I was going to really join issues with one of Nigeria’s top economists and member of the president’s economic advisory committee – Mr. Bismarck Rewane. But I will now tone things down a little because he’s been out calling for those who have taken his presentations out of context to correct themselves. But I doubt if he was really taken out of context. Mr. Rewane does this monthly presentation at Nigeria’s ultra-right foremost business school where they have always pushed out neo-liberal economic ideas and influenced policy in Nigeria. Lately he was on Arise TV pushing his views. And indeed, the numbers that have been quoted – the so-called 200% over-valuation of the Nigerian Naira, and the need to devalue next month – were taken verbatim from his recent presentations.
So, my challenge to the gentleman is where and how did he come up with the idea of 200% overvaluation? I have been singularly fighting these wild guesses from guys who like to repeat them because it curiously gives them a sense of intelligence. Mr Rewane is an authority in his own right, and he has track record behind him. But if he makes such claims without logically backing up empirically, he may singularly plunge Nigeria into a rolling economic crisis. It sounds elegant to quote all these figures and conjure up tangential theories to back it up. But guys like Rewane have a coterie of disciples who believe everything he utters and act on them. In fact, the government of Nigeria laps up whatever he says. I have seen elsewhere when – while Kemi Adeosun was Minister of Finance – and the economy went into downturn, the lethargic President Buhari had called for advice from the nation’s top economists and Mr Rewane called for the establishment of a second AMCON to take over new bad loans from banks and help them restructure while their balance sheets are once again lightened using taxpayers’ money. I was aghast!
If Mr Rewane says the Naira is overvalued by 200% and the Naira is today at N430 officially, this means the Naira should tumble over twice… to 430*3, which is N1,290 to the US Dollar. Now, we know the Naira could never be a match for the dollar. But as I’ve tried to explain several times, the solution does not lie is summary and harebrained devaluations of the currency just because we are trying to fulfil the precepts of some textbooks written under and for different contexts, environments, and evidences. Such actions will be totally academic, and destructive. It is how we got here since 1986. Our industries are still basic and comatose. Devaluation did not help us. It has made our lives more difficult, made millions more of our people jobless, shut down our industries even as we opened up for foreign investors, and taken us into a spiral of hopelessness and underproductivity whereby we are expecting even more devaluation and actually now calling for it.
What Mr Rewane has done by that statement or presentation, is to force the hands of the Nigerian monetary authorities to devalue the currency. He has enabled speculators and arbitrageurs to consolidate their positions against the Naira. Remember that even in Hollywood they have acted a movie about the prospects of the Naira. In that series (Billions, Episode 5), a fictional Central Bank of Nigeria governor told his American friend that he intended to devalue the Naira. As financial markets people, the American and his friend got together, borrowed huge amounts of money from Nigerian banks, bought dollars in the open markets and everywhere they could find, and by the time the Naira was devalued, they made a princely $5 billion. This profit had nothing to do with Nigeria’s productivity or international trade. No goods exchanged hands. And this is what most Nigerians who have the wherewithal did a couple of weeks ago when the Naira dropped to an all-time-low of N716 to the US Dollar. The market had cooled down some (to about N630 in some places), when Mr Rewane dropped this new bombshell, that Naira was/is 200% overvalued. I repeat that the metrics and rationale used to arrive at that number is totally random, academic, and unfounded, just as the Agusto and Co position that we should devalue Naira yearly by the difference between the inflation rates in the two countries (crawling peg). Note too that whereas we seem tethered to the US Dollar, the USA as a country is not among our 5 top trade partners. Why the fixation with the dollar?
I have disagreed with everyone who throws this idea that the naira is overvalued – include VP Osinbajo. Indeed, we know that productivity and complexity-wise, the American economy is a world ahead of the Nigerian economy, we seem to be the only country in the world where the entire citizens are obsessed with this difference with a view to dump their local currency. Dozens of other countries are aware but are more obsessed with catching up in terms of sophistication and complexity of what they produce than running away from their currency. The UK for one is losing grounds against the Dollar. In truth, the UK economy is smaller, less complex, less sophisticated and less productive in general compared with the US. I was in Felixstowe Ports in Ipswich, UK in 2009 or so, and it was miles upon miles of empty containers they were battling to ship out of the UK. The UK admittedly imports much more than it exports. They are trying to force themselves to be stronger that is why they did Brexit. Ordinarily, given the theories in the books, the GB Pounds is supposed to be much weaker than the US Dollar, maybe 20 to one. But the UK will never dare it. Today it is still strong ($1.3= 1GBP). This position of mine is open to challenge from Messrs Rewane, Osinbajo and anyone else who believes in their position. And also, I have always educated whoever cares to listen that we should avoid self-fulfilling prophecies which precipitate currency crises. It is even worse, indeed egregious and unacceptable, when top leaders of a country including members of economic advisory councils are the ones unleashing this debilitating damage on their nation’s currency, thereby creating unnecessary inflation which impoverishes millions of people. In serious countries they should be resigning their positions. But then, this is Nigeria. We don’t care. They even have thousands of self-maximizing vuvuzelas.
THE GOVERNORS’ 33 SUGGESTIONS TO BUHARI
Talking of being selfish – because all these guys who ask for the Naira to be devalued are such that hold heavy positions in the US Dollar, home and abroad. Osinbajo’s son was seen spending dollars at Yusuf Buhari’s wedding and another one was lecturing us about how much dollar he could make from trading cryptocurrencies (which have now generally crashed 80%, with some liquidating totally). When such people make such statements, it is akin to inside trading – a financial crime. Because if indeed the Naira is devalued, they cash out bigly.
The governors allegedly put out 33 advices or suggestions to President Buhari since July. These suggestions came out during the week. Some make sense, but most were rubbish. Coming at such a time, it is obvious that the governors – if they indeed brought out these suggestions – were taking the piss, as the Brits would say. They suddenly woke up from their slumber, having maxed out on their power, their enjoyment and consolidated their financial positions to tell the president to pay off any civil servant over 50 years old. Most of the governors are over 50 years, so they too should resign forthwith, right? Are they not also purportedly working for the country? They told the president to immediately remove the fuel subsidy – and thereby create maybe 300% inflation which will have people on the streets rioting. Whoever suggested that is a maniac. They also said the government should suspend planned increases in civil servants salaries – increases that were planned to help these workers cope inflation which could really already be as high as 40%. I laughed out loud when they suggested that the N19 trillion CBN exposure through ways and means to the Federal Government should be converted to 100 years bond at 1%. Who will buy that crap at such a rate? Delusion indeed. Whoever it is that wrote the suggestions – because I don’t think it could have come from the governors – also suggested immediate increase of VAT to 10% with a view to targeting 20% shortly. The person is indeed maniacal, as he suggested that everybody – even poor people earning nothing or N30,000 be taxed going forward. They suggested minimum taxes of N100 be deducted from the phone balances of people by government no matter what they earn – even those who depend on donations from friends and family. Imagine that!
None of the suggestions considered what the elites could contribute. No mansion taxes. No property taxes. No luxury taxes. No increases in the taxes of those who already earn a lot. The governors and their friends are to contribute nothing. Nothing on capital gains taxes. So, do not be surprised that the average Nigerian is great at telling others what to do, never what he too could contribute to saving a dying nation. Everyone is interested in maintaining their own class advantage. God help us.
GOING AFTER BLACK MONEY – A NATIONAL IMPERATIVE
From my own angle, whereas we should get stricter with taxes – and incorporate the ones I mentioned above among others – we should also as a matter of national urgency, go after black money. This should be a national imperative and is already so late in coming. Nigeria has serious problems with corruption and bribery, stealing from government, kidnapping, embezzlement and privateering of collective resources, money laundering, drug trafficking and trading, prostitution and other such underground crimes and what have you. This means that we must constantly clean our system. I am however not sure anything has been done in this regard since the return to democracy in 1999.
Meanwhile, many countries without half our problems are moving right ahead in cleaning out black money and ensuring the following advantages for themselves:
- Ensuring most of their money supply reside in the banking system so that banks can be liquid and lend to the real sector
- Reducing the influence of the crime economy and making it less attractive for citizens and foreigners to get involved in crimes because they cannot power illicit funds through the system
- Reducing cash in people’s homes and therefore vulnerability to crimes
- Making it harder for currency forgers through innovation
- Knocking out corruption in a big way by reducing cash slushing around the country
India did this in 2016 and 2017. They targeted high-denomination money which the government believed were being stashed in different places, proceeds of corruption and crime and criminality. The government of India was able to clean out R15.4 Lakh Crore (equivalent of $26 billion). Another such amount may have been permanently lost by those who could not exchange their money within set time.
As we speak, the UK has set a deadline for those holding the old 20 and 50 bank notes (their highest notes), to change by September 30, 2022 or lose the money forever. The Americans also change the $100 note from time to time. Many Nigerians who hoard the old dollar lose out bigly when this is done. Also right now, the UAE has changed some of her currency notes into polymer and phased out old ones. Polymer looks to be the new preference. It is usually not very convenient to carry around in large sums. And it is much tougher to counterfeit. The world is de-materializing cash, and in many places it is now odd to carry cash or even card. With your phone, or even a chip in your body, you can do banking transactions.
This initiative is very critical to Nigeria more than all these unnecessary speculations that is putting everyone in trouble. We need to get our minds collectively away from speculating about the Naira and putting ourselves in trouble. Any leader that cannot commit to this cannot start the war against corruption. The idea is to first de-democratize corruption and make it more difficult for anyone to get involved. Today, Nigerians are involved in corruption and sundry criminality because they have seen that our government is a joke. This effort will then be complimented with a major reorientation program and constant repetition of what we intend to achieve with our nation. It will be great of Buhari can try this, and therefore firm up Naira value a bit before he leaves. If he doesn’t, the next government should seize the initiative. People will fight back. But this is a war for and on behalf of the oppressed millions.
People stashing naira at home (in septic tanks and so on), should be made to bring the money back into the banking sector or lose them. Those who are sitting on dollars must be made to sell to government at a handsome premium while government incentivizes the ‘Mallams’ who stand on roads to find another profession. By a systematic approach to clean up the system, and ensure only officially recognized BDCs are in that space, the gap between the two markets should close and Nigerians should even stop talking about ‘black market’. The CBN should also be able to haul in so much dollars and therefore get more efficient in meeting legitimate transactions. Serious sanctions should also be meted against black market dollar trading such as to make it no longer tenable for anyone to get involved. All BDC transactions should also be backed with documentation as is done everywhere in the world.
Nigeria must rise.