One of the major mistakes past Nigerian leaders made was to consider the country an oil rich nation. General Yakubu Gowon laid the foundation of this major flaw when he declared, then as Head of State in the 70s, that Nigeria had become so rich her problem was not money but how to spend it.
Nigeria at the time was enjoying a meteoric, oil-fueled economic upturn in the course of which the scope of activity of the Nigerian federal government grew to an unprecedented degree, with increased earnings from oil revenues.
Gowon’s declaration was followed by a rapid increase in corruption, mostly bribery, of and by federal government officials; and although the Head of State himself was never found complicit in the corrupt practices, he was often accused of turning a blind eye to the activities of his staff and cronies. The attitude of government then was: “Here was money – plenty money we have no use for”.
Another decision made by Gowon at the height of the oil boom was to have what some considered negative repercussions for the Nigerian economy in later years, although its immediate effects were scarcely noticeable – his indigenization decree of 1972, which declared many sectors of the Nigerian economy off-limits to all foreign investment, while ruling out more than minority participation by foreigners in several other areas. This decree provided windfall gains to several well-connected Nigerians but proved highly detrimental to non-oil investment in the Nigerian economy.
Fact is Nigeria is not an oil rich nation. We are an oil poor country. Oil poor because we produce two million barrels per day, which translates to daily revenue of $100million at an average benchmark price of $50. Divide this by 170million people and you get an average oil income of 59cents per capita. Compare this to Saudi Arabia, which exports about 10million barrels per day, earning average daily revenue of $500million or $17 per citizen.
Nigeria produces 12, 000 barrels for every one million people, compared to 295, 000 barrels per every one million people in Saudi Arabia.
Now that reality has dawned on us, it is time to reduce leakage and become strategic. Our strategy should be that of import substitution. Not the rhetoric of import substitution as often mouthed by Olusegun Aganga but developing a real strategic action plan that we will all be committed to in the short, medium and long term.
If we import less and export more, we won’t worry our heads about the sliding value of the naira. In fact devaluation would be a blessing.
Currency devaluation basically means lowering the value of ? currency. The value of ? devalued currency then becomes low in comparison with the currency of other nations.
When the value of a currency falls, domestic residents will find imports and foreign travel more expensive. However, domestic exports will benefit from their exports becoming cheaper. Exports become cheaper and more competitive to foreign buyers.
Devaluation therefore provides a boost for domestic demand and could lead to job creation in the export sector. Higher level of exports should lead to an improvement in the current account deficit. This is important if the country has a large current account deficit due to a lack of competitiveness. Higher exports and aggregate demand can lead to higher rates of economic growth.
China for example will be quite reluctant in allowing its currency appreciate against the US dollar. For instance in 1994, China devalued the yuan by a third to 8.7 per dollar. Daily fixing patterns by the People’s Bank of China, the country’s central bank which serve as guideposts for currency trading, show authorities have actively sought a weaker renminbi in recent years.
In April 2014, the Chinese renminbi fell by 0.7 percent against the dollar, taking its year-to-date losses against the greenback to more than three percent and wiping out all its gains of the previous two years.
Exporting nations actively engaged in currency war or competitive devaluation. The idea is to achieve relatively low exchange rate for their currencies.
As the price to buy a country’s currency falls so too does the price of exports. Imports to the country become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. So we can profit from these ‘hard times’ of drop in oil revenue and fall in the value of the naira by simply putting a stop to unnecessary and frivolous importation and exporting more non-oil products.