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To devalue, or not to devalue the Naira

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DEVALUATION of currency has been heralded as a panacea to solving balance of payment problems So, often, countries with protracted balance of payment defi­cits are always advised or pressured to devalue their currencies in order to crawl out of their economic woes. In a nutshell, devaluation of a currency is an official re­duction of the value of that country’s cur­rency in relation to other countries’ cur­rencies. Experts contend that devaluation is a necessary evil that appears to impose a temporary pain for a lasting economic recovery, which will in turn alleviate the balance of payment situation. However, that may not be the case in some instanc­es, where a country’s economic misery persisted long after devaluation of its cur­rency as it suffered consistent economic contraction and massive capital flight.
Today, Nigeria is facing enormous pressure to devalue the Naira relative to the currencies of other currencies. Unfor­tunately, the pressure from the international community and other experts to devalue Naira has been intense and relentless. Re­gardless of the perceived economic benefit argument for the measure, it is apparent that those pushing for the devaluation stand to benefit more than an average Nigeria who would experience buying less with more.
Practically speaking, Nigeria’s economy would suffer gravely if the country indulg­es in the devaluation of its currency. One of the arguments for devaluation is that it would make the country’s goods and ser­vices cheaper for exports. Countries would find prices of goods and services from Nigeria attractive; as a result, they would import more goods from Nigeria. Conse­quently, Nigeria would export more goods to the trading partners and countries as they buy more goods and services for their citi­zenry. This phenomenon would in turn spur expansive economic growth in the export­ing country, Nigeria. It is believed that the expanding domestic economy would not only help to increase foreign reserve earn­ings, but it would also enhance economic activities in all sectors, especially in the area of production of goods and services. Similarly, due to an increase in export, more jobs would be created and the citizens would enjoy a higher standard of living.
But Nigeria could not be classified as an exporting country. Besides oil, Nigerian export is not buoyant and may be running into significant trade deficit. It is safe to say that Nigeria is a consumption country; most of the goods and services are im­ported from other countries thereby mak­ing Nigeria a ‘dumping ground’ for for­eign goods. So devaluing the Naira would make exporting oil cheaper and importing other goods and services more expensive, which could affect many other indicators such as balance of trade, increased deficit in balance of payment, depleted foreign reserve, as well rising inflation in the do­mestic economy.
Unimpressively, the proponents of devaluation further argue that decreas­ing the value of Naira at this time would stave off a protracted inflationary trend in the country. To buttress this position, it has been pointed out that the survey of prices of goods and services indicated an upward trend of inflation in Nigeria. A piece on Bloomberg publication on Feb­ruary 14, 2016 captioned, “Rising Nige­ria Inflation Risks Thwarting Buhari’s Naira Defense,” said Nigeria is already a rising inflation, which is hurting the con­sumers. The piece contained this: “Ten of the 12 categories of consumer prices surveyed by Standard Chartered Plc in its Consumer Price Tracker showed increas­es in January from the previous month, according to Razia Khan, chief Africa economist at the London-based lender. That shows “prices are rising, despite at­tempts to keep the official Nigerian naira exchange rate unchanged,” she said in an e-mailed note to clients.”
However, the economic activities of countries like Nigeria could not be cap­tured by surveys alone. There should be other ways to account for those who grow their own food or produce other services for their families to truly capture the ef­fects of any inflation on the economy.
Many Nigerians in the Diaspora, es­pecially those who are not beholden to any political party affiliation other than their loyalty to Nigeria, want to see things work well in their home country regardless of who occupies the office of the presidency. These Nigerians strongly support President Muhammadu Buhari for resisting the pressure to devalue Naira. Nigerian citizenry would face an untold economic hardship if Naira is de­valued. It is understood could not be clas­sified as an exporting nation. Regrettably, the undiversified and import-oriented economy of Nigeria is not suited to rip the benefits of devaluation, if there are any, especially with an ever increasing globalization. Thus, devaluation of Naira at this time may have a catastrophic eco­nomic consequence that the country may not be able to recover from in decades.
We believe that the policymakers should let the market forces determine the value of Naira as the country works diligently and pragmatically to improve the economy in all sectors.
Candidly, Nigerian leaders should fo­cus on economic policies that would di­versify the economy, encourage sprawl­ing cottage industries that could produce goods for local consumption, as well as for exports. It is critically important for the policymakers target policies that en­courage the production of raw materials needed in these cottage industries in or­der to bring down production cost. Shor­ing up local production of goods for local consumption and exports would stimu­late the economy and subsequently alle­viate the balance of payment problems.
Emphasis should be placed on agricul­ture. The production of abundant food in the nation, including quality healthcare sector should be paramount to ensure that Nigeria has a healthy workforce.

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