February 17, 2009
After an initial period of inexplicable denials and prevarications, the government and the Central Bank (assuming there is any real difference between both) have now accepted that the effects of the global crisis of capitalism are here. The Governor of the Central Bank has even gone ahead, outside the shores of the country, to confirm what many perceptive observers already knew, namely that the free fall of the Naira is a deliberate measure. He must be commended for his candour however belated and although he failed to heed well-meaning advice to quit for the serious gaffe that the Nigerian economy was insulated from the current global crisis. Many of us do not take seriously the denial in February 2009 by an aide of his of a statement that was made in early December 2008 with relish as worthy of belief. We still have the newspaper cuttings and the statement is etched in our memory. An apology would have been appropriate, but then as they say, this is Nigeria. It is one thing to admit the existence of a crisis, it is a different matter altogether to fashion out appropriate response. This is where the capacity of the managers of our economy is seriously dubious. True, many of us are not economists. But as everyone knows the economy is too important to be left to the economists alone. While we may not be able to make magisterial recommendations on the direction of the economy, expressing our commonsensical opinions on an aspect of life from which we are not immune is a fundamental attribute of our citizenship which we do not intend to renounce. The economists would have to tolerate our views whether they like it or not, after all the central preoccupation of their career, wealth, is a collective production.
This piece is therefore a layman’s view of the current crisis and the appropriate commonsensical solutions or reaction to it in our country. It has to be predicated by a refutation of the understanding of the crisis by the economic gurus, particularly those of them saddled with managing the economy. The Governor of Central Bank is representative in this regard. While admitting that the devaluation of our currency was a deliberate act he was quoted to have told his foreign audience that, ‘we would have wasted away our reserves if we didn’t adjust the exchange rate… This is the time to enter the Nigerian market as rate would probably strengthen later as the global crisis abates’.
There are a number of implicit assumptions in the remark that are half-truths, false and misleading. The position that the currency was devalued to preserve the reserves is an unnecessary mystification of the distorted economy that the Governor helps to manage. This is the commonsensical understanding: The devaluation was forced because over 95 per cent of our foreign earnings come from oil and as the price of oil has continually plummeted in the so-called international market (coupled with the mismanagement of the crisis in the Niger Delta) for government to meet its local obligations such as payment of salaries and contractors it has to devalue to have more Naira for less dollars. So the Central Bank is playing a simple arithmetic game, the sort it wanted to play with the abandoned decimalization of the Naira. It is a meaningless game to play with the lives of a people.
The danger in juggling figures without more as a response to the crisis is that if the crisis persists for over a year and there is no improvement in the earnings from oil the reserves that Governor Soludo wants to protect cannot but be depleted. Workers and the middle class who would be out of jobs or business in their millions would rather bring this government to its knees than allow some mathematicians starve them to death simply because they want to preserve some reserves. But if we examine the implications of devaluation more carefully we would see that the devaluation cannot even achieve the aim of preserving the reserves. When you devalue, imports become prohibitively expensive while exports are cheaper. Thus, for countries that depend on diversified exports they earn more and if they are lucky not to be a consumer nation such as ours the economy benefits. But a country like Nigeria where the Federal Government allocates billions of Naira to
purchase generators must be joking if it encourages devaluation and expects reserves not to go up into the thin air. Already cost of computers and other items have gone up and our man is talking about preserving the reserves. It just does not make sense at all.
What should the government do? Again, going by commonsense, whatever foreign economists and their lackeys would have us believe notwithstanding: we must return to economic nationalism or protectionism. Every country today is doing same. Unknown to some of our leaders who like to parrot American solutions the $787 Billion Recovery and Re-Investment Act signed by Obama popularly known as the stimulus package is all about economic nationalism. There is the ‘Buy American’ clause which prescribes that American goods must be used for construction and other works in America. If that is not economic nationalism, tell me what is! From Japan to France politicians and governments are telling banks to loan money only to their citizens. Economic nationalism is the order of the day.
Could it be that our brilliant Central Bank Governor does not know of these developments? Perhaps, he does not. One is shocked that he is persuading foreign investors to ‘enter the Nigerian market’ now. Those fellows must have had a good laugh. He was talking to the same people whose pulling out of their capital has brought our capital market to its knees and has given our banks sleepless nights. Cross-border credit is discredited at this moment of economic distress. The Governor should check out his facts.
Government must as a matter of urgency suspend award of contracts to foreign firms, except in the areas of health. It is unfair that people whose governments are discouraging their banks from extending credit facilities to ours should be repatriating the little resources at our disposal back to their country. In addition public works must be done by the various ministries of works by direct labour. That is the only way to create jobs for our people. The professional contractors have the reputation of simply pocketing money meant for projects and employing a fewer number of people than needed. True, some of the officials may be corrupt, but aren’t the contractors? This is the time to make sure that the anti-corruption agencies are working at full speed. This crisis will test the ‘revolution’ against corruption launched by the EFCC.
Those who argued that capitalism is the ultimate destiny of humanity must be eating their words now. Everywhere we are seeing governments take over banks and companies. What happened to the nonsensical cant that government has no business in business? The religion of market forces is in crisis; its ministers are in utter confusion and desperation. This is the era of sensible regulation and control of the market. Government must regulate the interest rates charged by our banks. It is one way to create jobs and allow people who have ideas borrow money and expand our economy. There is no warrant for charging above 3% interest on any loan. It is in the enlightened self-interest of the banks to push for this regime, otherwise they would soon be out of business as only those who have no intention of repaying the loans or jokers would approach them for loan. Government must also initiate a law that would suspend retrenchments in public establishment except for
those properly found guilty of misconduct. The law should also set stiff parameters for private sector businesses who want to shed workers. The way out of the crisis is to create more jobs and ensure equitable distribution of wealth.
Still on regulation, we cannot afford to allow all and any kind of goods to flow freely into our country. The Ministry of Finance must come out with a list of goods that we do not need and that the customs must never allow to pass through our borders. Talk about GATT, Doha Rounds etc at this time or anytime in my view is bunkum. It has never made any sense for you to throw your borders open for goods you don’t need or that you can produce simply because you want good rating from someone else. Indeed it is a mark of slavery. This crisis gives us the opportunity to prioritize and regulate. Heavens won’t fall.
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