I must admit that the policies put into action by President Bola Tinubu these first few days are hard to explain. And indeed, it is not my duty to do so. But there are beginning to be some complaints and many – including myself – have cause to be wary because there are usually very powerful folks with international backing who move in whenever a new leader emerges in Africa and make leaders tread a different trajectory from their fundamental wiring.
In this particular instance, firstly, President Tinubu has shown himself to be a man of speed, resolve, grit, and a sense of urgency. Rather than go to sleep as President Buhari did for the first seven months, Tinubu has hit the ground running and is ticking all the right boxes with friends and foes alike. He briskly changed the headship of a few critical organisations like the central bank and the Economic and Financial Crimes Commission (EFCC), took some critical decisions where angels fear to tread, and then in one fell swoop, almost all the directors of Nigeria’s parastatals were relieved of their jobs, alongside all of Nigeria’s military and police leaders. People are aghast.
President Buhari, despite his fame and posture as a disciplinarian, couldn’t do a tenth of what Tinubu has done in two weeks, even though he inherited the government from the opposition. An article on Reuters was titled ‘Baba Go-Fast: President Tinubu Stuns Investors with Quick Reforms’, reminding us that the Babas that had come in the past moved at snail’s speed.
But there are a couple of overarching policies that have got me worried, and though investors and their scouts may applaud, I believe someone needs to speak up for groaning Nigerians. I have been watching for a while but have now decided to speak up. Perhaps I am paranoid. But experience tells me that administrations rise or fall with some of their first few policies. Tinubu though is a lucky man, perhaps as much as he is a strategist. Unlike Buhari, he hasn’t gone to sleep in his first moments. But he has also devalued the Naira – or rather floated it – like Osinbajo had to do when he was acting president and Buhari had been ambivalent without offering any alternatives.
Also, just like the Buhari administration, the Tinubu one has removed subsidies on fuel. We hope that this time it is final. My stated position has always been that fuel subsidy was due for removal under whatever circumstances but we ought to slow down on Naira devaluation or the now very confusing ‘floating’ of the currency. There is also the myth of a single exchange rate that liberal economists and bankers had pushed as a narrative to Nigerians but now Nigerians are wondering whether the rates will ever merge.
My next article will be reviewing and appraising the Abiru-committee economic blueprint, which is a departure from many of our, yes our, campaign document at least as far as the economy is concerned. For now, I will only say that I have found it important to do this and the next article, perhaps as a minority opinion given my all-out support for Asiwaju, and even though I am not (yet) in his de-facto team, even if I was, I could only be very junior to the persons running things for now and whose opinions are already running our lives. It is indeed harder – nay impossible – to get opinions across after one may have become part of the bureaucracy. Therefore, one may as well take advantage of the relative freedom of being part of the hoi polloi.
I will try and structure the rest of the article in a numerical manner, so as to cover some key points and make it as short as possible.
Fuel price deregulation. (Otherwise called the removal of fuel subsidy) – Whereas the NNPC Ltd was unable to explain to Nigerians how the huge subsidies came about – especially when some Nigerians challenged the organisation on the matter of the swap deals (direct sale/direct purchase) that it entered into – I have come to accept that subsidy (whatever it is), must go. By every means, we cannot continue holding down fuel prices at N195 to N220 (or barely 40 cents per litre using official rates) when everyone around us cherishes petrol like gold. I was in Kenya last month where petrol sold for an equivalent of N1,050 per litre! However, empirically, I could tell that people don’t smuggle as much as the books say they do. Whereas Nigeria uses over 400,000 barrels a day for fuel, Chad uses just 1,300, Niger 12,500, Cameroun 42,000 and Benin 44,000, and no, we don’t supply all the needs of these countries and beyond. Some of these countries are police states where you cannot just pass through any illegal cargo. So, we are down to book-cooking by those in charge. Major rip-off of taxpayers. There are other fuzzy issues around what they call subsidy, which the NNPC refused to clear. Some of them are:
a. Where does subsidy come from in a perfect in-and-out swap arrangement where we exchange $1 million worth of crude oil for $1 million worth of refined petrol? Let me help the NNPC. Could it be that it treats those transactions in the books as direct importation, given that $1 million worth of crude could translate to $50 million of products after refining? I never liked the whole idea of swaps anyway. It’s the lowest we can sink and have sunk.
b. Why did the NNPC promise Nigerians (as the sole importer) that we had a month’s supply of products one day and that we should stop panic-buying, only for them to jerk up prices 150% the next day and rip us off on the old stock. What did Nigerians do to deserve that?
c. What did the NNPC GMD mean when he said Dangote and other local refineries coming on stream with production will not lead to reduced prices when indeed as a matter of national strategy, Dangote and others should be able to get crude oil invoiced in Naira and their presence on Nigerian soil should lead to a marked reduction in prices. Are we being set up for more hard times when we are looking forward to better days?
I had written severally that Nigeria should allow the subsidy removal policy to settle down for a while (some months) before tinkering with naira devaluation. I observed that when the Buhari administration ‘deregulated’ the downstream sector in 2016 (and the price of fuel fell from N87 to N145, which translated then to 40 cents and 72 cents respectively), that programme was undone when the government devalued the naira from N199 to N360 to the US Dollar. The new fuel price of N145 in 2016 thus reverted from $0.72 to $0.40. Since all the talk about subsidy comes up because our fuel price is benchmarked to US dollar terms, the then-new price of N145 became untenable. NNPC thus started accumulating a new subsidy which it called under-recovery. The danger this time is that the current prices of N480 – N537 were introduced when Naira was officially N461=$1. But after the floating of the naira, we have official money at N763 as I type on June 21, 2023. Will we have another upward review of fuel prices? I warned back then that we may fall into a spiral whereby the deregulation and devaluation continue to feed on themselves like some Frankenstein monster. I hope not to be proven right.
This takes us to the Naira floating issue. Some call it unified exchange rates. Now, there is a magic that has been wrought by this government and that is the fact that despite all the trauma, the black market for foreign exchange – which is easier to access and is actually an open market in Nigeria, has not diverged at all. On that score, I have been proven wrong because I believed that if the central bank devalues the currency, especially by as much as it has currently, the black-market foreign exchange curve will also shift to the right. It will be great to know why this hasn’t happened…yet. It is either we have a leadership (Tinubu) effect, or Tinubu has done his homework ahead of all of us and found ways to tackle this black market somehow, or like a central banker friend suggested, there is always a lag between the black and official markets, and anything could happen in another couple of weeks.
The ‘devaluation’ or floating of the Naira is another conundrum. As I type, some guys are trying to drag me for calling out a website called Techcabal which tried to quickly amplify the ‘devaluation’ of the Naira, even before it happened about two weeks ago. Personally, I have watched the Naira fall over time, and the spectacle is not palatable to see. I have also seen what happened in other jurisdictions. As an economic historian, I see through the folly and even though some liberal economists have again whipped out the argument that a weak currency is good (just as they have since 1986), I take it personally trying to educate our public – and also inform the government. I also wrote to caution DailyTrust, one of the platforms I am closer to, not to lend itself to the negative propaganda for the devaluation of the Naira.
However, President Tinubu’s administration has effected a policy already, which is a leaf from the thesis by Abiru and co. Now, here’s the confusion. The team of experts projected the Naira to settle anywhere between N500 and N600 to the US dollar. No sooner had the policy made it out the door, we started hearing all sorts of projections. Mr Rewane suggested N640-N680. JPMorgan said upper 600s and so on. But as I type, in the first few days of effecting the policy, it has been bedlam. On Monday, June 19, 2023, the rate closed at the Investors and Exporters window at N770! The next day it closed at N702. On Wednesday, the markets closed at N763, touching an all-time high of N815 in intraday trade. Have we opened Pandora’s box? Does the intraday high not tell of where the Naira is heading in the short term, given what is called ‘price discovery’? The central bank rate is the weighted average of a few days’ trades and stands at N589. I am not sure anyone can access the CBN rate. It is down to struggling for yourself at the I&E window. Meanwhile, the government has released the hold on domiciliary accounts. You could pay in or withdraw up to $10,000 daily there and all hell has not let loose. But the runaway rate of the dollar is cause for concern. I can see jubilation in the quarters of economic liberals that “rate has unified”. I reckon it is fairly easy to devalue; just let the boys run riot. But how quickly can you rein in the animal spirit you have sent out to wreak havoc? How about keeping the rates at a reasonable level? What rates will be deemed ‘reasonable’? Or are we heading to Argentina or Zimbabwe?
I also saw in the Abiru report that the government should adopt a ‘crawling peg’ whereby the Naira is devalued yearly according to the difference in the inflation rate of the two countries. For example, today, the US inflation rate is back to 4% while Nigeria struggles at almost 23%. This means that we will devalue by 19% and continue to devalue as far as the eyes can see until we can somehow get inflation to be at par with the US! A developing–growing–country should target growth and not inflation, in my humble opinion. We cannot possibly be working down inflation at the expense of growth while devaluing our currency so rapidly. The naira will tend towards infinity compared with the dollar. Also, some chaps are pushing the idea of a weak currency, quoting China and Japan. Again, Japan’s Yen was weak (600Y = $1) after the Second World War, but it has gained strength to about 140Y to the dollar today. The Chinese currency is just 7.01 to the US dollar today. The South Korea Won that they also quote, which is at 1,204 to the USD, has no decimal. It’s like Naira with no Kobo. So, at 1,204, it is quite strong for now. To destroy a country, first debauch its currency, goes the saying. May we not push the Naira to the point of debauchery.
The myth of a single rate – And so, our people are wondering when we shall have a single rate for our exchange. The fact is, never. There is no single rate anywhere. In most developed countries, you have a space to negotiate your rates depending on the volume of your transaction, your awareness, your relationship with your bank, or your negotiating ability. Little miseducation like this can be very harmful. Some sort of fanaticism led our people to call for a single rate when they know it’s not plausible. Now, the ordinary people of Nigeria are asking for the single rate promised. And the confusion is making people hoard dollars with the view that the Naira will crash further. We need to let us all know, that the weaker the Naira, the higher the number of hungry, deprived, poor, angry, violent people we push out on the streets. Devaluation translates to not only a reduction in the value of our currency but a reduction in the value of our people. In a country so dependent on imports, devaluation means that more and more basic goods keep getting out of reach of our people. That is wickedness. People with huge reserves in foreign exchange, or the comfortable class with assets abroad may not see this. But the policy they are pushing may come back to bite them. We don’t need more poor folks. And too many smart, young Nigerians are leaving already. Sadly so. We need to stem the tide.
The 43 ‘banned items’: Well, it may be good to advise the government to go the whole hog since it has started on this trajectory. It may be high time to remove any FX ban on any item and use tariffs and other barriers instead. For as long as this banned list exists, for so long will a huge demand be created for the black market. Aside from this ‘banned’ list, there are many transactions that cannot fly through official means such as illegal transactions that cannot be documented, and the speed cannot be matched. These are ready candidates for the black market.
Well, I have vented my spleen. I will hope that President Tinubu adopts President Abe Lincoln’s idea of A Team of Rivals, fostering and encouraging debates the way he did as Lagos governor. For now, the ideas in play are one-sided, pro-market and liberal. It is understood that he does not want to be postured as an-anti business leader. But some of us have followed BAT for years and read everything he ever said or wrote in terms of economic development. These are not his fundamental ideas. We need to rescue our General from the war front.
Now, is the time to start balancing ideas, cutting through the fantasies of ideologues, thinking for our people and making the lives of millions of Nigerians easier as only Bola Tinubu can. Now is the time to start rolling out the incentives for our people’s productivity, and easing the pains of these hard knock, shock treatment reforms as promised. We should recall that electricity tariffs are going up by 40% by July 1, 2023, as a result of the new value of the Naira and compounded inflation! Even I have a drowning feeling. My staff complain that transport costs have doubled.
Every self-respecting entrepreneur must raise wages (but not to the stratospheric level that trade unions are demanding). Where will the money come from? We need to get some left-of-centre ideas in as well. Like a focus on job creation in the public and private sectors, and productivity enhancement to grow the economy. The struggle is on. Let them not tag Tinubu a name that is not his.
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