International News magazine, The Economist,
says President Buhari is making the same mistake now he made with the
falling Naira when he was Military leader 30 years ago. Find the article
below ...
Give me lucky generals,” Napoleon is supposed to have said, preferring
them to talented ones. Muhammadu Buhari, a former general, has not had
much luck when it comes to the oil price. Between 1983 and 1985 he was
Nigeria’s military ruler. Just before he took over, oil prices began a
lengthy collapse; the country’s export earnings fell by more than half.
The economy went into a deep recession and Mr Buhari,
unable to cope, was overthrown in a coup.
Now he is president again. (He won a fair election last year against a
woeful opponent; The Economist endorsed him.) And once again, oil prices
have slumped, from $64 a barrel on the day he was sworn in to $32 eight
months later. Growth probably fell by half in 2015, from 6.3% to little
more than 3% (see article).
Oil accounts for 70% of the government’s revenues and 95% of export
earnings. The government deficit will widen this year to about 3.5% of
GDP. The currency, the naira, is under pressure. The central bank
insists on an exchange rate of 197-199 naira to the dollar. On the black
market, dollars sell for 300 naira or more.
Instead of letting the naira depreciate to reflect the country’s loss of
purchasing power, Mr Buhari’s government is trying to keep it aloft.
The central bank has restricted the supply of dollars and banned the
import of a long list of goods, from shovels and rice to toothpicks. It
hopes that this will maintain reserves and stimulate domestic
production.
When the currency is devalued, all imports become more expensive.
But under Mr Buhari’s system the restrictions on imports are by
government fiat. Factory bosses complain they cannot import raw
materials such as chemicals and fret that, if this continues, they may
have to shut down. Many have turned to the black market to obtain
dollars, and are doubtless smuggling in some of the goods that have been
banned.
Nigerians have heard this tune before. Indeed, Mr Buhari tried something
similar the last time he was president. Then, as now, he resisted what
he called the “bitter pill” of devaluation.
When, as a result, foreign currency ran short, he rationed it and
slashed imports by more than half. When Nigerians turned to the black
market he sealed the country’s borders. When unemployment surged he
expelled 700,000 migrants.
Barking orders at markets did not work then, and it will not work now.
Mr Buhari is right that devaluation will lead to inflation—as it has in
other commodity exporters. But Nigeria’s policy of limiting imports and
creating scarcity will be even more inflationary. A weaker currency
would spur domestic production more than import bans can and, in the
long run, hurt consumers less.
The country needs foreign capital to finance its deficits but, under
today’s policies, it will struggle to get any. Foreign investors assume
that any Nigerian asset they buy in naira now will cost less later,
after the currency has devalued. So they wait.
Those who fail to learn from history...
Mr Buhari’s tenure has in some ways been impressive. He has restored a
semblance of security to swathes of northern Nigeria that were overrun
by schoolgirl-abducting jihadists. He has won some early battles against
corruption. Some of his economic policies are sound, too. He has
indicated that he will stop subsidising fuel and selling it at
below-market prices.
This is brave, since the subsidies are popular, even though they have
been a disaster (the cheap fuel was often sold abroad and petrol
stations frequently ran dry). If Mr Buhari can find the courage to let
fuel cost what the market says it should, why not the currency, too? You
can forgive the general for being unlucky; but not for failing to learn
from past mistakes
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