1freshdude:


Your first paragraph should hold Rational! But events in Nigeria defies ration becuase the continue fall in the value of naira relative to the dollar shows thag consumers still demand imported goods.
Your second paragraph is correct and that's the writers point.

This case for economically illiterate policies on the basis of Nigerian exceptionalism needs to stop. The Naira continues to fall rapidly precisely because of the fixed exchange regime. Abacha fixed the Naira at 22 to the dollar, it fell in the parallel market to 85 Naira to the dollar.

The answer goes back to the initial catalyst for the Naira's fall, reduction in forex inflow due to the fall in oil prices. To remedy this, you need to find alternative sources of forex inflow such as foreign investment. Nigeria had $21bn of FDI investment in 2014 alone. However, foreign investment will reduce significantly if the official exchange rate, which is foreign investors sole recourse, does not reflect the market value. If you wanted to build a factory in Nigeria at estimated value of 200bn Naira, why invest $1bn at the official rate when the real value should be circa $600m at market rates? Therefore, the fixed exchange rate perpetuates a rapid and self-reinforcing fall in Naira as forex inflow is discouraged. This is all what I predicted in previous posts months ago and is actually borne out of the experience of many countries, including Nigeria, who try to maintain a fixed exchange regime without adequate forex reserves.

From the point of view Nigerian exporters, why repatriate forex income to Nigeria when your forex purchasing power will not reflect in the Nigerian market the real purchasing power of your forex? Hence, a fixed exchange rate regime also reduces export revenue as seen in the dramatic collapse in non-oil export revenue.

We need to ground our reasoning in sound economic principles and not the deceptively pleasing arguments of the Nigerian political class which Senator Olowoporoku represents.

4Play:


This case for economically illiterate policies on the basis of Nigerian exceptionalism needs to stop. The Naira continues to fall rapidly precisely because of the fixed exchange regime. Abacha fixed the Naira at 22 to the dollar, it fell in the parallel market to 85 Naira to the dollar.

The answer goes back to the initial catalyst for the Naira's fall, reduction in forex inflow due to the fall in oil prices. To remedy this, you need to find alternative sources of forex inflow such as foreign investment. Nigeria had $21bn of FDI investment in 2014 alone. However, foreign investment will reduce significantly if the official exchange rate, which is foreign investors sole recourse, does not reflect the market value. If you wanted to build a factory in Nigeria at estimated value of 200bn Naira, why invest $1bn at the official rate when the real value should be circa $600m at market rates? Therefore, the fixed exchange rate perpetuates a rapid and self-reinforcing fall in Naira as forex inflow is discouraged. This is all what I predicted in previous posts months ago and is actually borne out of the experience of many countries, including Nigeria, who try to maintain a fixed exchange regime without adequate forex reserves.

From the point of view Nigerian exporters, why repatriate forex income to Nigeria when your forex purchasing power will not reflect in the Nigerian market the real purchasing power of your forex? Hence, a fixed exchange rate regime also reduces export revenue as seen in the dramatic collapse in non-oil export revenue.

We need to ground our reasoning in sound economic principles and not the deceptively pleasing arguments of the Nigerian political class which Senator Olowoporoku represents.

It is more complex than you make it look. You ignore the impact of increase in local manufacturing. You are only focussing on foreign investment. Even with that, china fixed and manipulated their currency during their pursuit of growth, it did not stop foreign investment from going to china.

For me, the current policy is okay as long as the government aggressively promote local manufacturing.
For now, the govt is not showing enough aggression. that is my only worry. Without that aggression, this sacrifice will be a waste.

4Play:


This case for economically illiterate policies on the basis of Nigerian exceptionalism needs to stop. The Naira continues to fall rapidly precisely because of the fixed exchange regime. Abacha fixed the Naira at 22 to the dollar, it fell in the parallel market to 85 Naira to the dollar.

The answer goes back to the initial catalyst for the Naira's fall, reduction in forex inflow due to the fall in oil prices. To remedy this, you need to find alternative sources of forex inflow such as foreign investment. Nigeria had $21bn of FDI investment in 2014 alone. However, foreign investment will reduce significantly if the official exchange rate, which is foreign investors sole recourse, does not reflect the market value. If you wanted to build a factory in Nigeria at estimated value of 200bn Naira, why invest $1bn at the official rate when the real value should be circa $600m at market rates? Therefore, the fixed exchange rate perpetuates a rapid and self-reinforcing fall in Naira as forex inflow is discouraged. This is all what I predicted in previous posts months ago and is actually borne out of the experience of many countries, including Nigeria, who try to maintain a fixed exchange regime without adequate forex reserves.

From the point of view Nigerian exporters, why repatriate forex income to Nigeria when your forex purchasing power will not reflect in the Nigerian market the real purchasing power of your forex? Hence, a fixed exchange rate regime also reduces export revenue as seen in the dramatic collapse in non-oil export revenue.

We need to ground our reasoning in sound economic principles and not the deceptively pleasing arguments of the Nigerian political class which Senator Olowoporoku represents.

Your write-up is not devoid of sense but like a market, there are different of roads leading to the same economic end.
Your suggestion in the first paragraph of the write-up above is the reason lots of countries have failed to develop. It does not matter how you feel about it but no two countries share exactly the same characteristics and what works in country one may mess up country two.
Your position that tailoring policies that are suitable to the demographics, culture and behavioral attitudes of a target country is same as advocating economic illiterate policies, shows a lack of depth in development economics. Empiric evidence litters everywhere on the uniqueness of countries and why policies perform differently in different climes.
To your second point about the need for devaluation of the Naira, if only you had taken time to read from the genesis of this thread rather than jump in half way like a puma, you would have noted my position on this issue. I reiterate that my only issue with this write up is that the government has to effectively regulate the Bureau De change...because they selfishly make the Naira much weaker than it really is in a bid to maximize profit. Or, they have to devalue the Naira to be reflective of the true price of the dollar. The FDI argument is on every ones lips and rightly so.
Your solution to seeking alternative sources of FX, FDI as the panacea to our problems is short lived. For how long will the temperaments of others determine our fate as a country? Why do we need so much FX if not for our ability to produce NOTHING. Shouldn't the solution be making industrial, Agricultural, Educational and Health sector a priority so that our FX demand would drastically fall as Naira would suffice to get services and consumption locally?
You are correct about the Nigerian exporters been discouraged from repatriating income to Nigeria but tell me please what does the Nigerian private sector export and how significant is the proportion of Nigerians that fall into this category that warrants formulating a policy with them in mind because for every policy made there is a corresponding trade off.

[\d] A list of industries that can directly manifest the mission statement of the Commission be put in place[\d]

The is most important point Buhari most consider.

tuale4u:


You made a lot of sense. Buhari has already devalued dollar for non essential goods.
for essential goods he refused to devalue. This will grow the economy in the long run.

It is not as straight like as you think!
For exampleexample,if a person has $1000 from a supplier abroad,he will be paid #199990 according to CBN and the dollar domiciled in the bank and with this $1000 being in possession of the bank.it has the power to sell at the prevailing rate in the parallel market at exorhibant cost(round tripping persist).
What it means the CBN policy has created a back door business for naira:dollar business than for pursuing of industrial growth

many IPAD and IPOD are suffering a psychological disorder called Hyperethnocentric Sentimental Disorder (HSD). they will not read this now with an open mind to see that at the long run their people will be the greatest beneficiaries from this due to the inventive and marketing drives. Buhari is on everybody's side. (I BELONG TO NOBODY) look on the brighter side.

4Play:


This case for economically illiterate policies on the basis of Nigerian exceptionalism needs to stop. The Naira continues to fall rapidly precisely because of the fixed exchange regime. Abacha fixed the Naira at 22 to the dollar, it fell in the parallel market to 85 Naira to the dollar.

The answer goes back to the initial catalyst for the Naira's fall, reduction in forex inflow due to the fall in oil prices. To remedy this, you need to find alternative sources of forex inflow such as foreign investment. Nigeria had $21bn of FDI investment in 2014 alone. However, foreign investment will reduce significantly if the official exchange rate, which is foreign investors sole recourse, does not reflect the market value. If you wanted to build a factory in Nigeria at estimated value of 200bn Naira, why invest $1bn at the official rate when the real value should be circa $600m at market rates? Therefore, the fixed exchange rate perpetuates a rapid and self-reinforcing fall in Naira as forex inflow is discouraged. This is all what I predicted in previous posts months ago and is actually borne out of the experience of many countries, including Nigeria, who try to maintain a fixed exchange regime without adequate forex reserves.

From the point of view Nigerian exporters, why repatriate forex income to Nigeria when your forex purchasing power will not reflect in the Nigerian market the real purchasing power of your forex? Hence, a fixed exchange rate regime also reduces export revenue as seen in the dramatic collapse in non-oil export revenue.

We need to ground our reasoning in sound economic principles and not the deceptively pleasing arguments of the Nigerian political class which Senator Olowoporoku represents.

Great post! However, this is totally lost on the morons you're debating. Mumuharri pretends he is resisting devaluation, fake economists and assorted zombies pretend they can decipher some intelligent reasoning to his mumuness, meanwhile the economy is actually crashing and burning all around them.

It's not like we didn't predict all this.

tuale4u:


It is more complex than you make it look. You ignore the impact of increase in local manufacturing. You are only focussing on foreign investment. Even with that, china fixed and manipulated their currency during their pursuit of growth, it did not stop foreign investment from going to china.

For me, the current policy is okay as long as the government aggressively promote local manufacturing.
For now, the govt is not showing enough aggression. that is my only worry. Without that aggression, this sacrifice will be a waste.

I am not ignoring the impact on local manufacturing, my point is that a fixed exchange regime makes forex scarce and accelerates the rate of Naira's decline. The accelerated decline of the Naira makes inflation unbearable and damages local manufacturing, which in any case needs to import some manufacturing components. Further, local manufacturing requires foreign investment to develop and this is not achievable with a fixed exchange regime. The damage to local manufacturing in the last few months, as well as during the Abacha regime when we last tried this policy, is a patent reality that should prompt a reassessment from supporters of this economically illiterate policy.

Further, you people keep citing China forgetting that China is not seeking to maintain a fixed exchange regime with inadequate forex reserves. A fixed exchange regime can be maintained with sufficient reserves but not without. You also forget that even China required foreign investment to fuel its rapid growth:

According to the United Nations, annual FDI flows to China grew from $2 billion in 1985 to $128 billion in 2014

https://www.fas.org/sgp/crs/row/RL33534.pdf. Any attempt to boost local manufacturing without fixing the forex issue would be an exercise in futility.

1freshdude:


Your write-up is not devoid of sense but like a market, there are lots of road leading to one economic end.
Following your suggestion in the first paragraph of your writeup above is the reason lots of countries have failed to develop. It does not matter how you feel about it but no two countries share exactly the same characteristics and what works in country one may mess up country two.
Your position that tailoring policies that are suitable to the demographics, culture and behavioral attitudes of a target country is same as advocating economic illiterate policies, shows a lack of depth in development economics. Empiric evidence litters everywhere on the uniqueness of countries and why policies perform differently in different climes.
To your second point about the need for devaluation of the Naira, if only you had taken time to read from the genesis of this thread rather jump in half way like a puma, you would have noted my position on this issue. I reiterate that my only issue with this write up is that the government has to effectively regulate the Bureau De change...because they selfishly make the Naira much weaker than it really is in a bid to maximize profit. Or, they have to devalue the Naira to be reflective of the true price of the dollar. The FDI argument is on every ones lips and rightly so.
Your solution to seeking alternative sources of FX, FDI as the panacea to our problems is short lived. For how long will the temperaments of others determine our fate as a country? Why do we need so much FX if not for our ability to produce NOTHING. Shouldn't the solution be making industrial, Agricultural, Educational and Health sector a priority so that our FX demand would drastically fall as Naira would suffice to get services and consumption locally?
You are correct about the Nigerian exporters been discouraged from repatriating income to Nigeria but tell me please what does the Nigerian private sector export and how significant is the proportion of Nigerians that fall into this category that warrants formulating a policy with them in mind because for every policy made there is a corresponding trade off.

Sorry, you don't make any sense. The argument that a fixed exchange regime without adequate forex reserves is unviable applies to Nigeria without exception. There is nothing unique about Nigeria that makes it possible to have a fixed currency without sufficient forex reserves. You live in a country that cannot provide electricity, pipe-borne water, security or health care to its citizenry but somehow believe that our government is sufficiently cunning and competent to escape fundamental laws of economics. This is why this vague and vacuous call to "regulate BDCs" reflects the triumph of wishful thinking over reality.

Saying that BDCs purposefully weaken Naira to make profit reflects the penchant of Nigerians to view adverse economic developments as attributable to moral iniquity. BDCs exist to match buyers and sellers of currencies and make money from the Naira rising just as well as from its falling. If there is sufficient forex inflow, the Naira will rise irrespective of the supposed evil wishes of BDC operators.

In a rare moment of lucidity, you admit that the Naira may need to be devalued but quickly revert to promoting long discredited autarkic solutions which would supposedly cure our "sinful" thirst for forex. However, you fail to realise that economic growth cannot be accomplised without productivity growth and productivity growth cannot be realised without foreign investment. Heck, the absence of forex demand in pre-colonial Nigeria should have made it an industrial giant by your reasoning. A cursory glance at all the recent transformative economic success stories like the Asian Tigers and China would reveal the crucial role foreign investment and trade played.

You concede that a fixed exchange regime is bad for Nigeria's export income but take the view that our export industry does not matter because its small. It's hardly in Nigeria's interest for our export industry to remain small as the path to industrialisation requires that local industry seeks new markets abroad, instead of relying on a limited domestic market.

4Play:


I am not ignoring the impact on local manufacturing, my point is that a fixed exchange regime makes forex scarce and accelerates the rate of Naira's decline. The accelerated decline of the Naira makes inflation unbearable and damages local manufacturing, which in any case needs to import some manufacturing components. Further, local manufacturing requires foreign investment to develop and this is not achievable with a fixed exchange regime. The damage to local manufacturing in the last few months, as well as during the Abacha regime when we last tried this policy, is a patent reality that should prompt a reassessment from supporters of this economically illiterate policy.

Further, you people keep citing China forgetting that China is not seeking to maintain a fixed exchange regime with inadequate forex reserves. A fixed exchange regime can be maintained with sufficient reserves but not without. You also forget that even China required foreign investment to fuel its rapid growth: https://www.fas.org/sgp/crs/row/RL33534.pdf. Any attempt to boost local manufacturing without fixing the forex issue would be an exercise in futility.

Nigeria is not maintaining a fixed forex regime. what Nigeria is actually doing currently is what I will call dual forex regime. The govt is providing strong naira for raw materials and essential import, and devalued naira for non essential and luxury imports. This promote local manufacturing as long as the govt can ensure local manufacturers don't divert the cheap dollar given to them for import to round tripping in parallel market.

Curlieweed:

Great post! However, this is totally lost on the morons you're debating. Mumuharri pretends he is resisting devaluation, fake economists and assorted zombies pretend they can decipher some intelligent reasoning to his mumuness, meanwhile the economy is actually crashing and burning all around them.

It's not like we didn't predict all this.

It is that uncanny ability of Buharists to ignore the actual economic consequences of their favoured policies, both today and in the past, which distinguishes them from normal humans beings in full possession of their mental faculties.

tuale4u:

Nigeria is not maintaining a fixed forex regime. what Nigeria is actually doing currently is what I will call dual forex regime. The govt is providing strong naira for raw materials and essential import, and devalued naira for non essential and luxury imports. This promote local manufacturing as long as the govt can ensure local manufacturers don't divert the cheap dollar given to them for import to round tripping in parallel market.

The parallel market does not exist by choice but is the unavoidable consequence of a fixed regime as price control usually leads to black markets. Again, living in hope that dollar sourced at the official rate would not be sold at the parallel market is the sort of fantasy-based analysis which pervades discourse in Nigeria.

The fixed regime creates an incentive for round-tripping as it provides arbitrage opportunities for the highly connected. This is inherent to the regime as its whole raison d'être is to maintain the Naira at a higher fiat value than the market value. Therefore, a fixed regime will see more round-tripping, this is our actual historical experience, and lead to a self-reinforcing acceleration of the loss of the Naira's value.

onatisi:

And what policies has buhari and this government put in place for the nation economic recovery since they took over 8months ago

Exactly, where are the policies to do the structural changes required aside rhetorics?
We all know d problems we are asking the current govt to Show leadership!

tuale4u:


Chinese style of state controlled capitalism is working. When they started it was criticised as inefficient. They were around number 15 in the world when they started. today they are number 2 in the world and approaching number 1 status.

The Chinese economic model should not be copied by other countries.

The Global Recession that started in 2008 was primarily caused by China's mercantilist policies.

It tied its currency to a weak dollar and this helped it become of vigorous exporter of good to America and other parts of the world. This assisted it grow very fast.

But it badly affected American industry. It led to a jobless recovery in the United States in the early 2000's which compelled the US to reduce interest rates and keep too low for too long. This led to a credit bubble. The bursting of the bubble led to the Global Recession. Oh, and China was also exporting deflation.

China is trying to even change its model. Its State Owned Enterprises (SOE's) are burdened with huge debts and also its provinces.

Too much credit is going to these SOE's shortchanging the private sector which is the real engine of growth in China.

China also has the Hukou system which has created the "Left behind' children syndrome.

Also, the country is too focused on manufacturing ignoring other sectors.

You can name a big Chinese manufacturing companies but do you know of any in the services?

China's problems are legion. The Chinese have a saying,' Money covers a thousand imperfections". Thats China for you. The rappers also have a saying,"Don't believe the hype"

The 2 things beneficial things one can take from the Chinese model is to spend heavily on infrastructure and make it world class and let there be plentiful credit at cheap rates. Apart from that, not much else to learn

Growth was capital intensive and not labour intensive and that why there is no huge migrant community in China today

Thank you Professor for drumming and trumpeting these righteous steps to development into our ears again. I hope that GEJ, Emefiele and others that thwarted our sovereignty for Dollars even at the State House will now feel a taste of the sin, Capital Sin, they were committing against the Naira which was a symbol of our sovereignty.

989900:


But you've just technically roughly repeated 75-80% of what the humble Dr. just ordered (going forward).
I've personally written numerous posts and topics about same.
Basically the same thing this administration is trying to do as evidenced by the president's trips, the projected/envisaged budget (we should know what's up about this in few weeks), the fight against corruption (the TSA, the IPPIS, BVN, recovery of stolen funds, championing a new and more transparent way of doing things), encouraging states to contribute in-lieu of the opposite, and more . . .

And, I feel this is the best way to go. Obviously, we all wish things can be done at a higher tempo, faster pace, and for this I grudge this present administration for it's slow pace -- they could up the tempo considering we're in a 'state of emergency' economically.
However, I can't fault the president and his team's commitment and dedication to turning things in the right direction.
And of course they need help.

As regards the exchange rates and discrepancies, devaluation and all, this is where knowing the local terrain counts. It is largely driven by racketeers, profiteers, speculators and hoarders. While officially, it is largely driven by importation of refined petroleum products (accounts for roughly 40% of our forex demands) and secondly by excess liquidity which is presently being partially curtailed by the TSA.

If we can get around those 2; reduce it to the barest minimum or totally eliminate them, the Naira will firm up at less than N160 in few months! While patronizing our own local products and supporting local manufacturing, coupled with agric/food self-sufficiency and export, throw in mining of other natural resources.

OTOH, devaluation won't guarantee:
Hoarders or racketeers won't play their hand,
Nigerians would suddenly lose their appetite for foreign goods(some of which are actually necessities),
A revamped economy where every one goes back to the drawing board,
It won't make our economic woes go away -- it has never -- and it will never!

Devaluation will guarantee:
Pump prices go up,
Our foreign debt burden increases (the last thing the FG will do) making it harder to meet up with,
Hyper-inflation.
Demand for salary raise (the last thing the FG would want at this times of lower income)
More job losses.
Our stock exchange depreciates by a big chunk of it's worth.
Brain Drain.

P.S. No country would do well . . . "per capita productivity" and all that, when the lending rates are over 20%!

I was passing by however, I wish to debunk some assertions you made on here:

Pump prices will go up? Remind me if this is not the case already?!
Our Foreign debt increases? How so? Do we service the foreign debt in Naira or something?
Hyperinflation: Really you think if we devalue it would be worse than an almost 2 percentage point increment?
Demand for salary raise: oh spare me this. Prices are on the rise already.
Stock market loss ***staring curiously*** boss this will have the opposite effect.
Brain Drain?
Btw I am clutching at straws to figure what you mean by per capita productivity. I know productivity in Macroeconomics is output/total labour supply never heard per capita productivity but maybe I am just being a pedant .

I hate this devaluation debate because to me it appears cinch. I hate discussing it because the points seem way too obvious for me but I thought to chip one or two things in here.

PS: I get worked up when people say devaluation will lead to inflation- a phenomena we are already experiencing with our costly forex regime.

tuale4u:


It is more complex than you make it look. You ignore the impact of increase in local manufacturing. You are only focussing on foreign investment. Even with that, china fixed and manipulated their currency during their pursuit of growth, it did not stop foreign investment from going to china.

For me, the current policy is okay as long as the government aggressively promote local manufacturing.
For now, the govt is not showing enough aggression. that is my only worry. Without that aggression, this sacrifice will be a waste.

I reckon you're not an Economist else it beggars believe you think the current regime is okay.

Maybe till the reserves runs out you will understand there is nothing okay about it and please China is different for a million and one reasons.

1andonly:


I was passing by however, I wish to debunk some assertions you made on here:

Pump prices will go up? Remind me if this is not the case already?!
Our Foreign debt increases? How so? Do we service the foreign debt in Naira or something?
Hyperinflation: Really you think if we devalue it would be worse than an almost 2 percentage point increment?
Demand for salary raise: oh spare me this. Prices are on the rise already.
Stock market loss ***staring curiously*** boss this will have the opposite effect.
Brain Drain?
Btw I am clutching at straws to figure what you mean by per capita productivity. I know productivity in Macroeconomics is output/total labour supply never heard per capita productivity but maybe I am just being a pedant .

I hate this devaluation debate because to me it appears cinch. I hate discussing it because the points seem way too obvious for me but I thought to chip one or two things in here.

PS: I get worked up when people say devaluation will lead to inflation- a phenomena we are already experiencing with our costly forex regime.

I have some 6-7 topics here on NL about devaluation -- it's pointless repeating the same thing over and over -- you can go thru them, and my posts too.

BTW, everything you wrote up there ^^

The quickest solution to all these forex issue is simple. Produce petrol (pms), kerosene, diesel, aviation fuel, gas and petrochemicals in excess for local consumption and export. Also invest in proper agricultural practices for popular crops in Nigeria like tomatoes, rice, palm kernel, cocoa etc, and provide necessary loans and grants for setting up processing factories for the improved crops. All these can be achieved in 3 years and would send naira back 160 to a dollar.

grandstar:
This man must have finished from University of Apukurekagagegegage. His economics is woeful.

This isn't the free market. He is talking hubris.

An economist that ignores the forces of demand and supply is living a lie.

Buhari's policies are already ruining the economy and I foresee the currency dropping to 500 before the year end.

He says do not devalue and the dollar has dropped to 330 from 210 in May 2015. There are dollar shortages everywhere and companies are winding down because of that.

The blind leading the blind. Yeye dey smell

Put forward your argument. Let compare who is better.

trillville:
It seems there are two economies within nigeria, one for the rich and the other for poor.

the rich need the fg to devalue the naira to entice foreign investments into the country. this will make the naira stronger than it currently is in the black market, enabling the rich to purchase dollar denominated goods at cheaper prices.

the poor need the fg to maintain the current official value of the naira. any increase in the official rate would lead to increases in the price of fuel and electricity within nigeria, and in turn, increases in the cost of locally produced food, thereby making life harder for the poor.

the rich can afford to pay for increases in food cost, but the poor can not.

do we devalue or not?

survival of the fittest unfortunately bro