One of the greatest debate of Nigeria’s economic history since the advent of democracy in 1999 is the decision on whether to devalue the naira or not. This topic has dominated every single space from the social media to the electronic media with varying views and opinions on what the country should be doing. We have also seen opinion editorials and articles from the foreign media dishing out scathing attacks at policy makers.
Despite all the pressures on the CBN Governor from both local and international investors, the monetary policy committee has refused to devalue the naira. Analysts believe there is only one reason for this; President Buhari and based on that, the CBN Governor dares not rock the boat. The president has also stood his grounds against devaluation and has remained consistent in his rhetoric since he became president.
Just last week he appeared at a recent roundtable with the Presidents of Equatorial Guinea, Sudan, Gabon and the Prime Minister of Ethiopia.
“Developed countries are competing among themselves and when they devalue they compete better and manufacture and export more. But we are not competing and exporting but importing everything including toothpicks. So, why should we devalue our currency?
“We want to be more productive and self-sufficient in food and other basic things such as clothing. For our government, we like to encourage local production and efficiency.”
“The land is there and we need machinery inputs, fertilizer and insecticides.”
Back in January when he visited Kenya he had this to say via the twitter feed of his spokesperson.
"We will use our foreign exchange for industry, spare parts and the development of needed infrastructure." -President @MBuhari
— Garba Shehu (@GarShehu) January 28, 2016
At the last Presidential media chat he was once again on the same theme
“I will not support devaluation of the Naira. I need to be convinced that there is need for the country to devalue the Naira. Is it against the dollar or pound?
We have our priorities. To provided money to fund the projects we have already outlined, and not for those who want hard currency to import textile and toothpick.”
The common rhetoric for the president has been rather than to devalue the naira to make it available for all sorts of imports, he will instead make it available for ‘critical’ imports of goods and services the economy needs. Critics will agree this has been a common theme and it is one that surely resonates with those who support his policies and those who benefit from it. For importers of ‘essential goods’, it provides them comfort that he will not be eating back on his words anytime soon. Buhari is known to be stubborn and adamant to changing his views and opinions about issues he feels passionate about so your best bet is to hope that his views eventually lead to economic prosperity.
It is also very important for the president not to show any sign of a flip-flop as that will spook the market even more. The naira had the highest volatility against the dollar last week after the MD of Access Bank, Herbert Wigwe suggested that the Apex bank was considering banning forex sale to medical tourist and Nigerian students abroad. The naira has also experienced several volatility whenever rumours break that a devaluation could be coming soon.
For a country that has been used to leaders who lack dogged principles, this president is known to be stubborn and fixated on his ideas about how to change the country. In the past a Nigerian president will promise not to remove fuel subsidy only to increase fuel prices on the first day of the year. Some presidents are also disconnected with the economy so much that they do not even know how to marry their fiscal policies with the policy objectives of the handlers of the economy. With Buhari, the message is loud and clear for the CBN and his economic team. He is running a socialist government targeted at improving the lives of the poor. He is also strictly against corruption and determined to block leakages in government finances. You either place your bets for or against him at least you know he won’t change the rules of the game midway.
The downside of this surely is that his decisions could be catastrophic when viewed in hindsight. For example, his decision not to devalue has basically back fired with prices of essential goods and services which he hopes to protect mostly increasing. His budget, has been bedeviled with all sorts of controversies and is currently in shambles. The upsides, if any could also be huge as we approach the end of his first year in office.
We have at least started to witness some upsides. For the first time, a real debate is raging on about Nigerians taste for foreign goods despite tough economic situations. People are asking themselves, can we continue to afford to import everything from everywhere? This wouldn’t have happened if Buhari was not stubborn.