Sanusi’s Naira Devaluation Call Stirs Controversy

                                          

Former Central Bank of Nigeria (CBN) governor and Emir of Kano Muhammadu Sanusi II stirred the hornet’s nest with his last week’s call for naira devaluation. His comment has drawn the ire of many. Opinions are also divided in the  organised private sector (OPS), where acceptance should be a faith accomplish.

A programme, tagged: “State of the Nation”, was recently aired on a radio station.  The discussants, despite sounding unschooled, expressed their opinions on the ongoing development in the country.  It was such an interesting presentation that kept the listener laughing for as long as the programme lasted.  They bared their minds on so many issues, including governance, what they felt those in positions of authority have done right, or otherwise. They also offered suggestions on how things could be done differently.

Among the issues that took the centre stage were: unemployment; difficulties in getting credit facilities from banks; access to foreign exchange (forex) and easier to get dollars from the roadside than from the Deposit Money Banks (DMBs). They also talked about schools fees and all such matters of common interests, including rising cost of food items, as well as leadership. Despite the theme being that of common of interest, they could not strike a consensus in their resolution. The whole session ended in a shouting match, accusing one another of playing the spoiler.

Whoever had the opportunity to have listened to the presentations, with a fixated mind, would have discussed all that was said as bunkum, since, the discussants were unlettered. But, that would have been an error of judgment. For a cross-fertilisation of ideas, one must listen to the views of others for broader and better understanding of issues.

The radio conversation went thus:

Voice I:  We all agreed that subsidy should go. What you are saying is right. People bring in tooth pick, rice and so many things that we do not really need.

Voice II: That’s not the issue. What is important is that in terms of forex control, we should look at the pros and the cons. What are the controls introduced by the CBN (Centarl Bank of Nigeria)?  It is a blanket control. The control brought in by the CBN is a blanket control.

Voice I: How many items?

Voice III: Only Forty-one items… the forex restriction is targeted at those items that the nation has the capacity to produce.

Voice IV: The area we are not looking at is that nobody is talking about illicit flows and these are so many. They will disguise as legal and they will take so much of our forex out of the country. How do you control these? That is the brain behind the idea of Form M in 2009. Within the spate of one month, there was an outflow of $4 billion. That crashed the local market. Today, we have not come out of it. We have lost so much in the capital market. In South Africa, you can’t try it because there is control.

Voice I. That is why Sanusi (Emir of Kano, Muhammad Sanusi II) referred to that. He said the market is very attractive; they make the money and pull the money out of the country. The question you ask yourself is this… those portfolio inflow… how did they help the economy?

Voice III: For instance, when Constain shares was at N4, a foreign investor came and pumped so much money and the price jumped to N13. They recouped their money and exited.

Voice II: Is that the reason people are losing jobs? Is that the reason why there is no investment going on in the economy? No, we have to look at issues. There is just a sense that this economy no longer exists. Because all that you have said is theory. In practice, the economy does not exist. What do we do? If you say this policy is supposed to stop corrupting in the economy, I tell you, what you have gotten is not making it better.

Voice I: What is the Federal Government doing now to turn things around? We all agree that subsidy should go because it’s not benefitting anybody. Before the area of control, let’s look at the area of forex, look at the inflow.  Before now, we were making so much from oil, but today, how much are we making? From over a $100 per barrel, it has crashed to less than $50. So, what do we do? And we have this appetite for forex, then the forex is not there and IMF and World Bank are saying our reserves should be able to finance 11 months of exports, but today, we can only finance six months, or less.

Voice II: We don’t have enough money to do it. That’s why the CBN introduced import restriction. But, Sanusi is saying no! Devalue the currency and relax control.

Voice I:  If you devalue, foreign portfolio will come back because they will make money.

Voice IV:  As a responsible government, when your inflow is not matching your outflow, what do you do? If you simply allow your market to determine its value, what you find is that the naira will be N300 – N400 to a dollar. Unfortunately, we don’t have a backup in the economy. We are not producing anything. Even like… who are agents of all these foreign capitalists? They will come and buy this or that. The question is whose interest are they protecting?  Today, we cannot export anything because we don’t have the perfect market. Our companies are not producing. The government is making a point. Anybody that has genuine transaction, come, we will discuss with you. Let’s clean up the system. That’s the point I am making. What is killing the economy is inappropriate fiscal response.

And the argument went on and on…..

As it is evident, the arguments as to what strategy the government should adopt in driving the economy are as varied as the dramatis personae. The pendulum most times, swings in the direction of special interest groups and not necessarily in favour of resuscitating the economy, some have argued.

 The blunt call by the Emir of Kano and former CBN Governor Sanusi to devalue the local currency and as well relax foreign exchange controls, has brought to the fore, the existing disparity between those in support of regulation and others, who favour market-determined rates. Even within the Organised Private Sector (OPS), opinions are diverse.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, agrees that Sanusi’s prescription should be put to test. But, his counterpart in the Manufacturers’ Association of Nigeria (MAN), Mr. Franks Udemba Jacobs, disagrees.

“I am in agreement with the views expressed by the former CBN governor,” Yusuf said, arguing that “this CBN’s approach to the management of the forex market has created more problems for the economy than it has solved.  It has resulted in transparency issues in forex allocation and round tripping because of the huge disparity in rates. It is very difficult to access foreign exchange (even for items that are valid for forex).”

According to him, there has not been a playing field and consistency in government policy.

His words: “The forex market has become very unpredictable. The effects of all these have been adverse and profound on business. We have to situate our policies within the context of current realities.”

He said the present day reality has made the exchange rate policy unsustainable. “That is why we have all the crises in the foreign exchange market,” he argued.

Yusuf went on: “I think it is a good advice that we should adjust, I won’t call it devaluation, adjustment of the exchange rate in line with current realities. That will make it easier to manage the current crises that we have. The current approach of the CBN is even creating more problems, than solving it. I don’t even believe that is the way we should go.”

He noted that the CBN has fixed an exchange rate which it lacks the capacity to support in terms of supply.

Yusuf said: “Its policies also represent a major obstruction to inflow of autonomous foreign exchange.  It is a very unusual model. The CBN got itself needlessly entangled in a complex web of trade policy issues which have caused varying degrees of dislocations for investors in the economy.

 “My view is that the CBN should return to the status quo and focus on the creation of a foreign exchange market that is efficient, transparent, predictable and market-driven. The apex bank should thereafter collaborate with other economic ministries like Finance, Trade and Investment, Planning Commission and the Nigerian Customs Service (NCS) to articulate fiscal policy measures to fix sectoral productivity and competitiveness issues in the economy,” Yusuf submitted

But going down the memory lane, the MAN’s President said the nation’s history and experience on devaluation, does not justify the call for further devaluation.

Jacobs said: “MAN does not support the devaluation of the naira because we have passed that way before. Usually, foreign investors will, under the guise of Foreign Direct Investment (FDI),  impress it on CBN to devalue our currency, but from experience, nothing has come out of it and we have not seen the influx of investments. The naira is currently devalued at between 23 per cent and 24 per cent and we think that anything beyond that will be harmful to the economy.”

Sanusi also has a different view of the apex bank’s currency policy. He insisted that Nigeria will have to devalue the naira and loosen its monetary policy to revive the economy.

“It is wrong to think that you can keep the naira at a certain level when the price of oil is falling without depleting your reserves,” he told the CNBC television.

 In his opinion, “it does not speak well of us to pretend that the naira is appropriately priced.”

According to the Emir, the foreign currency restrictions imposed by the central bank are frustrating local firms as they struggle to get dollars.

“It’s time to loosen monetary policy. We need to lower interest rates, otherwise, we’ll compound the exchange rate crisis for businesses with high borrowing costs and declining demand,” Sanusi stated.

The CBN governor, Mr. Godwin Emefiele spared no effort in responding to his predecessor’s suggestion, insisting that the regulator will not devalue the naira further.

Speaking through his deputy in charge of Corporate Services Directorate, Mr. Adebayo Adelabu, the CBN chief said: “We are all aware of the CBN’s official position on this. There will not be any further devaluation of the naira, and this has been communicated to all. We have made the official position known to the public. There could be comments from various quarters of the economy, but we have made our official position known.”

But irrespective of the discordant tunes, Sanusi’s position and that of the OPS has a meeting point on the contentious issue of subsidy removal. Sanusi faulted the decision of the CBN and the fiscal authority not to further devalue the naira, and at the same time retain fuel subsidy, saying it was wrong to continue with the fuel subsidy.

“It is wrong to continue to pretend that you can keep the naira at a certain level, when the price of oil is falling without depleting your reserves. You have to make a choice,” he said.

The MAN president agreed with this argument. Jacobs said the removal of subsidy will be good for the economy. “We can’t continue to subsidise fuel, but we should rather channel our energy towards the diversification of the economy,” he said.

Other bodies, including organised labour, have expressed strident opposition to Sanusi’s advocacy, saying his call amounted to some policy dictatorship that must be rejected by President Muhammadu Buhari.

The General Secretary of the National Union of Tex­tile and Garment Workers of Nigeria (NUTGWN), Comrade Issa Aremu, said government should be weary of a policy that could further undermine growth and development as well as worsen the poverty level in the country.

To him, the twin-policy recommendations of naira devaluation and removal of fuel subsidy, “amount to some policy dictatorships that must be rejected by President Muhammadu Buhari.”

He argued that the existing devalued rate of N197 to a dollar has further eroded wage income of millions of workers in the wake of the prevailing cases of unpaid salaries and worsening poverty.

He said: “Devaluation has also increased the cost of domestic production, fueled price inflation and undermined the competitiveness of locally surviving industries, leading to loss of the few existing jobs. To further recommend naira devalation as Emir Sanusi did, is un­ac­cept­able exchange rate policy overkill. Devaluation is a false economics in a non­exporting, import-dependent economy like Nigeria. We import everything, including industrial inputs, while we export no industrial good that can take advantage of devaluation,” he said.

The notion of increased FDI arising from currency devaluation, has its drawback. For an economy that is exposed to the vagaries of an uncertain security environment, the chances of retaining such FDI is slim. Emefiele admitted when he alluded to the outflow of over $48 billion from Emerging and Frontier markets in response to security considerations. He spoke at the World Bank Group/the International Monetary Fund meeting, which held recently in Lima, Peru.

“It is true that investors are pulling out their investments in the country, and I must tell you that in the third quarter of this year alone, I read in a report that said, almost $48 billion were capital outflows that left Emerging and Frontier markets. It means that people are pulling funds and are beginning to look at economies like the United States (U.S.) and other areas where they think there are opportunities,” he stated.