Last week when the Central Bank announced the introduction of a full float of the Naira, most local and foreign investors viewed the news with so much optimism for the Nigerian Economy. However, and as expected not everyone was entirely happy about it.
One vocal outlier is economist Henry Boyo who as he often does in his opinion page in the Punch Newspapers went against the norm. In his article on Monday he criticized the policy vehemently chastising the Buhari Government for a “volte face” after “his public admission that his economic experts always talked above his head and never truly convinced him that devaluation would favour our economy.”
His opening remark was as pessimistic as it gets.
The Central Bank of Nigeria’s decision to float the naira in response to dollar demand and supply, in such austere times as this, will probably be ultimately remembered as another policy shift that breached the gates and unleashed devastating floods that swept away any flickering hope of economic diversification or credible inclusive growth.
The article which was typical Henry Boyo reminded his loyal readers of the promises of the Structural Adjustment Program and how it failed to deliver all the promises they claimed it had.
It is undeniable that with SAP, Nigeria’s erstwhile, vibrant industrial landscape soon became eclipsed by the rapid closure of bustling industrial estates, as sharp increases in the cost of vital machinery/raw materials and the prevailing high cost of funds pushed investors to the brink. Eventually, the carcasses of their factories were, inherited years later, by faith establishments who were conversely witnessing rapid expansion in following, some say, because of the overwhelming economic and social challenges.
He also did not hesitate to inform investors of the negative effects of the new exchange rate regime on the stock market claiming that market capitalization will also drop in dollar terms.
Furthermore, investment values in the stock market will depreciate from over $45bn when N200=$1 to less than $25bn with N300=$ exchange rate. Indeed, the value of our houses and all naira denominated assets, including the cash in our pocket and savings accounts have all now lost up to 50 per cent of the previous dollar value, while the oppressive burden of paying outstanding import bills, and other dollar denominated loans may send these debtors to their early graves.
Even when he saw a bright spot in the new policy he quickly discarded, claiming that it will increase the inflation rate.
Inexplicably, the additional government revenue from naira devaluation, will ultimately provide little succour for the economy, as it will further fuel inflation and reduce purchasing power of incomes and consumer demand. Furthermore, since local industries are still also largely dependent on raw material imports, all import bills will invariably also rise by about 50 per cent if N300 exchanges for a $1, as speculated.
Not a lot of economist take Mr Boyo seriously from what we gathered, especially if they are bullish on the markets as a solution to some of the inefficiencies in an economy.
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