By: Sir Henry Olujimi Boyo (Les Leba) first published in May 2016
Intro:
Last week this column republished “Economy: Why Increasing Crude Prices Will Cause More Problems” it discussed the economic factors that contribute to inflation, presenting analysis from a historic and socioeconomic perspective.
(See www.betternaijanow. com for this series and more articles by the Late Sir Henry Boyo)
Today’s republication presents insight into the manipulation of economic factors, on the part of external and internal governing bodies, that bring on inflation to ensure continued devaluation of the Naira. The reality portrayed by the article, is that the suffering of Nigerians has been engineered for the benefit of a few.
As you read through the below article taking note of previous events or rates, keep in mind its year of publication (2016), a clear indication that Nigeria’s economic situation is yet to improve even after all this time.
Industry, Commerce, as well as employment opportunities, unexpectedly, flourished for the greater part of Abacha’s four-year reign, despite Nigeria’s pariah status and the stupendous treasury rape by the dictator. The question, therefore, is how Abacha’s Economic team sustained the erstwhile elusive enabling environment, despite the dysfunctional economy that was inherited. Fortunately, Chief Anthony Ani, an insider in that team, answered this question, in his keynote address, at ICAN’s induction ceremony on May 11th 2016.
A summary and excerpts from that paper are as follows; please read on:
“We are an import dependent nation, therefore the Naira price of dollars, required to pay for imports, will inevitably significantly impact on multiple sectors of our economy; furthermore, despite the collapse of Naira exchange rate from $2=N1 to N199=$ since 1985, the IMF, America and several international Banks have goaded Nigeria to further devalue our currency. Recently, even the immediate past President of ICAN also added his voice to the call for Naira devaluation. I hold the view that our Naira is even undervalued and President Buhari should continue to resist the pressure to devalue. Devaluation will further worsen our economic situation, especially when we do not export anything significant except crude oil.
“Invariably, Exchange rate is a key policy variable, and a good exchange rate mechanism, therefore augurs well for price stability and international trade”.
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The Naira was effectively devalued when “Nigeria adopted IMF’s Structural Adjustment Programme in 1986, when the Second – Tier Foreign Exchange Market (SFEM) was introduced, but banks and their directors and managers made bonanza profits until things came to a head by November, 1994. The banks were selling dollars bought at N22 SFEM price to end users, and manufacturers at N128=$1; meanwhile, Inflation was galloping at 88% and lending rate was oppressive at over 30%. There was serious price instability as salaries and wages were not aligned to inflation or the parallel market exchange rate. There was discontent in the country and the security of the nation was threatened”.
Consequently, in November 1994, the acting Finance Minister (Chief Anthony Ani), CBN Governor (Paul Ogwuma) and the Chairman of National Economic Intelligence Committee (NEIC) Prof Sam Aluko were ordered to find a solution by the National Security Council. “We, therefore, looked at the macro-economic variables and found that there was over-liquidity of Naira in the banking system, as a result of excess profits from forex arbitrage.
“We decided to eliminate this liquidity and reduce instability and inflation. We also resolved to crash the parallel market by all means, but this was problematic, because, with barely $1bn reserves and less than two weeks imports cover, we did not have the capacity to crash the parallel market, especially when Nigerian importers no longer enjoyed international credit terms, as overseas exporters demanded upfront payments.
“Ultimately, we (Ani/Ogwuma/Aluko) agreed that for the parallel market to crash, the CBN must fund the needs of the real sector, while banks sourced their own forex to fund the other sectors; we also shut all other forex windows and reluctantly concluded that, an exchange rate of N80-82=$1 will be sustainable, but production and productivity must however remain our abiding watch words.
“Indeed, as soon as our recommendations were effected, the parallel market crashed from N128 to $82/$1; furthermore, we also discovered that proceeds of non-oil exports and remittances from Nigerians in the diaspora was surprisingly nil. On enquiry, we gathered that Asian businessmen who controlled Nigeria’s non-oil exports, persistently falsely condemned whole shipments to be substandard and ultimately declared valueless, whereas these, exporters actually sold and retained the proceeds abroad. Similarly, the meters at flow stations of our oil terminals malfunctioned for years, with the result that crude oil was shipped for which no payments were made. Consequently, we sealed all these loopholes and opened up significant capital inflows; we were also determined to reduce our heavy dependence on food and petroleum imports particularly.
“Suffice to say that with the removal of the existing tax on overseas remittances and the introduction of other supportive laws, foreign inflows into Nigeria increased, and by 1997 external reserve had risen to $7 billion to make the Naira exchange rate more stable and virtually convertible.
“Another important development was that CBN now made a profit of N58 per dollar, on forex sales to the real sector, consequently CBN was awash with Naira which we applied to balance our budgets and also build infrastructures such as the Gwarinpa Housing Estate, the biggest housing estate in Africa, whereas before the introduction of AFEM, these bloated profits were selfishly cornered by banks and bankers.
“In February 1995, I had visited the Paris Club Office in France where I proposed payment of $7bn as full debt settlement spread over 5 years with nil interest, and our creditors were very excited with the proposal. By 1996 during the process of analysis and verification of the entire Paris Club debt, we discovered 18 “failed projects” valued at $1bn which were never executed, but for which the related proceeds from external loans were in all cases drawn down. The Government insisted that rather than pay we should go to court; sadly, we ended up paying these debts during the debt cancellation exercise.
“Regrettably, we paid about $12 billion for what should not be more than $7 billion. The whole Paris Club thing was a debt trap to enforce a structural adjustment programme and they used Nigerian economists, trained in North American Universities for this enforcement. The debt cancellation exercise of 2003 destroyed our exchange rate mechanism as CBN abdicated its responsibilities as the central player in the Autonomous Foreign Exchange Market (AFEM), and Bureau de Change (BDC) were inexplicably licensed and also funded by CBN.
“Eventually, there were 3000 BDCs owned by bankers, legislators, politicians, all funded at the rate of $60,000 per week by CBN. With this development, few families or clans took control of the forex market and made a kill with super profits and the rest is history; ultimately, the Naira also became gradually inevitably over devalued. Today, the same Banks with the robust support from IMF are even suggesting that the Naira should further be devalued.
“Profits made by banks in respect of their foreign exchange transactions remain humongous and Nigeria is the only country in the world frivolously re-exporting its remittances. It is relevant to note that the Naira is not convertible but remittances which are meant to stabilize our exchange rate are now re-exported. This is the cause of the scarcity of dollars in the market and the cause of the worsening depreciation of the Naira in the parallel market.”
