Opinion: The politics of currency devaluation
By Lekan Sote
[email protected] 08050220816
You may need to take a look at the economics of currency devaluation before looking at the politics: In theory, goods imported from a country whose currency is stronger than yours are usually more expensive than goods manufactured in your country.
This import substitution red herring is used by the International Monetary Fund and other agencies that work in the interest of countries of the Organisation for Economic Cooperation and Development to persuade poorer nations, like Nigeria, to devalue their currencies. The sell-by date of this thinking, which also suggests that Westernisation is equivalent to modernisation or development, expired long ago.
The reality of Nigeria’s economy is that the prices of locally produced goods, where you can get them, are usually higher than those of imported goods – including those from countries with stronger currencies. The Governor, Central Bank of Nigeria, Godwin Emefiele, will agree that Nigerian banks charge interest rates higher than their Western counterparts because of higher operational costs.
It gets worse when the naira “suffers” the assaults of devaluation as recommended by a wily IMF, and implemented by a hapless CBN that agrees to devalue the naira without quite considering economic realities in Nigeria.
So, the Nigerian Bureau of Statistics that announced an inflation rate of 16.25 per cent should factor in the 33 per cent depreciation that accompanied the devaluation of the naira from N197 to the dollar to N305 in 2016. Of course, you know that inflation translates to higher manufacturing costs, and sales prices.
Always add to the “affliction” suffered by the economy through the devaluation of the naira, the general scarcity of consumer goods, caused by a general infrastructure deficit which compromises the industrial and productive capacity, and discourages domestic and foreign investments.
You can stimulate and grow an economy if your macroeconomic policies are appropriate; and requisite infrastructure, like roads, railways, and electricity, are in place. You will also need a vibrant merchant class to take advantage of perceived opportunities; a highly professional and proficient workforce; and an adequate stock of industrial plants, machinery, raw materials, and supplies.
Also, you must have a government with the political will, the ability to diligently follow through with policies, and a team of quick-witted and adroit men to run the agencies that administer responsive fiscal and monetary policies of the government.
With these, and more, you are rest assured your country’s economy can steadily and efficiently produce a sufficient supply of high quality consumer goods at prices that the citizens can afford. That is how local products can effectively compete with imported goods.
Sometime ago, the West, or America specifically, lured high net-worth Asians into buying stocks in American corporations. Many Asians, thinking that they would finally get a big piece of the American pie, came in droves.
But the plan was for Wall Street to crash thereafter, by design. Yes, by design. The idea is that when the American stock market, which has fully recovered by the way, crashes, the Asians would drop their American stocks like hot potatoes.
They would remove themselves from the meagre hold they have on the American economy. So, all that posturing by former American President Obama to clean up the self-inflicted mess was just an act-to fool the rest of the world.
You would have observed that after using the “too big to fail” doctrine to bail out the collapsed American firms, like General Motors, and JPMorgan Chase, America never went back to the vomit of that doctrine; Uncle Sam formally opted to discontinue it in 2015.
The CEOs that were compelled to resign so their companies could qualify for bailout were just the generals who “died” in combat for Corporate America. By the way, the CEOs had comfy retirement plans that would make kings envious.
Corporate America took the cash flow invested by the Asians in America’s capital market to buy up cheap stocks in Asian “chaebols,” or big businesses; then retrofitted them with American factory plants and machinery, to take advantage of the infrastructure that Uncle Sam had earlier conned the Asian public sector to accumulate.
This round tripping, of sort, has turned a country like China into a huge factory plant for American investors. China is the world’s second economy only for the benefit of Corporate America. Substantial portions of China’s productivity should be accounted as part of America’s Gross Domestic Product!
The “refund” that the Chinese who divested from America got was less than amount they had invested; the crash was designed to return cheaper American stocks to Americans. The jeopardy was that the Chinese who divested from America could not compete with Corporate America in buying Chinese stocks that had appreciated from the frenzy of American purchases.
Worse is that these Chinese could not reinvest in new startups in China to compete with Chinese companies that had become part of American multinationals with access to cheaper funds, up-to-date R&D, advantage of large scale operations, shared advertising and promotional costs, and global distribution networks.
This is another way of saying that the Asians who lost out on the American capital market, also lost out at home! What to do with their potentially idle cash? The Chinese began to invest with frenzy in Third World countries, like Nigeria.
You know that interest from savings accounts in China cannot be compared to returns on investment in Third World countries that are masquerading as emerging markets. The shortage of practically every consumer item makes these economies attractive to Asian and Western investors.
China also thought up another smart, and maybe altruistic, way to make its idle funds active and productive: The New Development Bank, launched by the BRICS (Brazil, Russia, India, China, and South Africa) nations, and almost singlehandedly bankrolled by China, gives loans to countries that will use Chinese products and personnel.
If you exclude South Africa, BRICS nations are 40 per cent of the world’s population; occupy 25 per cent of the world’s land area; and generate 25 per cent of the world’s Gross Domestic Product. That’s quite a sizeable captive market, wouldn’t you say?
The moral of this narrative is that Nigeria, especially the management of its CBN, must be wary of counsel by the IMF, and other West-centric international financial institutions and experts, who insist that devaluing the naira is the way out of the current economic depression.
The West struggles for the same resources and jobs with the rest of the world; it therefore cannot be disinterested enough to counsel other nations on economic matters. Nigeria’s leaders must muster the political will to say no to Foreign Direct Investors who insist on devaluation before investing in Nigeria.
The army of Nigeria’s unemployed youths, many of whom are doing drugs, and roaming the streets, are economically disenfranchised because of the devaluation recommended by the imperialists to keep them out of work. The fearful Boko Haram insurgency is one symptom of their idleness.
Maybe all these remind you of the protest literature written by angry writers like Paulo Frere, Franz Fanon, and Walter Rodney. The trio respectively wrote “Pedagogy of the Oppressed,” “The Wretched of the Earth,” and “How Europe Underdeveloped Africa,” chronicles of the perfidy of the West.
Currency devaluation is a sure way to put non-productive economies, like Nigeria, into permanent jeopardy. Punch
- Twitter @lekansote1