The Economist recently published an article profiling the current dilemma the Nigerian economy is facing in which they made a case for devaluing the Naira.
While, as the article noted, devaluation of a currency in the face of market forces can have attendant benefits, as it encourages foreign direct investment, which could spur domestic production, and thus jumpstart an economy; the Economists approach to 'The Nigerian Problem' is not the right move, as devaluation of a currency is not a one size fits all solution to an economic crisis in the face of foreign currency shortages.
Since The Economist was insistent about going down memory lane regarding Buhari's similar predicament during his first time as Head of State, in which he similarly refused to devalue the Naira amidst falling oil prices, it's particularly important to highlight the fact that the article chose to be selective about it's memory of history, and completely omitted the aftermath of Buhari's 1985 ouster, in which Babangida came into power and subsequently followed the IMF (and in this case, the Economist's) recommendation of devaluing the Naira.
For others in the then 'Voltron' and 'Tales by Moonlight' era of my generation who might not remember what happened, as a result of the Structural Adjustment Program and other IMF recommended policies which Babangida dutifully followed; by devaluing the Naira, the economy nosedived even further and the attendant inflation almost crippled the economy.
Frankly, devaluation would be the absolute worst thing we can do at the moment, and for the same reason it was a bad idea then: WE DO NOT PRODUCE LOCALLY.
Devaluation usually favors economies who have considerable exports, as their goods would be attractive internationally, thus easily earn foreign exchange. The influx of the foreign funds into their local economy further spurs local development and even more exports, thereby making their products have a larger market share worldwide and the attendant ripple effects, which is why the West was against China artificially devaluing their currency sometime back.
Yes, devaluing our currency would encourage foreign direct investment as external investors would find it easier to come into the market, but to what end? Would we be attracting long term investors who are looking to invest in manufacturing, agriculture, solid minerals, and other local content that the economy desperately needs to become self reliant, while they still earn massive profits as a result of the huge demand/middle class that exists in the country, or would they simply be the kind of investors looking to pick up assets on the cheap with their almighty dollars which at the moment, they can only pump into the economy at the official bank rates.
In Nigeria's case, devaluing our currency would only make our situation go from bad to worse as it would further drain our depleted foreign exchange since we rely almost completely on imports, and would not replenish the depleted Dollar coffers through exports.
Instead, the current Buhari led government's approach of encouraging local production by limiting access to foreign exchange for non-essential imports is the way to go, and I personally look forward to even more of it, such as outright removal of the fuel subsidy, as the scarce funds could instead be used to subsidise more critical sectors that have more impact on the masses, such as health and education. But that is another story.
Limiting access to foreign exchange is not adequate however, the next step is creating an enabling environment for business and production to thrive, by providing Loans to SME's, Policies which encourage entrepreneurship, Tax incentives for SME's, agricultural, manufacturing and other critical local content sectors, and most of all by providing Power and Mass Railway transportation.
This is a rare once in a lifetime OPPORTUNITY to restructure our economy from an import dependent economy, to a diversified export driven one, which would never have been possible if we still had the revenue cushion the oil exports provided.
Yes, we will feel the pains, but for long term positive impact, no pain, no gain.
Another silver lining of these issues (opportunities) is that, by making governance less attractive for money-grabbing opportunistic politicians (because the easy oil money simply doesn't exist any longer, as witnessed by the various state governments who are on the edge of bankruptcy and currently unable to pay civil servants, due to the lack of IGR), we would gradually witness an influx of more competent leaders and administrators who are actually coming to serve, and who have interesting ideas on how to internally generate revenue.
These issues are more or less a God sent opportunity, hope Nigeria uses it wisely.