The ultimate question we need to ask ourselves is whether we believe we are worthy enough as a people and as a nation, to have and to manage a currency, or if we feel too worthless to have one. One-track-minded philistinism leaves us all wretched, one way or another.
I have been struggling to write this article for some time now. So many things course through my mind each time I start. I think about my past interventions on this matter, and whether Nigerians will ever be ready to appreciate the issues at hand or get my perspective. I worry about which angle to write from so as not to sound boring, and how much balance to strike between hardcore economics, economic theory, and the call for some degree of patriotism. I worry about whether to write a short, cynical article that leaves Nigerians to figure things out or stew in mystery, or to, again – as I usually so, pour my heart out. I feel a well of anger at the compromises, the thievery, the looting in government circles, and the heartlessness in the private sector that got us here. I contemplate the future, and the near impossibility of stopping Nigeria and the naira’s descent to the abyss from the epoch that we find ourselves today. I rue my fate as one who knows that this country is our best bet and we should try to save her, but I know most people who mouth the same rhetoric in government believe in the exact opposite. We cannot be speaking of saving the naira, when everyone in government spends dollars, whether at the federal or state level. Even their children do the same. Everyone who has some savings have converted it into dollars – especially those who are privileged to have good jobs or political positions. We have almost all expressed the lack of confidence in our currency, in our economy, in our nation, and in ourselves. Talk about proper inferiority complex. But still, I will to try explain what is happening and how we are jointly ganging up to destroy the naira, our economy and our nation, and what we may do about it, that is if we are wise or in a good mental state that is not self-destructive.
What should the value of the naira be?
We have argued on end about what the value of our currency should be. There are two divides to the argument: Some Nigerians – usually the Western-educated, middle or upper-class types with considerable holdings of foreign currency investments – believe that the naira be allowed by the Nigerian government to ‘find its level’, meaning that we should leave the currency to the vagaries of the market forces of demand and supply. Others – who are usually poorer, with not much dollar holdings – believe that Nigeria should protect her currency and keep it strong. I have engaged in this argument for some while now, and tried to also apply a historical approach, wondering why the British colonisers set our currency (the Nigerian pound and by extension the naira) at par with theirs upon departure. I have heard very enlightened people bemoan the time when the Nigerian currency was stronger that the U.S. dollar, showing that they believe that at a time Nigeria’s economy was probably ‘stronger’ than America’s. Also, the Chinese, Singaporean and South Korean economies, among others. The same people boast that we had television before France. I’m left wondering: How? How could anyone justify that the Nigerian economy was ever stronger than that of the leader of the world? How could we not see that that was a mirage? Why will anyone think that we can build anything on that illusion? So, why will anyone rue the time when our currency was at par with the best in the world? What did we produce then? What do we produce now? If Ibrahim Babangida, Chu SP Okongwu, Kalu Idika Kalu, Olu Falae and co, did not come around and with the help of their International Monetary Fund/World Bank friends, pushed us down the cliff from which we are yet hurtling towards the bottom, we ought to have ‘borrowed ourselves some sense, as we say in the streets; shouldn’t we?
However, if the group of bemoaners who are stuck in reminiscent nostalgia could be regarded as left-leaning romantics, the other guys on the right (the middle and upper-class liberals) cannot also explain their position from this historical perspective. And they have not bothered. Actually, they don’t think they owe anyone any explanation. They just want the naira to float… perhaps into oblivion… and/or to probably disappear altogether. Not for them any patriotic idea on why nations need currencies and how nations struggle to keep theirs strong. This category of people are fixated on what the textbook says the situation should be. They abhor any complicated explanation of the economy and cannot see the endgame to the strategy they propose. In fact, they have always been around, and in 1986, they supported the first devaluation, which was premised on the theory that Nigeria’s exports will be cheaper. Three things happened: Many Nigerians went into export – of commodities of all sorts – and many got their fingers burnt as their products were rejected and devalued for failure to meet standards. Secondly, some were duped by foreign importers as well. Many committed suicide, while gap-toothed (like me) IBB and his friends had a good time in Dodan Barracks and later, Aso Villa. Apart from the export fiascos, life became very difficult for too many Nigerians who could no longer afford the basics of life; their lives had been devalued. Thirdly, and perhaps more importantly, none of our economists then, as now, pointed to the Marshall-Lerner principle in Economics, that says devaluation will only work in a country whose exports are positively price-elastic. This means that for such countries, the devaluation of their currency should spur importers to buy more of their exports. Since Nigeria’s exports is dominated by crude oil, devaluation did not work for us at all, and the mad rush into commodity exports, was a disaster. At best, large conglomerates, who understand standards and are owned by foreigners, took advantage to an extent, while the majority of Nigerians faced even deeper penury. It is instructive to note that since 1986, we have only ever devalued, so to speak. It’s a one-way trip to Armageddon. This is not to say, however, that we should have kept naira at par with the dollar. The question is: Where should we have stopped? Or better still, where are we going to stop?
The questions for guys in the liberal divide, who say we should float our currency till it finds it’s ‘true value’ are: Why did the Brits leave our currency strong? Why did it take a Babangida, in 1985, to buy into the liberal policy of ‘market forces’, leading to the first devaluation of the naira? Why have we only devalued the naira since then? If we float the currency and allow it to drift on the basis of demand and supply, should we just allow the naira to drift away forever? If the naira drifts too far and panic sets in at some point (as it is about to or has in the last few days), will it not be futile at that point to then try and put in any control? What is the point-of-no-return for the naira? Imagine a car left on a cliff with no breaks and no driver? Do we understand that perception, self-fulfilling prophecies, confidence, patriotism/cynicism, make up 70 per cent of the value of a currency, especially that of a country like ours? Do the liberal guys consider that we don’t produce anything of real value and we have together not hunkered down to building real productive capacity by replicating technology, like others did? Can they validly say it’s none of their business if this economy and nation go to the dogs? Do they think they will bear no brunt from a catastrophe? Beyond academics and trying to look good for the camera or to look and sound educated, are the liberal people telling us we don’t need a currency? Are they ready for the consequences, even if they have all their wealth stashed in dollars? In the same vein, liberal economists egged us all on into massive debts, citing meaningless debt-to-GDP ratios. I must also recall that in President Babangida’s recent interviews, he glibly listed the acceptance of liberal economics, and market-forces as its underpinning, as one of the fait accomplis, another irreducible minimum that Nigeria signed up to in the military era – under his government. A market forces-driven economy is way up there, alongside the unity of Nigeria, he said. I know many people who will disagree vehemently with IBB. I also wondered as he spoke, what knowledge they had then that made them conclude that was the way forward for this nation. Do they have conscience? If so, do they enjoy the result of their decisions today?
The acceptance of liberal economics by Babangida, and other presidents who have run the economy, is only now just being revealed to us through the horse’s mouth, even though we are yet very unclear about what treaties were signed and what bondage we have been put under. It is also evident that aside from repudiating some loan repayments to the International Monetary Fund and World Bank, not even Abacha changed anything about that subscription to market forces, and I must quickly clarify that I am not against liberal economics or market forces, but I am against a rigid subscription to any economic ideology. These prescriptions often end up becoming worse than the diseases they are meant to cure. My stance remains that we must be pragmatic, non-aligned (as they used to say in the Balewa days). We must think for ourselves. We must be dynamic in our policy subscriptions. We should learn to run with the hare and hunt with the pointer dogs at the same time, as far as economics is concerned. Our key driving force should be how whatever policy we subscribe to delivers a better life for our people. In this instance, it is evident that the liberal economics ideology (market forces, mass privatisation, cut down of public services and public goods, youth entrepreneurship, foreign debt and naira devaluation policy, etc.) that Babangida, Abdulsalam, Obasanjo, Yar’Adua (to a lesser extent), Jonathan and Buhari subscribed to – largely because they were intimidated by Big Brother Western powers who are now scrambling all over the place to try and whittle the influence of a less-ideological China – has only DEVALUED the lives of the PEOPLE of this country. With the devaluation came mass unemployment, mass poverty, food poverty, a deemphasis of the provision of public goods to the people, higher interest rates charged by banks, which ended up collapsing all the same, huge bailouts for friends of government who run their private companies aground, and other paradoxes and contradictions that we now live with.
A very short history of currencies
I searched in vain for a book on Amazon and all over the internet, that may explain to economists how to manage a sovereign currency for a newly created nation. I found a few that chronicled the history of paper money and one brave one that tried to explain the politics that determines exchange rates. Others were about trading currencies and the more recent phenomenon of cryptocurrency and digital currencies. I learnt that the first paper money started out in Sweden in 1661 and that early paper currencies often got inflated until they became worthless. We all know the story about fiat money – especially paper currency – emerging from receipts given by ‘bankers’ to their customers as evidence of deposits that they had made. These papers soon became exchangeable by anyone holding them for their equivalent in goods. Then governments stepped in and issued the papers with the strength of force. Everybody must take the paper, or die. This phenomenon has become seamless today. But there seems nowhere that a freshly minted minister of finance of a new nation could contact for what to do next. What I can decipher so far, is that most nations start out with strong currencies, in line with Joseph Stalin’s truism (later echoed by no less than Margaret Thatcher) that ‘to destroy a country, first debauch it’s currency’. A strong currency is where a nation starts from and then works to maintain. As nations record successes militarily, economically, socio-culturally, and politically, the currency may falter, but it must never be debauched. A smart nation will ensure it leads in technology and is able to fulfil the needs of her people, as well as attract the capital and currencies of other nations (foreign portfolio or foreign direct investments). The more other currencies chase your currency (meaning the more the demand for your products, services, or investments in your country’s financial markets or permanent investments in your country), the stronger your currency becomes, and vice versa. What we have seen is that all nations start strong. The story of African nations is signposted by unforgivable failures along all the lines that I mentioned above. A country like Nigeria features the very opposite of what makes a currency strong but in looking at these factors, we should see our own individual failures, contributions to the sorry state of the naira, and collective near hopelessness. For not only do we not lead in technology, we also cannot fulfil the needs of our people, our exports are not sought after, no one is really bringing money here to invest, and we only attract the occasional hot money into our financial markets, which leave us when we need them most. And we must also mention the debilitating effects of many destabilisation programmes of Western nations – whether in terms of recommending or pushing bad economic policies to us, or moving against governments, or such like. The recent engagements with China have been a saving grace for many African nations because at least we see some infrastructure on ground and no one is pushing any African nation to become communist at present. This is much to the chagrin of Western countries.
As currencies go, what I learnt, taking some currencies as case study, is that the British pounds was once the strongest and most popular reserve currency in the world, until Britain received a good pounding (no pun intended) from the Germans during the Second World War. The war crippled Olde Brittania and saw that great nation crawling to the Americans in 1945. The Americans saw a chance for domination and, of course, revenge against the Empire which colonised them for centuries, until they fought back through a revolution. The Bretton Woods meetings were called, institutions like the World Bank and International Monetary Fund (IMF) were formed and in exchange for a huge bailout, the Americans asked Britain to devalue the pounds overnight by 60 per cent. That was the end of the Empire, as the United States’ dollar became the world’s dominant reserve currency, pegged against Gold at $37 per ounce, until 1971 when Richard Nixon let go of the Gold Standard. Britain was forced to devalue then. About 20 years ago, the pound exchanged for $2 but hovers around $1.30 today. They have ensured the pound is not debauched and the economy is by far more productive than ours. The Japanese yen also compared with the dollar until the same World War II. Defeat at Hiroshima and Nagasaki, through two deathly atomic bombs, sent the yen to 600 to one U.S. dollar. After the war, the Japanese have worked to strengthen their currency, first to about 300, and today it hovers around 109 to the US dollar. The Japanese economy is also very technological and productive. The country can ensure its currency hovers around where it is today, but never to become like toilet paper. The country has very complex products it exports to the world too, so this is a good strategy for her. The Chinese yen traded at ¥1.92 to $1 in 1982, which is where the records I saw started. The currency fell to about ¥8.3 to the dollar in 1985 but has strengthened back to ¥6.47 to $1, as I typed. The Egyptian pound was stronger than the U.S. dollar as at 1940, when it was E£0.25 to $1. There was a devaluation to E£3 to $1 in 1990. Political upheavals and recent reforms have led to a devaluation to E£15 to $1 today. Not debauched yet, but painful for the Egyptians who rue the time of Mubarak today.
Egypt is our closest good example, except we want to emulate Ghana, which saw her currency devalued to as low as GH₵9400 to $1 as at 2007, and after many battles decided to ‘redenominate and restructure’ the currency. Nigerians hailed Ghana then (as we are wont to, since we always believe the grass is greener in our neighbour’s lawn. The redenomination was a mirage. Four zeros were removed, giving Ghanaians an impression that their currency was suddenly stronger than the U.S. dollar. GH₵9400 became GH₵0,94 to $1. As the decimal points lulled Ghanaians to sleep, their currency fell, first to GH₵0.94 (9,400), then GH₵1 for $1, i.e. GH₵10,000 to $1. It fell further to GH₵2 (20,000 cedis) to $1 and on and on, eliciting national prayers. Today, the currency sells at GH₵5.98 to the US dollar, or in the old currencies with all the zeros intact, GH₵59,800 cedis to the U.S. dollar. I recall one of Nigeria’s musicians, traveling to Accra the other day, changing a few nairas to Ghanaian cedis and then raining abuses on the naira. But most Nigerians follow musicians and Big Brother ‘stars’, never people who would advise them correctly. I must also note that since the ill-wind of devaluation based on bad advice about exports started, devaluation that African nations never prepared for and which has held us in a dizzying spell till today, most of the sub-Saharan African nations have been battling with the prospects of their currencies turning to the famous toilet paper. This devaluation frenzy is however a fairly-recent phenomenon. The real history is that a country should maintain a strong currency and only devalue when it’s ready and for strategic reasons. It is not an academic affair or what you talk whimsically about. We are all in it. For us to be ready to devalue, we will also not be willing to allow every import because we will be drowned in them and distracted from the required hard work of hunkering down to produce what our people really need. When a nation ignores the Marshall-Lerner warning, devalues and allows foreign goods to come in freely, what it does is to devalue her people. There is no wonder that Nigerians used to attract respect abroad but not anymore today. Poverty, want, illiteracy has reached stratospheric levels in the country. Liberal economists should know that these things connect. We cannot hide in a cocoon and pontificate about the ‘true value of the naira’.
My admonition to us is to try and think for ourselves, and to remember just how far behind we are as a nation. The Western nations may also try and show us a bit more respect in making our own choices. China should continue to engage but never take us for granted. But more importantly, we too must get very serious rapidly. I concluded recently that the only way we could have emerged as a strong, respected nation straight from independence, was to have hunkered down, with focus, humility, productivity, patriotism, and unity, shunning luxuries for at least 40 years after independence, while trying to produce the things we need for ourselves. Rather, Nigeria took the extreme opposite routes. Leaders who came from primitive village settings suddenly started competing for who could use the most expensive Western inventions and wallow in opulence the most. Perhaps the problem is in our cultures, their clash with one another and with the imposed Western culture. And the rest is history. But no one should run away with the idea that this is simply a leadership matter – even though if we were lucky to have found a good leader, things might have been different. We did have some who made attempts though. In Africa, most of those are killed off or ousted, if they are lucky. From the brutal murder of Patrice Lumumba, and the ouster of Nkrumah, the African economic aircraft crash-landed, almost never to fly again… except we somehow get lucky. The private sector cannot also exonerate itself, for in the choices we have made so far, we contributed immensely in the one-way devaluation of the naira, and the subsequent devaluation of the people of Nigeria, since Babangida started his unfortunate project in 1985. We are now hearing that it is even beyond being codified into our Constitution. The choices we made were mostly borne out of a bad reading of history, apart from the culture clash. Apart from the bingeing on luxuries, our preferences for importation, our non-cooperation over matters of collective development, our lack of patriotism, which has now germinated into our permanent disdain for this nation, caused the continuous debauchery of the naira. And with the debauching of the naira, our nation is destroyed.
In other words, there are no brownie points for letting us know how the naira may crash to N1,000 to the dollar. If the British were to set the currencies based on relative productivity and sophistication as at 1960, the Nigerian pounds could exchange for probably 20,000 to £1. Maybe that would be an alternative, forgone reality as we may have to then manage the economy and work towards the strengthening of the currency over time, like the Japanese worked back from ¥600 to $1 to the current ¥107 to $1. Maybe then we would have had good sense of where and who we are exactly. But we swallowed the koolaid, puffed up ourselves, embraced the illusion that we had a strong economy better than that of South East Asia, and neglected the arduous, backbreaking, humble work of currency and economy building. For, indeed, if we place the two currencies and their economies side-by-side, Nigeria and the naira versus the U.S.A and the dollar, and consider economic complexity (the knowledge quotient of goods and services that they produce and also export), perhaps N20,000 to $1 may be the starting point. Nigeria exports crude oil, which she does not produce, as we do not own any of the technology involved. We export cocoa, sesame seeds, commodities in general. The U.S.A, on the other hand, is still the world leader in technology. Single companies like Microsoft and Apple, or Google, are worth thrice the GDP of Nigeria individually. U.S.A is the global headquarters of the best education (Harvard, Yale, Princeton and the rest); attracts tourists by the millions to Las Vegas, Florida, New York and the rest; has the world’s largest pharma companies; is a leader in the technology and defence industries, and is the most diversified economy in the world. Why is the U.S.A the most diversified? How does it manifest? It manifests in the fact that in the U.S.A they produce almost everything they need and only ceded manufacturing to China some decades back (they are trying to take it back now). What does Nigeria have? Nothing. We cannot feed, clothe or house our people, for starters and most of what we boast of, are imported. Are we ready for the hard work? Very doubtful.
A brief explanation of the nonsense going on with the naira
I state once again, as I have in many fora, that Nigeria cannot continue with the idea of having 10,000 Bureaux de Change. Nigerians are famously selfish (and some will say short-sighted) and we are having less and less sense of collective development or nationalism. It is not every money that can be grabbed that we should grab. We had 74 BDCs as at 2005. It became 2,700 in 2016 and 5,689 by 2021. It looks like the CBN stopped issuing new BDC licenses altogether in 2021, because the 5,000 mark had been crossed since 2019, according to my independent research. The frustration of getting 500 new requests every week made CBN Governor Emefiele take the decision of selling foreign exchange to so many thousands of players. Many people owned three or four or five licenses. Most members of the National Assembly and State Assemblies own BDCs. Emirs, Obas and Obis/Ezes were not to be left out. Top bankers owned theirs. In fact, anybody who was anybody. Governors and Ministers owned through proxies. And this led to the dollarisation of the economy. Any keen observer would have noticed that almost all our politicians never spend the naira. Most move around with bales of U.S. dollars in their car booths, and this did not start today, only that it is now the standard. Even V.P. Osinbajo’s son, while felicitating with Yusuf Buhari, donated $100 on behalf of South-West youths. His dad should have let him know the implication of that but for the fact that it is way too rampant in government circles.
By spending U.S. dollars in government circles, the people in Buhari’s government have cast a vote-of-no-confidence on the naira and cannot therefore expect ordinary Nigerians to show more patriotism than they are showing. But back to the BDC issue. It is ridiculous to hear people say the stoppage of dollar sales to BDCs will affect manufacturers. BDCs are meant to strictly service the invisible trade segment of the market (travel, school fees and such like). The manufacturers indict themselves and reveal that the BDCs have been doing illegal business by their statement. Needless to say, the number of BDCs were way too many that no regulator could even sieve through their weekly returns, so the CBN gave up on checking a long time ago. The banks can service invisible trade better and be monitored. The Managing Directors of the banks also understand that they have a lot more to lose if their staff are found to be bending the rules for tiny amounts in dollars. Therefore, with the banks handling that segment, the CBN can see something close to the real demands for the dollar for invisible trade transactions. Before this development, the CBN was merely packing hard-earned dollars and throwing them into the Atlantic Ocean, where it ended up in the pockets of smart Alecs. We should never again return to such a wasteful and obnoxious policy under any form of blackmail. By way of data, the last time I checked, there were 145 moneychangers or BDCs in the whole of the U.K. In New York, which is another tourist haven, they had 40, all with offices. In the UAE another tourist melting pot, they had 130. Nigeria set another ridiculous world record with 5,000, 6,000 or 10,000 BDCs. BDCs should thrive where tourists throng. Maybe we should try and fix our tourism sector by tackling insecurity first. We are all killing this currency and by extension, this nation. And we will all suffer when the doodoo hits the fan.
The slack from CBN
Ordinarily, one should be able to say all eligible transactions are being met by the Central Bank of Nigeria, and that the apex bank has no business with the black market… but not so fast. I need to however clarify that we should not conflate BDCs with the black market, which has been run for eons by mallams or the so-called ‘abokis’ from northern Nigeria, who have always been satisfied to make a spread of N2 or N3. That is the best we can get and should be working towards, for reasons I will explain. Anyone with a BDC licence should stick to the letter of that licence. A BDC should obtain money from travelers and sell to travelers, full stop. For now, we don’t have many travelers in and out of Nigeria, and so holders of the licence should know that business will be very slow.
The black market could be tackled but the CBN cannot be seen to pay much mind to it. It is called ‘black’ for a reason, for the fact that only transactions that cannot fit into genuine purposes will berth there. But there are a number of issues here. First, no organisation can meet up with the kind of drive-through service we get from the Mallams, who form very good relationships with their customers. Bank tellers are very unfriendly these days and I have seen how they show so much near contempt for traveling customers seeking some dollars. The process of ensuring that forgeries don’t slip through the banking process makes it an unfriendly experience for genuine customers who need dollars. And one must admit that there are thousands, maybe millions of Nigerians whose core business is to wake up daily, forge documents and look for whom to defraud. So, let us look away from the black market in which transactions will continue to take place, so long as there are willing buyers and willing sellers.
What is actually going on, which the CBN seemed to have no real plans for, is a speculative attack on the naira. AbokiFX (some smart guy who hijacked a name which is dear to many hearts), only became a poster kid for the growing disparity between the official segment, which the CBN is trying to tackle, and the other market in town. There are other platforms that can continue to track the currency but the CBN has won a breather by diffusing the phenomenon that AbokiFX had become, for now. Things had become so dangerous that one is unsure who sets the prices between the market and the website. In fact, if AbokiFX mistakenly lists the naira at N2,000 to $1 tomorrow, panic will ensue and the market will move up to that level. The impact will be less if another website tries to take AbokiFX’s place tomorrow. But CBN must wake up. Part of the problem too is that there are compromises in the system. Every Nigerian is out with their machetes, seeking to cut a huge chunk of the flesh of the fallen elephant, Nigeria. And this includes even the market regulators, as well as practically everyone in Buhari’s government. Can Emefiele do the onerous work of cleaning the Augean stable and bringing a new culture to the Central Bank of Nigeria, where even the junior staff are losing the culture of integrity and excellence maybe because they see from their bosses? Can he?
So, what the CBN should do, ideally, is to ignore the black market and squarely service the official markets. If the bank can cut out fraudulent requests, meet demands in the import and invisibles markets, and apply some suasion with key members of the BDC segment, who are hurt and are ready to bring down the system, that black market should crash to a reasonable level. The CBN could ask the key BDC players to reorganise themselves, merge and prune their number to not more than 100, put in some corporate governance, establish IT systems and be ready to be supervised like the banks. The UAE model is a good one to follow. BDC business could be expanded to local transfers and they could be permitted to tap into the remittance markets, if that will work. Fringe players will continue to exist but will not be able to move the market negatively.
There are, however, some thorny areas. Corruption drives the dollar demand in Nigeria and a lot of the dollars being spent by the same government people, who are saddled with policymaking, come from the black market. Nobody receives a bribe in naira because it is too bulky. Can anything be done to slow this down? A radical friend of mine suggested that the government – if it were sincere – could also squeeze the naira going after scarce dollars, say by delaying payment on large contracts. What this government cannot do, however is stop corruption. It is way too late and it has lost its soul, perhaps with the very soul of Nigeria herself. We also understand that the CBN rations the bi-weekly bids from importers, and that most importers only get say 30 per cent of their bids. This is a major red flag, if true. It is the key confirmation that Nigeria is not ready to fulfil the demands of her people for FX. If the CBN believes that demands are spurious, it should move against such importers but one thing that will help the naira immediately is for the CBN to be able to fulfil 100 per cent of the import demands, especially for manufacturers who need inputs. That leaves us with the 43 items for which CBN is not selling dollars. I support that policy. Readers should see below, the items that we are talking about. I see none of them that is so crucial such that we must import them. We are talking of toothpicks, eggs, Indian incense, meat, vegetables and such like. Most countries are presently restricting the import of these items either through tariffs or some crazy standards. The few important items are stuff that we should strive tooth and nail to produce ourselves. The importation of these items cannot move the market too strongly, in my humble opinion.
Credit: Tope Fasua