I believe the writer of the above article is dispensing illogical economic arguments and I am here to disprove them
Devaluation in itself is not an economic policy, but a means of adjusting the local currency closer to fair value.
I would agree with the original article that the preferred option would be to let market forces determine the nairas value.
The CBN to me is playing a game of chicken against global forces it cannot possibly control.
Everything from oil prices, slower Chinese demand, the end of QE in the USA and the move to green energy globally are all bearish for the naira today, unless we transform our economy from oil to a manufacturing, services, Agric and industry based one.
Lesson 1: A lower currency is not inherently bad. In fact for an economy that is seeking to wean itself away from imports an overvalued currency is much worse than an undervalued one.
This is an overbeaten horse that I thought was long gone. Subsidies on consumption serve no economic purpose if you are not the one producing what is being consumed.
So while the USA has food stamps that subsidises the cost of food, most of the food in USA is grown by American farmers.
Subsidising the importation of petroleum products is Looney at best and a crime against the Nigerian state at worst.
But what most people miss (like the writer of the first article), is that petrol is just a commodity. That’s it.
Perhaps the Government should subsidize cement or my favourite bottle of beer (Heineken) too.
The fuel subsidy in Nigeria has been an utter failure. Most countries are moving on to the next industry (solar, wind etc), meanwhile we are still stuck in the past subsidising fossil fuels.
Lesson 2: Fuel subsidies are the worst form of economic sabotage. A resource (crude oil) that is finite and depleting, should be treated as such and not wasted like it is in Nigeria.
This is a lazy argument. The writer of the former piece should know that all countries protect their home grown industries. South Africa is a prime example.
The vehicle policy is a sound one that will eventually reduce the imports of cars that can be built in Nigeria.
Nigeria and Bangladesh are the only 2 countries in the world with a population of their size (that can comfortably support car manufacturers) without a home grown car industry.
If the writer of this piece had written in 2002 before the ban on Cement imports and subsequent backwards integration he would probably had been against that too.
Today Nigeria is the largest Cement producer in Africa (42 million tons capacity), dwarfing second placed South Africa which has (21 million tons capacity) in 2014.
Lesson 3:: Whether it is fuel subsidies, devaluation or vehicle policies we should look at South Africa as an example of what to do. South Africa has functional refineries but Nigeria does not, however South Africa has no subsidies or price cap on petroleum products which has attracted investments into its downstream space.
On devaluation South Africa has a free floating currency which helps to attract funds into its economy. No wonder the South African reserve bank has $46 billion in gross reserves while Nigeria’s CBN is struggling with falling reserves.
Value added tax increase
Nigeria’s FG has to increase its non-oil taxes as a percentage of GDP and this is one way to go.
The FGs total non oil revenues of N3.5trn (gross) collected in the 12 months to April represented just 3.9 percent of 2014 GDP.
This is an absolutely dismal figure.
Lesson 4: There can be no development without taxation and no sane country runs its affairs based on the sale of fossil fuels in international markets the price of which it does not control.
Nigerian elites (which I suspect the writer of the earlier piece is a member of) often love to travel abroad, see how organised their societies are and then come back home and trash the Nigerian government for its inefficiencies.
The BVN number rolled out by the CBN is one such ways to organise our society akin to your social security number or “Shola Shola” as my Nigerian American friend call it.
In the USA you cannot open a bank account, get a cell phone, buy a house or get hired for a job without your social security number.
The BVN will also enable the banks prevent multiple loans by serial defaulters.
It may also help track financiers of terrorism and other crimes against the Nigerian state and people.
Lesson 5: If you want to live in a developed society, then please be ready to make the necessary sacrifices to do so.