November 08, (THEWILL) – In my elementary study of economics in secondary school, l learnt that during the global recession of 1933, inflation was so high that in then west Germany, if someone bought a cup of tea in a café and he/she was having it, before finishing that one cup of tea so as to ask for another one, the price of the same cup of tea would have become higher.
In fact, l learnt that during those dark days in Germany, despite the re-denomination of their currency, it doubled every three (3) to four (4)days – that phenomenon was known as hyperinflation.
And owing to that dramatic illustration, the phenomenon of hyperinflation got stuck in my adolescent memory.
So, it was that idea of hyperinflation that was invoked or awakened in my mind a couple of weeks ago when my wife shared with me her experience in a café – Starbucks or Tim Hortons (l cannot really remember which one, but somewhere in North America), where she stopped by to have some tea.
She intended to have at least two cups while waiting for her friend to meet up with her. After the first cup, she ordered a second, and when the bill arrived it was about $5 for each cup, tax inclusive. The total cost of $10 was paid.
But as she exited the cafe, she quickly did a mental calculation of the value of $10 in naira terms and realised that it translated to $10×800=N8,000, which was the prevailing dollar/naira exchange rate at that time, and l understand it is currently trading at about N900, which is N100 increase in less than two weeks.
Before the current policy of naira redesign by the Central Bank of Nigeria, CBN, under the governorship of Godwin Emefiele and with the express permission of president Mohammadu Buhari, my wife would not have been jolted that she is paying $5 for a cup of tea that would have been equivalent of a little more or less N500.
In fact, it would not have been my cup of tea if the CBN did not embark on the naira redesign, which has seen an already very weak naira crashing to an unprecedented low.
So, my Better Half was startled that with an N800-$1 exchange rate, a cup of tea at $5 translates to N4,000, which is perhaps the cost of a whole pack of tea containing maybe 25-30 tea bags back home in Nigeria, she better keep her thirst for tea in check.
Inevitably, the number of cups of tea that my wife buys in a café now matters to her, not just because of the drastic devaluation of the naira, but also owing to the rising rate of inflation at home, which the National Bureau of Statistics, NBS, puts at about 21%.
However, given the reality that the cost of groceries and other essential commodities have not only also doubled, but even quadrupled in some cases. In reality, inflation in Nigeria may be hovering around 30%, which is at least 10% more than the number ascribed to it by NBS.
As evidence that she has become sensitive to naira devaluation, my wife restrained herself from buying more cups of tea when the Naira/dollar exchange rate was N800/$1 irrespective of the fact that she has a fetish for tea of which she brings a wide variety back home, sometimes packed in a whole suitcase whenever she travels to Europe or North America.
What l have gleaned from that is that when the naira assumes its proper value, as it currently appears to be doing, the penchant to make purchases on impulse abroad by Nigerians would be curtailed.
Of course, my wife’s experience can be extrapolated for millions of other Nigerians travelling abroad on business or holidays, who are now more price sensitive following the dramatic and unprecedented crash of the naira.
And it means that a devalued naira may be compelling Nigerians to look inwards and likely become more self-reliant than the policy of banning of the 41 items including toothpick placed on the import prohibition list for funding by the CBN introduced a few years ago by the apex bank governor, Godwin Emefiele.
In effect, the metaphor of tea and the adventure of my wife in a café in North America is a practical illustration of the unintended, but the potentially beneficial effect of the ongoing policy of naira redesign by the CBN on the economy.
To buttress my point about the capacity of the new apex bank policy’s unintended positive effect, allow me to share another narrative similar to the real-life experience of my wife by another Nigerian to which l am a witness.
While on holiday in Toronto, Canada, a family friend stopped by a shop to make some purchases, amongst which was a leather belt which he felt he needed.
After making the purchase, he told the seller to bore more holes in it to enable him to adjust it in the future in case he loses or adds weight around his waist.
When he was informed that it would cost him $10 to punch each hole in his belt, totalling $20 for two holes, he demurred by telling the vendor that he had changed his mind and, therefore, not going ahead with the hole-in-the-belt transaction.
That is because he could not justify to himself why he would spend $20 cad, which is the equivalent of $20 cad x N500 = N10,000 on boring two holes in his belt, which can be done by a cobbler back home in Nigeria for as little as N1,000.
Hopefully, the second anecdote above would further underscore the sensational effect that the resultant naira devaluation is having on Nigerians especially as they travel around on business or holiday abroad.
Without being told, it clearly demonstrates how a devalued naira can help our compatriots curb their unbridled taste for foreign-made goods and services which are actually acquired tastes that we can do without, if we chose to become more patriotic by consuming mostly what we can produce as opposed to consuming mainly what we do not produce, resulting in the bleeding of our treasury of hard-earned forex which is currently dwindling, given that most of our crude oil, perhaps up to 80% is being stolen by international oil thieving syndicates.
As readers must have noticed, l have only cited as examples micro transactions and not the mega projects like the Dangote refinery and fertiliser firms construction costing multi-billions of dollars to drive home the point of how Nigerians are responding to a weaker naira that is taming their taste for foreign-made goods and services.
In fact, one common reaction to the devaluation of the naira compared to other foreign currencies in the two narratives involving my wife and a family friend, who is a Nigerian, is their stimuli of rescinding their decisions to make the purchases abroad simply because they can be obtained for less at home.
That is voluntary abstinence and not compelled by rules or regulations as the CBN has done with the exemption of items to be imported via the official window and which is being circumvented through the import/purchase of those banned items with foreign exchange funds obtained from the second widow, and the so-called parallel or black market.
In fact, l am tempted to believe that the black market rates that are about double the CBN rate may actually be the true value of the naira and not the CBN-induced rate that is facilitated by the bi-monthly interventions with billions of dollars estimated to be in excess of $10 billion by some experts.
Please take note that if the naira were to be N1/$1 as the ruling All Progressive Party, APC and its leader, President Buhari, had falsely promised Nigerians when they were seeking the mandate of Nigerians to be the party and the candidate calling the shots in Aso Rock Villa in 2015 and 2019, the opposite of the reaction of restraint from impulsive purchases by Nigerians would occur.
That is simply because our compatriots would not have been weaned of the exaggerated and wrong impression that the naira is strong or should be strong, which is basically emotional and without fundamental economic underpinnings.
In other words, both my wife who resisted buying more cups of tea in Starbucks/Tim Hortons and my Nigerian friend, who wanted to bore more holes in his belt, but changed his mind, would have respectively binged on tea and bored multiple holes in the belt if the naira had not been inadvertently devalued via the ongoing redesign initiative.
And the interesting thing here is that these narratives are not hypothetical cases, but real-life situations and they could be extrapolated for multi-billion dollar transactions.
Basically, the lessons that are intrinsic in my wife’s and the Nigerian friend’s experiences illustrated with a cup of tea and a belt above is that the more devalued our currency is, the less Nigerians would make non-critical purchases overseas. In other words, the lower the purchasing power of the naira abroad, the more they would look inwards as CBN governor Emefiele had intended by banning 41 items for import using the CBN forex window.
It is fascinating and critical that l emphasize that the real reason that Nigerians go on a binge abroad is that our currency – the naira is overvalued and its current dramatic devaluation is jarringly waking all of us up from our revelry of false confidence and exaggerated impression about the value of the naira that has had a negative effect on our economy.
And it might astonish some Nigerians to learn that overvaluation of the naira is in fact one of the two fundamental flaws (the second demon being petrol subsidy) wracking our economy and responsible for its being in turmoil and if you like on its knees.
In light of the reality above, the Chief Economic Adviser to President Buhari, professor Doyin Salami and my friend and brother, Professor Pat Utomi, (both of whom are deans at PAN Atlantic University, Lagos) should come to my rescue in enlightening Nigerians on how a devalued naira can magnify and amplify the need for Nigerians to look inwards.
Although l stand to be corrected, Utomi is reportedly the economic advisor to Peter Obi, Labour Party, LP, presidential candidate.
Just as l also understand that Mr Mustafa Chike-Obi, another financial expert and former Asset Management Corporation of Nigeria, AMCON chief executive officer, may be playing the same role in the Bola Tinubu, APC presidential candidate’s team.
They should all do well to advice their principals to add naira devaluation (not defending the naira as the CBN had been doing with an estimated $10 billion dollars) as part of the manifestos being packaged and presented to Nigerians by those jostling for the presidency of Nigeria in 2023 because it is in the best interest of Nigerians and the Nigerian economy.
That is, as opposed to the N1-$1 gimmick, which was used to lure voters in 2015 and 2019 by the ruling party basically because the majority of Nigerians believed that a stronger naira can be approximated to a stronger economy.
In fact, as it has been demonstrated, the weaker the naira, the less interested would our nationals be in buying goods and services available in Nigeria from abroad.
And that attitude of curtailing spending abroad would stem the haemorrhaging of the foreign exchange in the CBN treasury as it would enable us to conserve our foreign exchange income as opposed to bleeding the treasury due to our uncontrollable appetite for foreign-made goods.
I urge Nigerians who may be skeptical about the proposition of the naira being better when weak to ponder why major countries of the world, especially the USA and China are always accusing each other of arbitrarily devaluing their currencies – the dollar and Yuan, to make their goods more appealing to potential buyers outside of their shores.
As Nigeria does not have finished goods and high technology services like equipment and machinery as the USA and China have to sell to the rest of the world except crude oil/gas, whose price and supply are fixed by OPEC; it is unsurprising that her youthful workforce(dormant or untapped asset) has resorted to migrating to Europe, North America and some parts of the Middle East and Asia, to earn foreign money which is in uncanny ways making up for the lack of capacity and ability to produce goods and services to sell to the world like the USA and China do.
One only needs to picture the leadership position that Indians have taken in being at the helms of affairs in the top ten (10) Fortune 500 companies to figure out the cumulative benefits of investing in the education of our youths that would result in the right tooling and equipping them to spread out throughout the world as India has done.
For instance, foreign income remittances by Nigerians in the diaspora to Nigeria stands at N5.1 trillion in the first quarter of the year 2022, according to statistics from the CBN.
One can only imagine the exponential growth in foreign exchange income that would accrue into Nigeria if more Nigerians take up jobs abroad via proper migration processes to countries like the UK that have been short of workforce since its exit from the European Union, EU.
Based on a World Health Organisation, WHO report in July this year, with remittances valued at $87 billion, India was the top remittance recipient among low and middle-income countries, as per 2021 estimates. It is way ahead of China and Mexico’s $53 billion, the Philippines ($36 billion) and Egypt ($33 billion).
Nigeria could earn much more than the N5.1 trillion that it currently garners if our country decides to emulate India by mirroring its template in educating its populace.
More so, because Nigeria with a population in excess of 200m is to Africa, what India is to South Asia and China is to Far East Asia.
So, presumably, the more devaluation the naira goes through, the more determined Nigerians would be to earn foreign exchange from overseas as reflected by the current ‘japa’ syndrome (migration to a foreign land to seek better livelihood) which has sapped not just the health sector of the workforce, but also the Information Technology, IT sector, which is currently being drained and negatively impacting the financial services sector that is experiencing a dearth of skilled manpower to manage their high technology departments.
Brain drain in my reckoning is not really such a bad phenomenon, provided we are replenishing the workforce from our abundant potential Human Resources by equipping our youths with the right skills via education.
Unfortunately and disappointingly, our country is not adequately funding education.
It is such an irony that a paltry sum of N400 billion more or less is allocated to the education sector in the 2023 federal government appropriation bill/budget.
Actually, it is such an avoidable and apparently embarrassing dilemma that a whooping N4 trillion was allocated in the 2022 budget and nearly N5 trillion had been reportedly spent on petrol subsidies.
The jeopardy in the education sector is further accentuated and complicated by the fact that for eight (8) months of this year – from February to September, students of tertiary institutions in our beloved country were out of school as ASUU and other higher institutions lecturers embarked on industrial action in protest against underfunding of tertiary institutions.
News emanating from university circles is that the eight (8) months long industrial action by ASUU members that was presumed to have been resolved at the end of September, is about to be resumed because the fundamental issue which is the lack of funds to settle lecturers’ emoluments has reared its ugly head again.
And that is simply because authorities paid only half of the owed eight (8) months’ salaries to the lecturers, which is a failure on the part of the government to keep to its part of the settlement bargain/ agreement which boils down to the paucity of funds.
And l had predicted in a piece that l earlier wrote on the probable solutions to the perennial ASUU strike that the funding paradigm for education should be changed from the current template, otherwise the aggrieved lecturers would be back in the trenches sooner or later if the fundamental issues of lack of adequate funding were not addressed by converting petrol subsidy to education subsidy.
So the imminent reoccurrence of another strike was more or less foretold.
Going back to the issue of the naira redesign and the reason it should be everyone’s cup of tea, it is worth pointing out that although the evolving outcome of the massive devaluation of the naira is not the original intention of president Buhari and CBN governor Emefiele, it is a salutary outcome.
That is because it has turned out to be a back door way out of the thorny issue of devaluing the naira which the incumbent government does not want to broach because it is against its campaign promises to make the naira equal and reduce petrol pump prices to pre 2015 costs which could only be achieved through subsidy.
It may be recalled that the current ruling party at the centre, APC had organised protests against the former regime that it defeated in 2015 based on those fantastic promises of making the naira be at par with the dollar and petrol pump prices reduced to single digits price if and when the party voted into office.
But seven (7) years and counting, it has not even been able to accomplish keeping the rate at the 2015 level as the price has abysmally literally bottomed out on those two (2) campaign promises-naira/dollar rate and petrol pump price.
The assertion above is underscored by the fact that President Buhari had rejected the proposal by his economic advisers that the naira should be devalued and petrol pump price subsidy be removed at the inception of his administration in 2015 which is about seven (7) and half (1/2) years ago.
And it is unfortunate that the lack of will or inability of the current administration to make the painful, but beneficial decisions to devalue the naira and remove petrol subsidy, has turned out to be the Achilles heels, albatross and sword of Damocles that have combined to destroy all the efforts at development made by Buhari administration in the past seven(7) and (1/2) years that it has been holding sway in Aso Rock Villa, Abuja.
Does it make sense that our country squandered an estimated twenty (20) trillion naira on petrol pump price subsidies in the nearly eight (8) years of this administration while borrowing most of what has been spent on the much-vaunted infrastructure development such as the reactivation of some railway lines and building of 3rd Niger bridge and a smattering of roads mainly in the north leading to debt overhang of N41.60 trillion (USD100.07 billion) as at June, 2022?
That is the reality about the financial health of our country according to data sourced from a press release from the Debt Management Office of the federal government on September 19, 2022.
When one adds the humongous sum applied in petrol subsidy to the multi-trillion naira (estimated about ten ($10) billion dollars that the CBN is believed to have spent in defending the naira against foreign currencies in the past seven (7) and half (1/2) years, readers can imagine why our country is in turmoil and the economy is in ruins.
It is such an irony that about seven (7) and half (1/2) years after the inception of Buhari’s administration, the devaluation of the naira which was despised and detested with passion by Aso Aso Rock Villa is taking place unwittingly before the very eyes of president Buhari, who has inadvertently authorised its devaluation via the approval granted CBN for naira redesign.
Imagine if that decision was made at the inception of the administration seven (7) and half (1/2) years ago.
I can bet that most likely, the Nigerian economy would not be in the doldrums and Nigerians would not be in so much misery.
Having set the naira free by default, another dramatic but positive decision that Mr president should take is to bring forward the date for the end of the petrol subsidy regime from June 2023 which is the date this administration is planning to end the obnoxious and economic debilitating practice to this present time and not a day or two after the exit of the current administration.
I am unequivocally making the case that education should be subsidised not petrol simply because it would have a direct positive impact on the quality of Human Resources coming out of Nigeria and like India, our country could in another decade or two become what that south Asia country is currently to the world in terms of quality workforce export to the rest of the Western world.
As most of us are well aware, education is a leveller. It is the difference between the doctor in the hospital and the cleaner working there too. That is a metaphor that l have often used to illustrate the critical need to invest heavily in education.
It is my fervent belief that there are lots of hospital cleaners today that could have been doctors if they had access to education via student loan programmes that have proven to be workable and beneficial in the USA for instance and should be replicated here.
Is it not telling and revealing that the pump price of petrol had already been increased multiple times under the incumbent administration, yet the common man that president Buhari is ostensibly protecting by not removing the subsidy, (although severely battered) is still surviving with his head above the water?
Does that not suggest that our people are resilient?
I can bet that the masses would be happier if their children can enjoy equal opportunities of receiving education to the highest level that their talent can take them like the children of the wealthy, than if their offspring were limited in their ability to attain higher educational heights due to lack of funds to pay exorbitant school fees and even inability of public schools to remain open owing to government’s incapacity to adequately remunerate lecturers etc.
It is my good friend who is an economist and the incumbent governor of Edo state, Godwin Obaseki, that recently remarked that the naira redesign initiative of the CBN is political. That may be true.
And he probably took that position based on the perspective of his suspicion of the political agenda of the government at the centre.
But viewed from a broader prism and given the unintended outcome of devaluing the naira via the backdoor, if governor Obaseki would take a second look, he most probably would have another opinion about the naira redesign that may fortuitously result in the market correction of the value of the naira.
My take on the naira redesign issue is that while a political game might have been the original intention, the outcome of the action is tending towards being a market correction of some of the anomalies in the Nigerian economy caused by multiple exchange rate regimes, (first and second windows) defined as official and black/parallel market rates that have been creating huge distortions in the economy.
According to the CBN, which is a narrative echoed by president Buhari, he recently expressed on his way out of Nigeria for his medical checkup in the United Kingdom, UK, the inadvertent devaluation of the naira denominations of N200, N500 and N1000 notes is not the intent of the authorities for the naira redesign.
Rather president Buhari averred that: “People with illicit money buried under the soil will have a challenge with this, but workers, businesses with legitimate incomes will face no difficulties at all.”
Whether the CBN would successfully achieve its objective of getting the whopping N2.73 trillion which the apex bank’s governor, Emefiele, said is 80% of cash outside the vaults of banks out of the N3.2 trillion in circulation as of September 2022, depends on if the currency hoarders that the policy is meant to trap are not effectively outsmarting them by buying up all the foreign exchange or hard currencies that they can lay their hands on and which has triggered the astronomical hike in the exchange rate of the naira to all other currencies.
It would not surprise me if Nigerian currency hoarders, maybe are buying up both Indian rupees and even the very battered Ghanaian cedi, just to find a safe haven for the illicit money that they seem hell-bent on keeping out of the purview of the CBN.
As Oprah Winfrey, the American talk show icon, once famously stated: “If you look at what you have in life, you’ll always have more. If you look at what you don’t have in your life, you’ll never have enough.”
That is a wise mindset that Nigerians must try to cultivate and imbibe.
Nigeria has abundant Human Resources and that is what we must look at.
Our country does not have Apple computers, iPhones, iPods, Amazon, Microsoft, Facebook and the likes from Silicon Valley, or movies from tinsel town/Hollywood, as well as Boeing, Caterpillar, Tesla, Ford, and Chevrolet vehicles, which are some of the products that the USA sells to the world; neither does she have the Huawei, Lenovo, Hisense, Alibaba etc, produced in China and sold to the world.
Taking to heart, Oprah Winfrey’s wise counsel, we should not be looking at the products that the USA and China have and we do not have.
Rather, we should be looking at the abundant untapped Human Resources that we have (60% of our population are youths) and could be harnessed via giving them high-end education, in order to right-tool them to be fit for unleashing into the world as highly trained workforce in the manner that India has done and hence they are dominating the world of business by being in top leadership positions in Fortune 500 firms.
That is what Nigerian leaders should be looking at.
In light of the above, if president Buhari truly wants to end his tenure in a blaze of glory, he should re-introduce student loans, remove petrol subsidies from
Budget 2023/appropriation bill and divert the funds into intervention in the education sector now, six (6) months time.
He should equally direct the CBN not to defend the naira after the deadline for the discontinuation of use of some of the denominations of the old currency on December 31, and the commencement of the use of the new one on January 15, 2023.
My point is that the naira should be allowed to float in order to eliminate the double windows for sourcing foreign exchange that have made those who have special access to the top echelon of government extremely rich while impoverishing the critical mass of Nigerians who do not have anything directly to do with the use of forex; and also do not own vehicles that use petrol, so subsidising petrol and defending the naira have no direct impact on them.
Why can’t the government invest more in mass transit and have the labour unions operate it at a subsidised rate?
There are sundry local plants for assembling mass transit buses that could be patronised locally and in the process boost employment.
Another money-guzzling gambit of the Buhari administration is the huge funds it is ploughing into its poverty alleviation scheme which entails paying stipends to the poorest of the poor and the school children feeding farce that are enriching manipulative civil servants and their allies that are fleecing the masses in the guise of being food vendors/contractors.
With the high level of corruption in our country, how success could have been achieved with such a social welfare scheme remains puzzling to me.
Pundits who are of the school of thought that too much intervention is distorting the economy are of the belief that other palliative measures to cushion the harsh effects of petrol subsidy removal and naira devaluation can be applied.
And they are confident that sooner or later there will be an equilibrium in the price of the dollar and petrol price.
That mindset is hinged on the law of nature which states that what goes up must come down.
Their reasoning is also premised on the belief that when less naira is chasing fewer Dollars and with crude oil theft reined in or stopped and more forex is going into the CBN treasury, the Naira /Dollar exchange rate would stabilise and the petrol pump price would equally be less costly.
And most importantly, all our children that are academically inclined and are yearning for education would be right-tooled via education facilitated by student loans.
After all, when GSM or cell phone was first introduced in Nigeria in 1999, it was beyond the reach of the masses because it was way too expensive.
Then Mike Adenuga’s GLO entered the market and introduced per-second billing, which made GSM telephone service more affordable and accessible to the masses.
Today, it is estimated that over 100 million telephone lines have been sold to Nigerians and are being actively used.
Is it not phenomenal and amazing that a service that was initially thought to be the exclusive preserve of the rich is now available to the poor?
If President Buhari summoned the courage to take these hard, but necessary decisions, he would have changed the story of Nigeria significantly for good and history would not only be kind to him, but posterity would also venerate him.
Written by Magnus onyibe, an entrepreneur, public policy analyst, author, development strategist, an alumnus of Fletcher School of Law and Diplomacy, Tufts University, Massachusetts, USA and a former commissioner in Delta state government.