Over the months, there have been many theories propounded on the argument of what the value of the Naira is against the dollar. The loudest of these theories have most times resulted in the call for a formal devaluation of the Naira. These sounds are also echoed by the foreign and more established financial markets – and to be factual, I stood albeit without confidence in favour of devaluation. In this brief write up, my final position is quite clear and without ambiguity.
Those in support of devaluation hinge the arguments on:
• The Naira is already devalued as many imports are done using parallel (Black) market rates, so why not make it (devaluation) official…
• Devaluation will encourage exports, as inflows in FCY will be converted to Naira at high rates thereby increasing the LCY wealth of the exporters.
• From an NLC perspective, devaluation will enable the Govt. pay their new asking price for minimum wage … N56,000= I suppose ?
• Finally, our State Governors will now have more money (Naira) to pay salaries… well; this seems to be the main reason for the clamour.
However, after considering the following:
• Even in devaluation, the exchange rate will still be controlled by the CBN and pegged at a certain rate against the dollar. This defeats the theories of those that want a free slide so the Naira can discover itself as in efficient markets (depreciation).
• Devaluation means that the raw materials our small manufacturing businesses import will now be sourced at the newly devalued rate as against the current CBN rate. One may argue that the lead time to get FCY at the official market for SMEs is currently is long, but I ask – Who said it will not be long post devaluation? I think it will, because one cannot get wealthy by cutting cost. So long as the supply of USD remains the same, the waiting queue will not reduce in the long run.
• In devaluation, there will be real inflation and the already beaten pride of the Naira will take even more strokes. This has all its bad effects including the increased cost of cash handling.
A big NO to Devaluation
There is no sound logic around how the eventual value will be chosen, it will erode what is left of our Naira pride, will formally increase the cost of raw materials for SMEs and finally, it will not take the FX queues away.
Get Certain and Firm:
The CBN and the Government should find a way to assure the market that the rates are fixed at least for the next 3years. This has to be done because the dearth of foreign investments/inflow is not a result of the current value of the Naira, but a result of the uncertainty and perceived market volatility.
No More Domiciliary accounts (a hard one):
The CBN should give a short period notice for owners of domiciliary accounts to withdraw their monies from the banks or it will be mandatorily bought by the CBN at official rate. Further to this, every inflow into the country must be bought by the CBN at official rate, however, the sellers of such inflows will have the right to buy back FX when they have payment needs. This move will almost eliminate the arbitrage in the black market.
Bureau De Change Services: This should be run by banks and their subsidiaries alone (In the short run) as they can be properly monitored by CBN.
Pray Hard: We still need the oil prices up. We need a prudent Government to leverage off high prices to build infrastructure. Without infrastructure, our SMEs cannot be globally competitive in local manufacturing/production.
The impact of all these recommendations should take out the inefficiencies that are currently making the effect of the fallen oil prices worse. Also, when uncertainty goes away, foreign investments come in, the capital market would likely become bullish and stability will follow. As for telegraphic transfers, the banks will debit client’s Naira accounts, convert and send the FCY to recipients, but this will only be for properly documented transactions.
By Obinna Ukachukwu