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The
Naira, Devaluation and Nigerian Rulers
By Sylvester
Odion-Akhaine
In a review
of social movement at the periphery, Samir Amin, the African intellectual
giant notes that the development of the periphery has always been
a history of never-ending ‘adjustment’ to the demands and constraints
of dominant capital. He stresses that the centres ‘restructure’
themselves while the peripheries are ‘adjusted’ to the restructuring.
But not the other way round. In plain terms, the poor countries
in the Third World continue to adjust to the fads from the developed
countries. This observation by Amin serves for me a useful preface
to begin my brief analysis of the misfortune of the Nigerian national
currency, the naira under the drifting Obasanjo Administration.
In general terms, sub-Saharan African countries in their search
for development have experimented with all types of developmental
recipes.
They entered
post-colonial existence as a peripheral social formation. And their
course of development was externally determined. They bought in
to the modernisation paradigm, then a Western fad as the path to
development. They were bound on the Rostowian ladder of development,
i.e. the traditional societies must create the preconditions for
take-off and growth into maturity. As Claude Ake has rightly observed,
“ without exception, modernisation theory used an evolutionary schema
that regarded the ideal characteristics of the West as the end of
social evolution” To paraphrase Colin Leys, in practical terms,
developmental theorists had envisaged transfer of education and
technology to the periphery. The imperatives of this paradigm was
to transform the particularistic features of the colonial and neo-colonial
societies into those of the industrialised countries whose values
are taken as universal.
That is what
Andre Gunder Frank calls the universalisation of particularism.
It resulted in the acquisition of what Okwudiba Nnoli calls “artefacts
of development,” such as the building of bridges, trunk roads, ports
etc. The failure of this neo-classical economics lead to emphasis
on Import-Substitution Industrialisation (ISI) as well as on rural
development and employment, a sort of neo-keynesianism championed
largely by the United Nations. By the 1980s, in Africa productivity
had declined and most African economies were in crisis. Growth rate
in the manufacturing sector which 8.5 % in 1960-65 came down to
3.6% in 1980-81; in the mining sector, growth rate plummeted from
18.5 % to 13.2 in 1980-82, and to –24.6 % in 1982-83; agriculture
fell from 1.4 in 1960-65 to 0.4 in 1982-83. Food sufficiency dropped
from 98% in the 1960s to 86% in 1980. The so-called slump of 1974/78,
which hit the global economy, aggravated in part by the rising prices
of raw materials, the success of OPEC’s instrumentalisation of the
oil over the middle-east crisis hit the West as well as the oil
dependent third world economies.
This exogenous
shock combined with drought and manipulation of the commodity prices
by the multinationals; protectionism and synthetic substitution
for raw materials as well as the kleptocracy of state actors led
African states into the debt loop. This was sustained by the developmental
slogan on the importance of aid or capital flow to development.
In a global economic underlined by primary uneven development located
by John Weeks in the dynamic expansion of capitalist countries relatively
to the periphery which differentiation is underlined by the relations
of capitalist production, one wonders how aid could have engendered
development. As early as the 60s, Senegal was sustaining its economy
on loans at about 5% interest. By mid 70s the Ghanaian economy had
floundered. By early 1980 Nigerian economy slipped into depression
from the oil boom of the 70s and started experimentation with austerity
measures. In the 1990s, the least developed countries contributed
about 0.5 to global trade.
Today sub-Saharan
Africa’s debt is about $223 billion and about $175 billion is from
bilateral and multilateral funds; a fifth of its export earnings
is spent on debt servicing; arrears has risen from $32.7 billion
in 1990 to $62 billion in 1995 representing about three quarter
of accrual from annual export. During this period, Guinea-Bissau,
Mozambique and Uganda carried a debt burden that was ten times the
amount of their export earnings. Given this African condition, it
is obvious why independent approach to development will be externally
moderated. External interference in the main, is not so much about
unfettering the productive forces for genuine development or the
attainment of convergence through the vaunted goals of globalisation:
increase volume of trade and growth of Gross National Product (GNP),
volume of foreign direct investment (FDI) and creditor’s portfolio
or solvency. It is about creditors taking their pound of flesh.
Hence the introduction of structural adjustment programmes which
imperatives are embedded in the so-called Washington Consensus,
“a consensus between the IMF, the World Bank, and the U.S Treasury
about the “right” policies for developing countries – that signalled
a radically different approach to economic development and stabilisation.”
Its essential elements are macroeconomic stability, privatisation,
trade liberalisation.
It is in this
context that the on-going “killing” of the naira, which in significant
terms began in the Babangida era and has bordered on outright insensitivity
under the prevailing Obasanjo administration, can be appreciated.
I here intend to dwell briefly on the political economy of devaluation.
I do not know where Mrs. Okonjo-Iweala, the Bretton Woods proxy
in the Ministry of Finance, and other intellectual parasites in
Obasanjo government read their economics. The currency of devaluation
these days comes from neoliberal orthodoxy which gained currency
in the mid seventies and found expression in the political community
of the industrialised countries, especially the United States and
Britain, otherwise known as Reaganomoics and Thatcherism. Reganaomics
in the United States meant the rolling back of the “New Deal” social
welfare bias. Similarly Thatcherism meant a blow to neo-keynesianism
which had underpinned much of British public policies. In short
it meant a capitulation to “invisible forces”. As Manfred Steger
notes in his book, “Globalisation” markets are the creation of human
interactions and they are therefore not the dictators of policy
but government and powerful social groups do. Neoliberal scholars
such as Anne Krueger and J.N. Bhagwati based on their studies of
different policies in several countries conclude that export success
in some countries was as a result of the trade policy adopted by
these countries.
The political
community in the triad, namely, the US, Japan and Western Europe
who controlled agencies of global governance, especially the World
Bank, International Monetary Fund and World Trade Organisation,
bought the idea and trade liberalisation became a fundamental canon
of these latter institutions, courtesy of John Williamson who inputted
it into the “Washington Consensus.” Devaluation ordinarily is a
negative term. It means a reduction in value. In economic terms,
it is an instrument for correcting balance of payments deficit.
It is supposed to make domestic product cheaper than import from
other countries whose currencies have more value than the devalued
currency of the trading partner country. This worked in the industrialised
countries who adopted floating rates in the 70s because high demand
and supply elasticity and competitiveness. This explains why the
United States has tried to persuade Japan to even re-value its currency
for US firms to be able to be to compete with it. In spite of the
low value of the Japanese yen, its productive capacity, the quality
of its products as well as its competitiveness has kept the country
solvent. In the prevailing structure of the global economy in which
Africa and other Third World countries occupies the backwaters,
it cannot work.
Structurally,
African countries are dependent on imports and cannot be substituted
overnight. They have no flexibility in resource allocation with
monocultured economies; and have low demand and supply elasticity.
With the burden of debt, it can hardly achieve a current account
balance. For example Ghana import about 60% of its food requirement
while Nigerian imports covering tooth picks to tissue papers runs
into several billions of naira annually. Therefore, adopting a floating
rate regime whether of the Dutch option (DAS) or the Inter Bank
Foreign Exchange Market (IFEM) hue as the Nigerian economy managers
have done since 1986, cannot bail Nigeria and other African countries
out of their economic quagmire. A floating exchange rate is the
motion of a foreign currency exchange rate, the dollar in this case,
in response to the changes in the market forces of supply and demand.
Also known as a flexible exchange rate.
The strength
of currency or basket of currencies are determined by national reserves
of hard currency and gold, its international trade balance, its
rate of inflation and interest rates and the overall strength of
the economy. The opposite of the floating rate is the fixed exchange
rate. The Dutch Auction System (DAS) which works as a reverse of
the floating rate is what I call financial irrationality. Recall
the auction at bazaars organised by churches during their harvests
in which items goes to the highest bidder. In this case, for example,
you know the value of a banquet of flower is say $10 dollars, then
put a value of $50 at the auction, where it either come down to
about $30 at the last count when its actual value is $10. This is
financial Darwinism, which has some banks discounting their treasury
bills to survive and the consequent massive devaluation of the naira.
This is simply not a case of blind market forces but premeditated
financial fraud. To be sure, devaluation has other drawbacks, which
needs to be mentioned. One, irrefutably as the Nigerian case has
shown, it has flagged off an unending inflationary spiral, without
a corresponding increment in wages of workers.
Two, the speculative
backlash of devaluation and anticipated devaluation is only too
well known. Hoarding for capital gains by profiteers is the rule.
Three, for an illiberal democracy seeking a bearing, it can lead
to collapse of such structures as the recent military intervention
in the Bolivian crisis has just shown. It would be recalled that
in the 70s, The military Head of State of Ghana, Ignatius Archaepong
upon assumption of power repudiated Ghanaian debts. At the points
creditors were begging Ghana to just pay whatever they could, he
reversed himself into market economics through the devaluation of
the Ghanaian Cedis. It was among the grievances that motivated the
other ranks led by Major Boakye Djan and Flight-lieutenant Jerry
Rawlings, which toppled that government and the summary executions,
that followed. The Cedis has never recovered, not even with the
vaunted “success” of IMF policies in Ghana. As at March, when I
visited Ghana, it was 8900 Cedis to the dollar. And like the Cedis,
naira will never recover with the current rulers in Nigeria. Have
no illusions! This is perhaps what Jurgen Wulf meant when he observes
that in respect of developing countries, “exchange system that determines
the price of their currencies by ‘clean’ floating seems to carry
high risks as regards volatility, and hence a managed rate is likely
to become more appropriate.” I shall proffer some solution in a
moment but let me give the views of some political economists on
this subject matter.
Both Robert
Bates and Larry Diamond two American scholars have come to the conclusion
that African debts cannot be paid. As the African Statesman Julius
Nyerere once put it, they are mathematically unpayable. To quote
Diamond, “…Africa- the only major region in the world whose external
debt exceeds its GNP – needs permanent debt relief. The debt can
never be repaid, and yet annual interest payments on it exceed what
African countries spent on health and education.” In the next fiscal
year US government alone will be spending $400 bilion dollars on
defence. Sub-Saharan African debt is below $300billion. At the G8
summit in Kananaskis, Canada, last year African leaders were asking
for about $20 billion extra-debt relief for loan repayment, what
they got was just $1 billion. The neo-classical assumptions of policies
such as devaluation and trade liberalisation have been criticised
by Joseph Stiglitz, the Nobel laureate and former chief economist
of the World Bank and our own Bade Onimode of blessed memory. Stiglitz
notes the recalcitrance insistence on trade liberalisation even
when it is a known economic fact that it is unsuitable for economies
in their early development/ transitional stages.
He further notes
that opening-up the economies of developing countries to imports
from much more advanced economies can only have deleterious socio-economic
impact. Onimode on his part notes that trade liberalisation contradicts
the economic theory, which recommends import restriction for dealing
with trade deficit. He argues also that depreciation and not devaluation
is the first adjustment for an over-valued currency in theory. Policies
anchored on “Washington Consensus” such as privatisation, devaluation
and trade liberalisation have only resulted in net transfer of capital
and national resources to the metropoles. Third World countries
have not fair better under these neo-classical regimes. The history
of anti-SAP protests and resultant deaths in Africa is well known.
Also well known is its impact on the tenets of democracy. SAP implementation
abhors public debate. It is significant to note that Nigeria is
one country in sub-Saharan African where SAP was debated openly
and rejected by the people and was subsequently imposed by the military
junta of General Babangida in 1986.
The point must
also be made that the imposition was partly responsible for the
series of social crises which culminated in the April 1990 aborted
coup d’etat of Majors Saliba Umukoro and Gideon Orkar in this country.
In the context of this analysis, my recommendations to Nigerian
rulers and other African leaders are simple and I give them here
as mere pointers. One, you must produce what you consume and surplus
transfer to drought-beaten African states at affordable costs while
outward consumerist orientation must be discouraged through a well-packaged
policy of de-McDonaldisation. Two, diversification of the economy.
I must say this is not new. Successive rulers have used it as slogan.
It must seize to be a slogan and translates into concrete policies
in the field. In a note of honesty, which is rare in the diplomatic
circle, the German Ambassador to Nigeria Dr. Dietmar Kreusel recently
advised Nigerians to invest in the productive sector. Kreusel asked,
“where is the Nigerian that opens up agricultural farm who makes
it a Garden of Eden? Where are the Nigerians to do that? Where is
the Nigerian who starts an idea with simple means, start it and
makes it saleable products? You are importing rice.
You are importing
juice. You have peanuts, the best selection world-wide. You have
first class quality cocoa. Yet Cote d’ Ivoire has stolen it from
you. I suggest you change your habit. Make a choice”. Investment
in education is important. As Diamond has observed, “Such investments
in human capital – especially primary education and health care
– have been critical components of the East Asian developmental
“miracle”. Africa cannot escape its vicious cycle of poverty unless
it makes.” Political accountability is important. If an enabling
political environment is to be attained. Self-imposition by politicians
through fraudulent elections does not make for political stability.
Political accountability also means corruption-free leadership.
The beautiful ones are yet to be born among the current political
leadership in Nigeria. There is room for repentance if they believed
they have souls to be saved. FDI is very sensitive to a conducive
political environment. That is why they are concentrated in the
industrialised countries than developing countries.
Between 1985
and 1989, FDI in Africa stood at a paltry sum of $2.6 billion; Latin
America and the Caribbean was $6.0 billion; East, South and South
East Asia was $13.6 billion; North America stood at $55.8 billion
and Western Europe, $60.8 billion. As one who currently lives in
a major European capital, London, Nigeria does not cut the image
of a politically stable country. In the Whole of Africa, Botswana
is singled out as the “African Exceptionalism”. Finally, devaluation
is not a solution. National Currencies of countries have become
element of their national power and therefore an expression of national
power. Britain has consistently used dilatory tactics to post-pone
a referendum on the country joining the EU monetary unit: Euro.
America has been in a tariff war with European Union over the latter’s
export of steel into America to protect home industry. The US has
also imposed recently tariff on television import from China. In
the present circumstances, it should be controlled through the entire
available instruments including the CBN intervention.
If Dr. Ernest
Ebi, the Deputy Director in charge of monetary policy in the Central
Bank of Nigeria is taken for his words that we have about six months
current account balance, the CBN should be able to do so. It should
be noted that it cannot go far unless other factors are intensified
to boost revenue and reduce over-reliance on import in the longer
term. Increment in the prices of petroleum products is not among
my recommendation to boost revenue. As Dr. M. O. Arigbede put it,
“What justice is there in asking that gifts of nature, like petrol
which we have in abundance here, must cost the same here as it does
in all other countries of the world whereas, the income of the worker
here is about one hundredth of that of the worker in the US, for
instance?” The major problem of the managers of Nigerian economy
is what I call the Bretton Woods dilemma. As a pupil of that system,
it has to follow its dictates. If the country knows its leadership
potential in the region, it ought to exhibit its leadership through
a “rational relationship” with this global agencies by emphasising
all the time the implication of their policies while pursuing internally
policy to reverse its indebted and regain solvency.
The Poverty
Reduction Strategy Papers (PRSPS), an offshoot of the Cologne initiative
was a consequent of the activities of transnational civil society
actions and agitation such as Jubilee 2000. In essence, As Charles
Mutasa of Afrodad has observed, a strategy for recovering what is
owed to the multilateral creditors from the debtor countries. This
is underscored by the net present value of debt to export (NPV)
of about 150%. In the main, it is still a strategy to collect their
loans. Debtors have to be seen to be in charge of their policies
but creditors are also seen to be on the defensive. As Stiglitz
notes in the Guardian of London 18 May 1998, governments are more
effective when they respond to the needs and interests of those
they serve. A word is enough for the wise. Akhaine is in the Department
of Social and Political Science, Royal Holloway, University of London.
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