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 a 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 in the summary and harebrained devaluations of the currency just because we are trying to fulfill 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 under-productivity 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 per cent overvalued. I repeat that the metrics and rationale used to arrive at that number are totally random, academic, and unfounded, just as the Agusto and Co position that we should devalue the 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 top five trading partners. Why the fixation with the dollar?
I have disagreed with everyone who throws this idea that the naira is overvalued – including 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.
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 per cent, 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.
