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The naira and the reign of Zombie Economics in Nigeria, By 'Tope Fasua – Premium Times

Naira-Dollar exchangeNaira-Dollar exchange
I reviewed a 10-years graph of the interaction between Naira and USD and found that in the years under President Jonathan when we complained to high heavens, Naira stabilized at around N150 to the dollar for four solid years until it encountered some volatility as Nigeria prepared for the 2015 elections, thereby closing around N199. I checked on another graph with a longer tenure (1957 – 2021) and saw how since President Babangida started devaluing in 1986, there has been a endless fall, from N3 to the US Dollar, to around N12 in 1993 and then to about N22. The N22 regime for official exchange rate was maintained until 1999 when Naira was devalued sharply to about N90 and then we saw a steady fall to about N140. Under President Umaru Yar’Adua in 2007/2008, the Naira firmed up for the first time ever since the devaluation game started, to N120 but we lost track in 2009/10 and devalued to around N149. It was this intricate balance that the Jonathan government maintained until 2014.
Since the Buhari government came in, and in spite of his consistent swearing never to devalue the currency, it turns out that this is a major policy – most prominent plank – of the administration. In order words, devaluation is something this administration knows how to do, if nothing else.  The naira has seen serious volatility like never before, crashing from N199 to N306 in 2016, N360 in 2017, N390 in 2020, and N414 in 2021. Since the statement of the Vice President to the extent that the Naira is yet to find its value and that is the reason why investors are not coming, official rates have further crashed to N422, with every sense that a lot more is coming.  This is a review of official markets, where government people get their fill of foreign exchange at the expense of taxpayers. The ‘black market’, which is mostly accessible to ordinary folks, have of course gone haywire, crashing from around N220 in 2015, to N580 today.
I note that in May 2016, as Buhari kept grunting about not taking IMF advice on devaluing the Naira, Osinbajo moved against that position and stated that the CBN had to change its policies, thus giving a clue of imminent devaluation, or rather, sealing the fate of the Naira as at then. See https://www.hydrocarbonprocessing.com/news/2016/05/nigeria-braces-for-new-round-of-fuel-shortages. I took note back then that the man may either have some ultra-right economists in his team, or is fully sold on IMF/World Bank narratives, some of which they had walked back in the past. But like Professor Quiggin of Queensland University, Australia said, some dead economic ideas still prowl, especially in benighted countries like Nigeria, wreaking havoc. They are dead ideas, but are still alive. Welcome to Zombie Economics.
Fast-forward to the cryptocurrency controversy, when the CBN had to remind banks of a 2017 memo in which they were cautioned about speculating on that pseudo asset, or offering their platforms to traders and exchanges, Osinbajo stepped up powerfully to berate the Central Bank (again), when he said that cryptocurrencies should be regulated rather than banned. On that occasion, he had very stern words for CBN, that could have damaged the morale of those working there. They were put out as being incompetent and unpatriotic. The crypto market was almost at peak (February 26, 2021) but would later reach a nadir in April before entering a cataclysmic decline in May, from which it is yet to fully recover. Let us take a pause and consider how crypto markets have been so volatile. We learnt that Nigeria was the country with the second highest trading volumes in the world – in spite of our low per capita income. It could only mean that corrupt folks were using cryptos to disguise their loot, and cryptocurrencies were enabling a lot of criminal activities for which a section of our young people are popular. That instrument is certainly not one that a sovereign would jump into at the deep end. Thankfully, the Central Bank of Nigeria did not buckle under the staccato from the VP or turn over our financial system to be sacrificed on the altar of cryptocurrencies. Perhaps we would have been in a different kind of trouble today.
The point here is that whatever policy or ideology anyone subscribes to, it is important to stand back and survey the damage – or the achievements, if any, from time to time. With this one-way devaluation we have embarked upon since 1986, which is now on steroids under this very government, I cannot see any achievements that devaluation has brought upon us, only pains. It is not enough to subscribe to these policies, just to look like you are intelligent to the IMF or World Bank, who themselves have apologized in the past for some of these self-same policies. Whereas the IMF/World Bank almost considers it a policy plank for countries like Nigeria to devalue currencies especially when we want to borrow from them, as they say devaluation enables our export volumes and receipts grow, thereby helping us shrink trade deficits and become more self-sustaining, they know that in reality, the opposite is the case. The same bodies thus advise that devaluation will not solve economic problems, when addressing serious nations with good exports to push, like China. See a 2019 statement from IMF to this effect. https://www.cnbc.com/2019/08/21/imf-warns-currency-devaluations-will-not-fix-economic-problems.html.
Fundamental damage has been done to this economy and polity by this government, in the last 7 odd years. We have never been more divided because we are stuck with a taciturn leader whom someone said is not even interested in reconciling members of his own family, much less uniting the whole of Nigeria. Separatist groups have taken on a life of their own, while criminals have driven law-abiding citizens to the fringes. Kidnapping for ransom is the new game that pays, and nowhere in the country is safe. We still argue about open grazing of cows while marauders from west and north Africa make incursions into our northern villages and even down south, killing and maiming and the president is hardwired to defend his Fulani kin from wherever they may come. Businesses have collapsed, and unemployment rate is at an all-time-high, and in all this, our Vice President has called for even more devaluation, with the Naira further tumbling and life getting tougher for the masses. Meanwhile, the same story has been used over and over again, since 1986 when we commenced this journey of naira devaluation. Indeed when rich men who have already converted their loot into US Dollars call for devaluation, what they are really saying is that those who depend on the naira to survive, and have no holdings of US Dollars, should suffer more. We should also note that the poor folks in Nigeria are taking their own revenge against this chicanery from their leaders. A lot of the crime takes place when the poor try to strike back at a society that takes them for granted. For it is itself a crime, having converted your wealth to foreign currency, to openly call for devaluation. It is simply insider trading.
I wish to point direct attention at the following issues with regard to this foreign exchange matter. I am sad that a mere nonentity like me labors daily to teach, to educate, to try and save our country from painful cataclysm, while people we are paying to do just that, work at cross purposes:
Zombie Economic Ideas
Let me just run through a few of them quickly, and please note, dear readers, that these ideas still prowl all over Nigeria even though they are long since dead. Our economic policy makers strongly believe in them, and this is because they mostly do not develop themselves in the field or are too doctrinaire and dogmatic to interrogate their thoughts and belief around economics, which – like science and technology – keeps evolving very very rapidly and is not what it used to be 20 years ago. Also, we all know that in our academia, they are stuck with very old texts, which they regurgitate to poor students, year in, year out. Academic circles are almost impossible to barge into and change, because a lot of their ideas are dated and they don’t want any disruptors to upset the apple cart. So, we have a huge problem on our hands.
The first zombie idea is the concept of some ‘invisible hand’ which comes and allocates resources. It is ‘invisible’, chiefly because it doesn’t exist. The ideas of Adam Smith have been challenged even though we still revere him in the circle of Economists. But economists have found out that only clumsy governments wait for invisible hand to properly allocate resources. You have to watch, and apply science.  Trickle-down economics is another zombie idea. In reality, and in recent times, economists have realized that oftentimes, wealth trickles up and not down. Or wealth created at the top, simply remains there more and more because human beings have fashioned out larger receptacles at the top. This is more so as many rich people now don’t need as many staff as before, and technology has led to the robotisation of many factories – even to achieve better efficiency. What is more? For the very rich, their tastes are externalised and so, money TRICKLES, oozes, or gushes OUT to foreign countries in pursuit of foreign goods, certainly not down.  What about market forces and equilibrium? The demand and supply interplay is often a myth. It is a good depiction of an idyllic scenario but far from reality. There is nothing like an equilibrium anywhere except perhaps in small, monopolistic, monopsonistic, oligopolistic or oligopsonistic markets where one or few players exist at least on one side of the divide.
But in reality, markets are often polypolies, meaning that plenty people buy and sell for whatever reasons, and in many locations. You will never wake up one day and know the equilibrium price of garri. The idea of market forces determining price is also weak, as there exists a battery of other factors that intervene in determination of prices. The Efficient Market Hypothesis – a rather sexy but totally unrealistic idea propounded by Eugene Fama of the Chicago School – has been proven to be toxic, and misled people like Alan Greenspan, who ended up being shamed for pushing the idea that markets would regulate themselves. Fama hides away somewhere in the halls of University of Chicago today. Meanwhile, the trio of A. Michael Spence, Joseph Stiglitz and George Akerlof snagged the 2001 Nobel Prize in Economics for proving that markets are indeed eternally imperfect because of asymmetry of information – some people will always have a bit more information than others, and therein lies their edge.
Another dead idea is that put forward by David Ricardo in 1820, which is called Comparative or Competitive Advantage. It says if you are a primary product, farming nation, just stick to it. Or just keep selling your crude oil. In reality, you will never develop selling primary products in a world that is increasingly sophisticated. Smart nations find every means to produce things themselves and add value and try to depend less on others. We have been sold a dud in Nigeria and are not helping ourselves. Therefore, we are officially the most unsophisticated economy in the world according to Ricardo Hausmann’s Economic Complexity Index. I should add that the idea that our currency is not realistic is another dead idea as it ignores the more nuanced analysis around a currency. We have to study the history of currencies to determine what to do. We will also do well to separate ourselves from other weak African economies whose currencies have totally lost value.  Also, the continuous, endless pursuit of foreign investments – direct and portfolio – is another anachronistic economic idea fit only for the colonial era. I will write more on these zombie economic ideas someday.
I close, by repeating some questions I asked a friend on this currency matter when he insisted that the value of the Naira is unrealistic. I asked: “What is realistic oga? Naira at 1 to 1 to the US Dollar was not realistic. We moved it to N4 to 1 dollar, you people said it was still not realistic. Then they moved it to N12 to $1. Still, you said it was not realistic. Then we tried N22 to $1. Still, you people (liberal economists) said it was not realistic. Then we moved it to N50 to $1. Still not realistic, yeah. Then N80 to $1. Not realistic still? What about when Naira became N99 to 1? You still complained it was not realistic. Under Soludo it was N120 to $1. Still you said it was not realistic. Then they moved it to N140 to $1. Not realistic you said. What about N155 to $1. No, not realistic. N199 to $1? Not realistic. N306 to $1? Not realistic you insisted. How about N360 to $1. You dismissed the Naira still as not realistic. We moved to N390 to $1. Not realistic, you screamed. How about N414 to $1. Not realistic you maintained. Now, the Naira is at N422 to $1 officially and running ahead in the black market which will always be a step ahead. Bros. it is you people that are not realistic.”
The feeling with the naira is one of falling into a bottomless pit. As the naira is being devalued, what we have seen is that the people are being devalued.  This is because our people depend on many essentials of modern life which are imported, not produced locally. When devaluation happens, children and adults suffer.  Devaluation works where you bite the bullet and close your economy tactically to boost local production, not when you remain open and accede to liberal ideas of allowing everything into your country. If you remain open, it will be a case of ignoring a tsunami that sweeps away everything you have. To close the economy is equally tough but is only logical if you sincerely wish to devalue currency to reposition your economy. I fear though, that we may have passed the window where we could devalue the naira to gain traction in the economy. Why? Perception has been grossly and totally mismanaged. Nigerians now feel as hopeless about their country as they are about their currency. And this is due to incompetence and disobedience. And corruption. And selfishness. In 2016 when Buhari woke up one day and asked the CBN not to sell forex for students in foreign schools while his own children were there being sponsored by the state, and when he went abroad to treat his illness at our expense while shunning those who need such treatment, that act saw the value of the naira dive as people scrambled in the black market to fulfil their foreign currency needs. That was not about market forces, but incompetence, laziness, and some would say meanness. If the Naira will continue to fall in the wake of Osinbajo’s statement, that would also be because his advisers have whispered sweet nothings in his ears from the tombs of zombie economics.
We just have to stop hurting ourselves in this country.
‘Tope Fasua, an economist, author, blogger, entrepreneur, and recent presidential candidate of the Abundant Nigeria Renewal Party (ANRP), can be reached through topsyfash@yahoo.com.

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