By Wole P. Ajayi
The recent announcement by the Vice President, Professor Yemi Osinbajo that ‘there must be some substantial re-evaluation of the foreign exchange policy” and that “very soon we will see a more flexible approach to the currency” was to Nigerians and observers of the workings of the Nigerian economy a bolt from the blue.
It was not merely surprising but shocking that such a strong pronouncement on an issue which the Buhari administration had defined as a key corner stone of his economic policy could be made so seemingly casually.
This has led many analysts to think that the VP may have failed to consult adequately with his principal and other critical stakeholders before going public with the announcement. If this is really the case, then there is something very wrong with the Buhari administration’s entire process formulation and articulation structure. It certainly does not inspire confidence in the government’s commitment to its own priorities or the Nigerian people whose interests are supposed to be the heart of these policies.
This thinking is anchored on the fact that President Buhari has invested a lot of his personal credibility and his administration’s authority on his insistence that he would not allow the naira to be casually devalued because of his strong conviction of its negative ramifications on the welfare of Nigerians and Nigerians at large. He has been firm and consistent in pushing this position.
For instance the President stated clearly during his maiden Media chat in December 2015 clearly that: “I will not support devaluation… I need to be convinced that devaluation of the Naira is what Nigeria needs. Devaluation against what currency? American Dollar? Or Pound sterling? Or Yen? Dutch Mark? Or French Franc?”
Again, in February 2016 while contributing to a Presidential Panel Roundtable on Investment and Growth Opportunities at the opening session of the Africa 2016 conference in Egypt, the President again ruled out the possibility of his government devaluing the naira. He reiterated his opposition to the devaluation of the naira, saying that Nigeria cannot compete with developed countries which produce to compete among themselves, and can afford to devalue their local currencies:
“Developed countries are competing among themselves and when they devalue they compete better and manufacture and export more. But we are not competing and exporting but importing everything including toothpicks. So, why should we devalue our currency?”
“We want to be more productive and self-sufficient in food and other basic things such as clothing. For our government, we like to encourage local production and efficiency.”
The president’s view is quite straightforward: for a developing economy like Nigeria, thoughtless devaluation will do more harm than good because in the absence of a strong industrial base, inflation and unemployment will worsen and the country will get little or nothing from exports. It is only developed countries could afford to talk about currency devaluation at this time of global economic downturn, as they would be able to compete and make their goods and services cheap with their currency, while still keeping their people employed and factories open. He has consistently argued at local and international platforms that Nigeria, which is currently facing tough times with declining crude oil prices, cannot risk of devaluation of its national currency, considering that the country was importing virtually everything it needs, including textiles and took pick.
But here was the Vice President declaring without any evidence of a thorough going review that the President had effectively surrendered to the devaluation hoax without a whimper. Not surprisingly the briefcase “investors” and other vultures who been have been waiting in the wings to reap from a devastated Naira were the immediate beneficiaries of the VP’s statement. The Naira plummeted in value.
Considering the president’s consistent opposition to devaluation, it is really difficult to believe that Buhari signed off on Osinbajo’s statements for a flexible forex policy. Some have speculated that this might be the hand of Tinubu working through Osinbajo to force through a highly unpopular policy that would damage the credibility of the Buhari administration. Only time will tell.
One would expect that if there was to be any shift in the president’s position on devaluing the naira, this would be communicated by his office via a standard and well-articulated argument outlining reasons why the shift is necessary. And it will be done in a way that would leave Nigerians and the international community properly educated on the rationale for the action. That the announcement did not emanate from his office but that of the VP raises a lot of questions, one of which is whether he actually got clearance from the President. What the VP has done is akin to Joe Biden, America’s Vice President going against Obama’s decision on the affordable healthcare – simply unthinkable. It is as fundamental as that.
On another front, the VP’s position besides sharply contradicting the president’s position and putting his credibility at stake in the eyes of Nigerians and the international community raises questions as to whether he was expansive enough to consult the Central Bank whose policies have largely enjoyed the support of the President.
There have been speculations in Saharareporters and other media platforms that the Central Bank was kept in the dark regarding the alleged change in government’s forex policy. If this true, then the tale is even more incredible. Leaving the institution in charge of monetary policy out of the decision making process that led to the “shift” announced by the VP does violence is not only wrong and irregular; it does violence to institutional division of labour – something very dear to President Buhari. It also rubbishes the autonomy of the Central Bank which was established under the Obasanjo adminstration. This really should not be.
In fact, it was inappropriate for the VP to publicly state that the Central Bank’s demand management measures meant to manage the consequences of the shortfall in foreign exchange earnings are insufficient to take us out of the woods. The statement gives the impression of a government at war with itself, policy wise. Even though he stated that the executive is not responsible for monetary policy, his very strong comments and use of words like ‘that there must be some substantial re-evaluation’ suggests that he believes that he is ready to shove the independence of the CBN aside in order to have his way. This is a negative signal to the watchful eyes of the investing community who expect that the CBN should be treated as an independent body that is totally immune to being influenced by the executive.
The announcement of an arbitrary rate of N285 to the dollar for fuel imports solidifies this unfortunate impression. It was nothing short of an immediate devaluation. How else was the market supposed to respond to this official undercutting of the national currency except to sink – as the Naira immediately did?
While it is true in theory that both fiscal and monetary authorities are different, in practice they are supposed to work collaboratively together for the overall benefit of the country. They should never be seen in any way to be working at cross purposes. In cases of misunderstandings and concerns from both quarters, as it appears to be the case now, the ideal thing to do is for both fiscal and monetary authorities to work together to see how they can collectively resolve the issues and chart a common path forward without getting the public involved.
As noted, another key negative fallout of the Vice President’s comments is that they have led to a spike in speculative attacks on the naira, causing it to fall sharply against the dollar within the last couple of days from the steady band of 320 naira to a dollar to as high as 380 naira to a dollar. This is not surprising because what we have in Nigeria is a not a transaction based market and but a speculative market. For the briefcase investors and other currency traders waiting in the wings to benefit from the crash of the naira, Osinbajo comments were nothing short of prayers answered.
Overall, it is difficult to believe that a president who has been so frontal and forthright and even passionate about the value of the naira could so suddenly surrender to the forces of devaluation. If his earlier comments are anything to go by, one cannot readily conclude that President Buhari was really part of the decision. As the main person driving the country’s economy, it is important that the Vice President forges consensus with his principal and other key stakeholders before making any strong policy statement. As it stands from reactions to his comments, one gets the impression that that government is not cohesively working together on the very fundamental issue of devaluation. Which inspires the question: who is the real President of Nigeria?
Wole P. Ajayi is a public analyst based in Lagos.
Email: [email protected]
