly important to an economic systems and processes are
institutions and structures as well the quality of individuals who are
charged with managing these processes and systems.
A cursory look at those charged with managing the Nigerian economy
inspires no confidence. They themselves radiates little or no
confidence. At the risk of sounding unmerciful, when you have HND and
BSC holders managing the size of the Nigerian economy with potential for
growth, then what you are likely to have is a stunted growth and
uninspiring performance, both of the managers and the economy. The
institutions they head are often like them, uninspiring and
under-performing. This is aside the systemic corruption that permeates
individual, private and public life, including institutions, especially
those charged with the economic management.
However, the problem goes beyond the managers at different levels.
The fundamentals of the Nigerian economy shows it to be a buying and
selling economy, or what the average trader calls buy and sell. In other
words, Nigeria operates a buy and sell economy. That forms the basis of
Nigerian economic life, structure and process wise.
Let me quickly explain that by structure, Nigerian economic
institutions are built to buy and sell and this, successive governments
and economic managers have continued to maintain and redefined to suit
each successive government without fundamentally altering its nature,
features and character. We have argued elsewhere and severally too,
that, even though this buy and sell economic structure was instigated
and built by colonial interlopers, Nigerian rulers and economic managers
have not only perpetuated this structure, they have manage to even
bastardized the structures to abysmal levels, especially during Jonathan
era.
In concrete terms, Nigeria had always been relying on commodity
products like Cocoa, Groundnut, Coal and now, crude Oil to sell at cheap
prices and buy technological products at very exorbitant prices,
creating a permanent unequal and unfavourable terms and balance of
trade, to the near fixed disadvantage to Nigeria. These structures in
clear terms are Ministry of Finance, Central Bank of Nigeria and other
government created financial institutions. These is not to exempt
individual, group and quasi government institutions outside the
government. They fall into the same category of institutions that buy
and sell.
By process, we mean the orientation, attitude and manifest
consciousness that permeates and pervades the individual, social and
state towards the Nigerian economy. Everyone has been conditioned to
think in terms of buy and sell, not to create and manufacture. This
explains why everyone is selling maize, food and ‘pure water’ at the
lowest economic level; establishing schools and churches/mosques, etc at
the middle level; and, joining politics/selling votes, currency traders
and influence peddling. Almost everyone is now a currency dealer and
speculator as well MMM participant/dealer.
Thus, the buy and sell process shows why everyone sell the same
goods and services on every street corner; proliferation of schools and
churches/mosques; wants to join politics and crudely accumulate wealth,
explains do or die politics, and every Yinka, Nnamdi and Dogo now trade
in foreign currencies, otherwise known as forex (fx).
When Buhari government came to power, fx was much lower and was
trading around 205 naira to a dollar. What sustained the naira then was
the high price of crude oil at the international market, excessive
looting resulting in excess liquidity in the system (unhinged
corruption) and proliferate spending, especially on elections and vote
buying.
Dollar became the medium of exchange. It was a case of postponing
the evil day and/or waiting for the economic bubble to burst. However,
the rental or buy and sell economic structures and process predates
Jonathan administration. It has continued apace since Buhari’s
government came to power, made worse by his government try and error
economic policy, low crude oil price and low quality of personnel
managing the economy. More alarmingly is the failure of successive
government, including Buhari’s to attempt a restructuring of the
Nigerian economy away from buy and sell economy to a manufacturing
industrial economy. Such restructuring of the economy would involve
economic and political economy thinkers and not just run of the mill NHD
and BSC that currently pervades the corridors of economic decision
making. Nigeria have a long way to go.
In light of the above, we argue that the recent intervention of the
Central Bank of Nigeria (CBN) in the forex market is not sustainable on
many fronts and indications are already pointing to that. As of today
(03-03-2017) the naira has started falling again (450-8 to a dollar)
reversing its recent short-lived gains (see abokifx.com). Due to a
combination of individual, systemic and governmental structures and
process, we ask, how long will CBN continue to supply dollars to the
forex market in view of volatility of oil price, foreign reserve and
structure of international economic system?
At whose cost is the intervention and manipulation? What are the
opportunity cost in terms of infrastructures and peoples welfare? What
about inside trading and round tripping? While economic purists and
Utopian academic idealists would argue that currency (fx) intervention
by governmental agencies like CBN is positive as a regulator, we posit
that such interventions are part of currency manipulations that we only
serve as a stop gap and generally fall into same category of currency
manipulations that often occurs in a buy and sell economy with no longer
term benefits, except the fundamentals of the economy are changed.
Afolabi, Olugbemiga Samuel PhD
Political Science lecturer, Obafemi Awolowo University, Ile-Ife, Osun State.
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