Sometimes you wonder if Vice President Prof Osinbajo is part of Nigeria’s national government. I write that because he has many GREAT ideas but yet translating those ideas into actions remains the missing link. He has written on independent power generation but yet men who work “partly” for him seem not to be listening; it must be frustrating indeed. The latest is a brilliant hypothesis on our exchange rate. I agree with Mr. Vice President – the official rate of the naira to USD makes no sense.
The Vice President said this on Monday during a speech at the Midterm Ministerial Performance Review Retreat which was held at the Banquet Hall, Presidential Villa, Abuja. He noted that Nigeria’s official exchange rate is “artificially low”, asking the CBN to rethink its strategy in tackling the forex crisis.
“As for the exchange rate, I think we need to move our rates to be more reflective of the market as possible. This, in my own respectful view, is the only way to improve supply. We can’t get new dollars into the system when the exchange rate is artificially low. And everyone knows by how much our reserves can grow.
“So I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink. All those are issues, I’m sure, that when the CBN Governor has time to address, he will be able to address in full,” he said.
There is no way you would expect me to invest at N410/$ and cash out at N570/$. Oh yes, you are talking of devaluation which means Naira has to be devalued to say N480/$ – a number I think is a possibility by next quarter. And that will happen and another cycle will come, and come, but that will not fix anything until Nigeria begins to ramp up production.
So that takes me to the national budget which was pegged at N410/$. Privately, I noted to some friends that our national budget is already off by more than 30% in absolute purchasing/expendable value because the exchange rate is not realistic.
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Yet, it is not easy as the apex bank looks at many things to make these calls. It has cogent reasons for its strategy. But get it from me: there is nothing CBN, President Buhari, Vice President Osinbajo, etc will propose that will work if Nigeria does not begin to make things. We need to stimulate production for both factories of the old and the modern ones. That is the only way the Naira will rise. If not, the paralysis will continue for Naira because the strength of Naira comes from warehouses and factories, and not from CBN headquarters.
Update – The Office of the Vice President has clarified his statement
The Office of the Vice President put this statement, according to the News Agency of Nigeria:
“Our attention has been drawn to statements and reports in the media mis characterising as a call for devaluation, the view of the vice president that the Naira exchange rate was being kept artificially low.
“Osinbajo is not calling for the devaluation of the Naira; he has at all times argued against a willy-nilly devaluation of the Naira.
“For context, the vice president’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of whom simply turn round and sell to the parallel market at N570.
“It is stopping this huge arbitrage of over N160 per dollar that the vice president was talking about; such a massive difference discourages doing proper business, when selling the dollar can bring in 40 per cent profit,” he said.
“It is a well-known fact that foreign investors and exporters have been complaining that they could not bring foreign exchange in at N410 and then have to purchase foreign exchange in the parallel market at N570 to meet their various needs on account of unavailability of foreign exchange.
“Only a more market reflective exchange rate would ameliorate this; with an increase in the supply of dollars, the rates will drop and the value of the Naira will improve.“The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the importers and exporters window to work.
“If we allow this market mechanism to work as intended, we will find that the Naira will appreciate against the dollar as we restore confidence in the system,’’ he said.
(NAN)
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On leaving school since it was end of the session, I was confident that there would be power in my house- I school in FUT Akure, and live in Lagos. However, I was shamed intensely. I needed to charge my device.
Decision are best made following patterns. So, it’s safe to say that Nations rise on predictability. Although, Nigeria has predictability pattern yet it not a positive case. While it possible to predict that if a politician gain access into office, he would most certainly come for a second time and when in power he is preprogrammed to ban anything he doesn’t understand.
I wrote to Nigerian Economic Summit Group (NESG), that Nigeria would rise when we unlock Rural capital. Yes, create renewable energy for light manufacturing and we would scale. By the way, that same night when I was struggling to get my gadget powered to submit my piece, my mom, a tailor could not work because she uses glasses and has been advised to relax her eyes since she strains them. That is one case in many.
While trading (services) would assist growth, it hardly can initiate growth. The growth of Nigeria is highly dependent on human productivity not financial engineering, since industrialization produces and financial engineering manages.
What Osinbajo is proposing has been tried before, it never worked, because the exchange rate here remains a moving target. If you float at N500/$, the parallel rate will move to over N600/$, so what do you do next? After few quarters, we will sing the old song again, it doesn’t make sense.
What I have noticed is that nobody has monetary solution on how to make naira rise, everyone is just speculating, and when it turns out badly – then Emefiele will be the fall guy once again.
Let’s forget about the idea of devaluation for now, it’s cruel and unconscionable, because we magically send people into poverty, for no fault of theirs. We have all round deficiencies in all the basic things we consume here, let’s focus on getting local substitutes at scale, we can never come out of this hole by hawking or fiddling forex.
The FDI we always dream about will not come, even if we devalue today, so it’s better we devote energy on things that can uplift our people; after we grow and optimise internal capabilities, we will be better positioned to play the FDI game.