The Logic of Naira's Devaluation

By Odilim Enwegbara

“A weaker euro…a sharp decline in the euro’s exchange – say by 15 per cent – would remedy many of Eurozone’s current economic problems. A weaker euro would raise the cost of imports…devaluation of [euro] would also boost average Eurozone GDP growth by stimulating exports and encouraging Europeans to substitute domestically produced goods and services for imported items…[Thus] a weaker euro would significantly improve the external balance with the rest of the world.”

That was Martin Feldstein’s remedy for current Eurozone’s economic malaise. For the reader who may not know who Mr. Feldstein truly is; it is important to introduce this far-right Harvard economist.

Chairman, President Ronald Reagan’s Council of Economic Advisers (1982-1984) and emeritus President the US National Bureau of Economic Research, Feldstein was allegedly one of the front-line neoliberal economists who supervised Washington’s economic fascism in developing countries in the false name of structural adjustment programme.

Has this advice to Europe made Feldstein a Keynesian economist? One should miss the point here if one believes his advice to America’s Trans-Atlantic cousins should represent his universal opinion.

To discover how his opinion could change, just invite Feldstein to advice Nigerian government. Of course, rather than advising for the devaluation of naira the same way he advised Europeans to devalue the euro, he should insist on government further strengthening the naira.

Not only will Feldstein receive a thunderous applause from our economic management team; in fact, Ms. Okonjo-Iweala should be expected to bring together our political and business leaders to celebrate this neoliberal advice of keeping the naira as strong as our foreign reserves could support it, and possibly borrow to defend the naira.

Lamido Sanusi spent $117bn allegedly on artificially keeping the naira stronger against Soludo’s $57bn. This made Sanusi the most neoliberal governor we have had. Who benefited from extravaganza more than western economies we imported finished goods from and their portfolio investors we benefited from strong naira that offered false stability and high interest rate arbitrage?

Should Feldstein be surprised that we agreed to spend more in defence of the naira at such a high cost to the real economy? If we don’t find such staggering scarce foreign reserves spent simply on disjointed promotion of currency stability, why should this foreigner be the one to be worried about the fact that in spite the huge sum spent on fighting inflation, naira continues to weaken?

Rather than worry that a whopping $174bn that if invested in our dilapidated infrastructure — particularly in power infrastructure — would have made Nigeria to be generating more than 50,000MW of electricity Feldstein should celebrate as the decision puts down a potential competitor to western economic powers.

That we should be celebrating than worrying, he already knows, is based on the kind of human race we are made of. In other words, he knows that we are a people that all we learn from others is not to learn from others. For him our perplexing behaviour only reinforces Cicero, who once said that, “‘Not to know what happened before you were born is to be a child forever…”

The reason for this piece actually is not about drawing our attention to how Sanusi during his four and half years as governor wasted $117bn in defence of an indefensible naira. It is rather to bring to our attention to the fact that if this defence is not brought to an end, with $9bn already spent in the first quarter of 2014 before election money that will be flooding the system; no doubt, half of what Sanusi spent during his entire tenure could be spent this year alone.

This giving of blood to the corpse should be stopped before its devastating effect on the economy. Should we continue with this fantasy, not only should more sector firms join the bankruptcy roll call; increased dumping in Nigeria should further lead to export of jobs and import of poverty into the country.

In other words, that the defence of the naira is done to subsidise consumption of imported goods at the very expense of local production and job creation, raises the concern about what could be deadlier than a roving army of over 45 million unemployed youth; a ticking time-bomb with potential devastating effect.

That CBN’s monetary policy promotes underdevelopment should raise some fundamental questions, including: Why really does the CBN conduct monetary policy? Does it perform monetary policy in order to ensure that the economy grows and creates jobs or purely in pursuit of the narrow interests of our commercial banks and financial sector firms?

If the law establishing central banks like the US Federal Reserve defines the primary role of a central bank as ‘’conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment…and moderate long-term interest rates,’’ why is the CBN doing the opposite?

Since their reason for artificially keeping the naira strong is based on attracting foreign investment, the questions therefore are: Where is that country that has conducted its monetary policy purely on pleasing foreign investors instead of domestic investors, who in reality should be the frontline drivers of economic growth? Which foreign investor should invest in an economy that fights inflation blindly while keeping real interest at cutthroat rates?

Or shouldn’t foreign investors too need weaker naira given how they over time would want to borrow domestically at such low interest rates as they could overseas? For them to relocate some of their factories to Nigeria, wouldn’t they expect the cost of doing business in Nigeria to be as low as Nigeria’s peer emerging economies? In fact, not only should they expect lower interest rates than from where they are migrating to Nigeria; they should expect a highly devalued naira.

Since unelected ‘technocrats’ have such sovereign power over the very lifeblood of the nation, shouldn’t citizens wonder why their elected representatives are this passive? Or are they passive because they are co-conspirators?

If to ensure that its monetary policy decisions are always made in the overall interest of economic growth and job creation, the Fed’s monetary policy is continuously under intense Congressional supervision; why should our apex lawmakers relinquish such critical role, especially given how the commercial banks to be regulated have infiltrated our apex bank?

Mariner Eccles, the Fed Chairman during the Great Depression, in 1933, using Keynesian expansionary money supply based on printing and pumping tons of dollars into illiquid US was not only able to bring out the US economy out of depression, but to quickly get it heated up in such a miraculous way that its bankrupt banking system renewing lending once again to fund strapped real sector, which upgrading and expanding plant and equipment, triggered unheard-of economic growth and jobs.

Adopting the same Keynesian monetary policy recommendations, Ben Bernanke, between 2009 and 2013, using quantitative easing (devaluation of the dollar) flooded the illiquid US economy with so many dollars that he too not only got the US out of the 2008 global financial crisis — unlike Eurozone that remains stuck in the mud of financial and economic crisis because of tight monetary policy — but was able to lead the creation of over nine million manufacturing jobs within his tenure as Fed Chairman.

If this expansionary policy action of the Fed Chairmen reinforces Keynesian insistence on printing and injecting more money into an illiquid economy, so long as spent on available investment opportunities; why shouldn’t Emefiele pursue Keynesian monetary expansion by flooding the economy with trillions of new naira if he wants to reverse the current jobless growth?

Of course, a patriotic Emefiele should only be sceptical if and only if flooding our illiquid economy could amount to financing consumption of imported goods instead of locally made goods.

For this not to be the case, fiscal policymakers should be as proactive as their monetary policy counterparts. This requires efforts to make imports more difficult. If for fear of the World Trade Oorganisation hammer on Nigeria, rather than visible tariffs; invisible tariffs measures such as high handling charges, high demurrage rates and systematic delay of examination of goods, along with high social and small business displacement costs imposed on imported consumable goods.