25 October 2015, Lagos – There was a sharp division among the nation’s leading economists and financial analysts on Saturday over Friday’s call by the Emir of Kano and a former Central Bank of Nigeria, CBN, Governor, Muhammad Sanusi II, for the devaluation of the naira, with most kicking against the call.
However, they were unanimous on the call for the immediate removal of the subsidy on petroleum products in the country.
The former apex bank governor had stressed the need for the federal government to completely remove fuel subsidy and to reconsider stance against naira devaluation, saying the country cannot continue to live “in denial.”
But some of the economists who spoke with THISDAY in separate interviews believe the Federal Government has no justification to retain the controversial fuel subsidy, arguing that the falling oil price and the attendant revenue shortfall have combined to make fuel subsidy absolutely uneconomical at this period of the nation’s history.
They however took different positions on the call for naira devaluation.
Those who lend their voices to call for an end to fuel subsidy regime included former Managing Director/Chief Executive Maxifund investment and Securities Limited who is also past President, Chartered institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu; former Director West African Monetary Institute, Dr Temitope Oshikoya; Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, former President of the Nigerian Economic Summit Group, Mazi, Sam Ohuanbwunwa; Managing Director, Cowrie Assets Management Company Limited, Mr. Johnson Chukwu, and the current Chairman of the Nigerian Economic Summit Group, Mr. Laoye Jayeola.
Sanusi had wondered whether it makes sense at this time for the government to continue paying petroleum subsidies, explaining that “When you are not earning because oil prices are down, you have to shut down those expense lines that had been known historically to be the site of rent-seeking.”
Unegbu said the call by the Emir for the removal of subsidy on petroleum products was appropriate at least to fight corruption. Oshikoya believed considering the erosion of the nation’s revenue as a result of the persistent slide in prices of oil at the international market, government had no choice but remove the subsidy as a way of giving the economy the breath it so much needs at the this point in time.
Ohuanbunwa recalled that Nigerian economy in the past improved when the federal government took the globally accepted options which fall in line with SLS’s prescriptions, saying “Our economy grew, foreign investments grew, inflation came down. So on the balance, those are the painful but reasonable steps we must take if we want to recover.”
Rewane said what Nigeria needs most to get out of the wood is to remove the subsidy once and for all.
“Once we remove the subsidy, the strains of the adjustment will not be what we think it would be,” Rewane who has been championing the call for subsidy removal said.
On the call for naira devaluation, Unegbu argued that Nigerian economy would suffer if the CBN succumbs to call to devalue the naira.
He explained that devaluation would cause a country’s exports to be less expensive and more competitive in the international market place.
Saying the fact that ours is a mono-product economy should not be lost on us, Unegbu warned that,“Our imports will be more expensive and the local price for them will be prohibitive. One of the reasons for devaluation is to combat trade imbalances. What products do we have in the global marketplace? The major product is oil and we are deficit of other products whose volume of sales can offset expensive imports in a devalued currency environment. Nigeria being an import dependent economy will suffer in a devalued currency situation. We have already experienced some currency devaluation of eight per cent but the results so far are not palatable. In the short to medium term devaluation causes interest rates and prices to rise. Devaluation may lead to higher economic growth through higher export of goods and services but with lower imports, but this cannot be possible in Nigeria at the moment until we diversify our export productive base.”
Unegbu’s position to the call for naira devaluation was shared by CEO of West African Monetary Institute, Dr Temitope Oshikoya, who said that Sanusi’s suggestions should be taken with a pinch of salt, alleging that the latter’s current position, especially on the issue of naira devaluation was completely different from what he preached when he held sway as the apex bank governor.
Oshikoya said, “I’m surprised at the comment of the former CBN governor because this was not the tune he was singing when he was the governor. I remember he said devaluation would not work on export because we are a mono exporter. Why is he asking for devaluation now?”
“I believe what Emefiele is trying to do is to forgo financial integration trying to achieve monetary independence and exchange rate stability. He is also trying to enforce capital control.
When Sanusi was talking of devaluation, what he is saying is forgo exchange rate stability, open up capital control. Sanusi is right, Emefiele is also right but we need to analyse the implications of each choice they make.”
“I’m not against devaluation per se, when we devalued dollar to N200 in 1983, have we been able to bring about economic diversification? Have we been able to bring about increased manufacturing activities? We have not been able to show there is a link between devaluation and diversification. Even if we continue to devalue, when are we going to stop? Are we going to have another devaluation if the unofficial rate moves again, say by another 10 per cent? These are the issues we need to debate.”
His position however differed from that of Ohuanbwunwa, who believed devaluation would address the alleged contradiction in the exchange rate regime. According to Ohuanbwunwa, who is also the Chairman of Neimeth Pharmaceuticals, Sanusi’s views represent the most globally acceptable way to deal with our current economic challenges.
He said, “The actions taken by CBN and by extension, the government are logical in times of distress and we have taken similar actions before. The question is what did we accomplish by those restrictive and control responses. Disparity between official and market determined rates, which ends up promoting round tripping and stocking corruption. We ended up with contraction of the economy and destabilised macro-economy. Unemployment worsened and poverty grew. But check what had happened when we took the globally accepted options, which fall in line with SLS’s prescriptions. Our economy grew, foreign investments grew, and inflation came down. So on the balance, those are the painful but reasonable steps we must take if we want to recover.”
However, on his part, Rewane rose in stout defence of the former CBN governor, saying “It is absolutely incorrect to say that Sanusi is now calling for the implementation of policies he couldn’t bring to the table during his regime. The question is what was the price of oil during Sanusi’s tenure and what do we have now?”
Rewane explained that the exchange rate mechanism that Sanusi used was different from the exchange rate mechanism in place now.
According to him, the country was able to live with his policy at that period because he was trying to attract international capital to the country. “We had greater ability to do the adjustment during Sanusi’s era,” he said.
He therefore suggested the introduction of a managed floating rate, saying, “Once we start to move in that direction, investors confidence will rise.
Lending his voice to the debate, Managing Director, Cowrie Assets Management Limited, Mr. Johnson, said for the country to break away from its current economic problems, the authorities would have to accept the reality that the time for devaluation of the currency is now. He noted the exit of foreign investors, saying the development is affecting the position of the nation’s foreign reserves.
He explained that it will be in the nation’s interest if Sanusi’s advice was taken seriously.
When contacted, the incumbent chief executive, NESG, Mr. Laoye Jayeola, said his position was not different from what the organized private sector had been clamouring for.
Referring to Sanusi’s position, Jayeola said, “He (Sanusi) hasn’t said anything different from what the business community has been saying, and we are unanimous in this regard, So, I don’t have a different reaction,” he told our correspondent in a message.
*Festus Akanbi – Thisday