Nigeria’s New FX Policy, an Obstinate Pupil and the Cost of Adult Education. -by Jekwu Ozoemene.

 This has been a very expensive one year specialist MBA education on the interplay of economic theory (read basic demand and supply principles), international trade, the global financial markets and appropriate interventionist and predictive monetary policies. It was an all-out battle between obstinacy, star-gazing and wishful thinking, ‘native intelligence’, dishonest intellectuals (una know una self), ethical and motivational blindness and obsequiousness on one hand and tested and established economic theories on the other. A one year lesson in cause and effect and as ethical blindness rightly teaches us, ‘why good or ethical leaders make wrong or unethical decisions’.

The actual absolute cost (some of which is irredeemable) plus the yet to crystallize cost of this one year rigmarole in economic wilderness; job losses, shutdown businesses, trading losses, FX losses, toxic banking industry risk assets, then you add the opportunity costs and Time Value of Money etc…. unquantifiable in monetary terms. The good news however is that we found the courage and common sense to do what we should have done over 10 months ago. It is also nice to see that we went the whole 9 yards rather than opting for a face saving dual tiered exchange rate regime, something I thought was an option, not just to save face but to enable State Governments which had accessed US$ denominated debt (and generate all their revenues in Naira) access the requisite FX to service the debt at a discounted rate. I will come back to this point later.

Unfortunately, recovery from the damage done may take another 18 to 24 months to cure but the good news is that the new FX policy will enable inflow of the much needed Foreign Direct Investment and Foreign Portfolio Investment US$ into the market. Hopefully, for starters, the flows will come in fast enough to avert another impending fuel scarcity. Using the current rate of 12 months Nigerian Naira Non-Deliverable Forwards as an indicator, the exchange rate may ultimately settle at N366/US$.

I also read an opinion of an Oyibo analysts that the policy will trigger hyperinflation. I humbly disagree as the current price of goods and services are mostly reflective of the parallel market rather than the erstwhile CBN official exchange rate. Prices may go up once the artificially managed demand is fully unleashed on the market but this will modulate subsequently as supplier increases versus demand.

The good news for some of our beleaguered State Governments is that the Niger Delta Avengers and their ilk willing, the FX earnings portion of FAAC allocations will be converted at the new market determined rate however this may not have much of an impact for States that have US$ denominated borrowings. It also means that it is in the interest of all to resolve the issues around the degrading of the country’s crude oil production capacity.

A word is enough for the wisdom….okay.. ‘wisdom’ is not the superlative adjective for ‘wise’, but you get what I mean.

For those who are out on the streets (with cymbals, brass and bata drums, shekere and Ojah) celebrating this new cure-all gbogboise elixir for our economy and of course, for their close relatives, those who are watching and waiting in the wings, coiled to pounce with their ehe! Shebi I talk am say this devaluation will only make things worse! Throwing around the infantile Strawman logic of ‘Oya, how many factories have you built since the free float or devaluation?’

This is not a fix!

I repeat!

This is not a fix!

The new policy is simply one portion of the mosaic of policies and structures that can resuscitate our ailing economy from the battering it took from unconscionable and irrational policies. The immediate objective is to enable the Naira find its true value as this will attract inflow of the much needed foreign capital including funds held abroad by Nigerians.

But what we have just done is actually the easy part.

The policy does not address the underlying fundamental issues..the difficult part. The part which will lead to a sustainable solution is to aggressively work on the ease to doing business in Nigeria as if our life depends on it (which it does literally!); introduce policies and create the infrastructure that will reduce Nigeria’s import dependence, promote export and stimulate inflow of foreign capital. These policies will ensure that importing is not more attractive and profitable than producing locally and this will naturally lead to the unbanning of the forty-one (41) items classified as “Not Valid for Foreign Exchange” as detailed in the CBN Circular Ref: TED/FEM/FPC/GEN/01/010; to stimulate research and development towards transiting ours to a knowledge based economy; to increase local sourcing of industrial inputs; all those things that we have been glibly mouthing for aeons but have failed to execute over the last 50 years or so.

One last thing.
For those apologist who are celebrating pictures of a near empty business class compartment of a Lagos to Dubai Emirates flight as a sign of the success on the fight against corruption, ‘as looters are no longer looting’…see ehe! We all just collectively spent billions of dollars on a specialist MBA education for our leadership. If you cannot tap into this expensive adult education then your brain probably needs a full reset to factory default setting (which by the way is potty training and kindergarten education).

In all this (if the other policies are fine-tuned and executed fully, then there is glimmer of hope, light at the end of the proverbial tunnel, better meat for fish head…you know what I mean…

The hope is hopefully in the next 18 to 24 months oh given the level of rot in the last 16…sorry! given the level of fiscal and monetary policy lunacy over the last one year.

Assuming that we all truly took our expensive lessons to heart.

But then adult education comes at a cost the say, time and monetary…and it’s pupils can be obstinate.