Saving the naira: The Soludo option

Charles Chukwuma Soludo

The late Professor Sam Aluko was the chairman of the Newswatch Board of Economists. We set up the board to periodically examine our national economy. The board met twice annually – after the federal budget and six months into its operation.

We selected the members from the academia and the business community. They were brilliant men who knew the theory and the shenanigans of economic behaviour or rather misbehaviour, like the back of their hands. I remember Dr Uma Eleazu, Dr Ibrahim Ayagi, Dr. Kayode Familoni, and of course, chairman Aluko. And I remember the lively debates moderated by Aluko at the board meetings.

As you would expect from such a group led by the renowned economist, the chairman and members of the board took their assignment seriously. We believed that the effective management of the rather treacherous Nigerian economy was too serious to be left in the hands of our generals, however much they believed they were well-grounded in the intricacies of economic management. We believed they required inputs from those who taught the science of economics and those, as business leaders and employers, knew where and why the shoes pinched them and possibly why in an economy known for its abnormalities.

Our ambition was to help the government work out a model system of economic management that would forever and anon cure the economy of its basic ills of dependence. The board examined and critiqued the federal government’s annual budget and often accurately predicted why the economy was heading down the wrong road. We published its critique each time in a special edition of Newswatch magazine.

Now many years later and given the consistent bad behaviour of the economy, I am wondering if the government ever took the views of the board seriously. Our economy has a history of taking us up towards the top of the mountain only to drop us down the valley half way up there.

I recall the work of our then board because of what is happening to our national currency, the once strong and almighty Naira. At one of our board meetings, Aluko told us some of his former students working at the World Bank and the IMF confided in him that the ultimate objective of the Bretton Woods Institutions was to see the Naira exchange at 500 to the dollar.

We laughed it off. We found it hard to believe and must have collectively sighed: it is not the portion of our currency in the mighty name of Jesus. At that time the Naira was exchanging at less than 50 to the dollar, in spite of its buffeting by the vagaries of the structural adjustment programme. We squirmed at the thought that our national currency would take such a beating. There is something nightmarish about a battered national currency. It is an elementary fact that when you batter a country’s currency, you batter the national sense of pride attached to it. We simply feared to take in the unpleasant fact or see the distant but looming shadow.

It has come to pass. Poor Naira. As of this writing, the Naira was exchanging for N506 to the dollar. Aluko to is no longer with us to say I told you so. I know he would have wept for our country. How awfully sad. How truly sad. Many other African currencies are today stronger than the Naira, the national currency of a nation that was once its brothers’ keeper on the continent. Will our currency hit the very bottom like the Zimbabwean dollar? Ask the malams who deal in currency exchange.

The Naira has had a long history of greatness. And of progressive weakness. In the second republic, it was hawked openly in London, New York and other big Western cities. Its purchasing power was unmatched by any other African currency. Nigerians were the crowned princes of profligacy.

The keepers of the world economic flame felt that the Naira was too strong for its own good. It was two and half times stronger than the almighty green back, the dollar. I suppose the fact that a third world currency was so strong rankled and the plot to cut the uppity Naira down to its size began, as evil plots do, its slow, steady and inexorable process of thickening.

The changing fortunes of the Naira mirrors our fitful rise towards greatness only to fall back to the banks of the gutter. The Naira is a victim of economic experiments that failed to pull it through the woods. What to do with the Naira essentially brought about our rejection of the $2.5 billion bridging loan the Shagari administration was negotiating with the IMF/World Bank in the Second Republic before his regime ended three months into its second four-year term. One of the conditions the fund attached to the loan was that Nigeria must devalue the Naira. President Shagari found this positively abhorrent. He rightly feared that a devaluation of the Naira would possibly put the country in the same league with say, Turkey or Brazil. That would not, to be fair, a credit to his competent management of the economy.

The fear of devaluing the Naira forced President Ibrahim Babangida to reject the IMF/World Bank conditionalities and opt for home-grown alternatives that would be, arguably less painful for the citizens and less traumatic for the national currency. The general then chose the economic path never taken before in the country. He introduced the structural adjustment programme, with the unfortunate acronym of SAP. Its structural philosophy was aimed at curing the main weaknesses of the economy, the biggest of which was the country’s import-dependence. The pains came and trauma battered the Naira.

Under the programme and on the advice of the keepers of the global economic flame, the Naira was set free to struggle with market forces and find its own true value. An unusual economic experiment whose wisdom appeared frayed in the SAP morning. Nothing has ever been right or the same for the Naira. It is yet to find its correct value more than three decades later that would be acceptable to the gurus who believe it is not right for the currency of a middling third world country, even if that country is home to the largest black population in the world, to have such a strong national currency. In its current state, the Naira has lost its capacity to hold our economy together as it faces the battering ram of recession.

In the early years of SAP, the Babangida administration believed it was the missing key to our economic paradise, hence its stout argument that there was no alternative to it. At one of our board meetings, Aluko mocked that slogan and put up a counter-argument, to whit: there is an alternative to everything, including death.

I heard it repeatedly argued then that the ordinary Nigerians were not complaining of the exchange rate because it meant nothing to them. They imported nothing and had no appetite for exotic foreign food such as long grain rice. On the other hand, the elite complained because their cultivated taste for foreign food had been confronted with the eba alternative.

Does anyone still doubt that the battering of the Naira is as much of concern to the elite as it is to the ordinary Nigerians? Common home-grown vegetables are priced in our local markets in response to the weekly beating the Naira is subjected to. This is not pleasant.

I am not sure if this is an ode to the Naira or a funeral dirge. As I see it, the Naira is a victim of economic experiments that lost their magic wand. I believe we can find a more creative formula for saving the Naira. The floating formula has not worked because with so much Naira chasing so few dollars every week it is patently unwise to expect the Naira to find its own value. If it has not done so for nearly four decades, what makes us think it would now? The answer is to revalue the Naira. Professor Charles Soludo saw the wisdom in that but it cost him his high profile as governor of the Central Bank of Nigeria. Let us revisit the Soludo formula. It may save the Naira and make some sense of our unruly economy.

It would only get worse for our national currency and our national economy if we have no alternative to letting the Naira continue to float in search of its true value. This option must have been wise some three decades ago but it seems to me that the wisdom has run its course. We are all groaning because we go to the market with a large quantity of Naira only to return with almost an empty basket. It is change all right. But it is an undesirable change.

In this article:
Professor Charles Soludo
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  • Augustine

    ? You mean rebase naira not revalue

    ?You cannot practically revalue, but you can ‘pseudo-revalue’ by rebasing

    ??? You still dont get richer by rebasing, you end up at say $1 = N5 if you rebase by truncating two zeroes off Naira equivalent digits.

    Problem is, you have less naira to buy dollars, your N500 naira in bank is now N5, you still buy only $1. Benefit is psychological, ego, my currency national is 5 to 1 dollar. Also, we carry less cash around as prices adjust downwards. N5 million car will be 50k.

  • Maigari

    All th4 experts and gurus considered in thing the common-man -Nigerian- finds wrong with all the reforms is that we rely far too much on the wisdom of the experts. These experts were and still are by and large Breton Woods dyed fanatics. Their solution id for the government to spend less and less until perhaps all the people are silenced when there is nothing left to spend. The issue is simple but the experts have been trained, employed and paid to think of difficulties against the people. When all you need is simple and straight answers then don’t listen to experts because they cannot understand the simple. That is the problem with the economy and the national currency -dependency on the crude in all its ramifications.

  • Jolly Osadiaye

    Economists certainly need brains

  • Mohammed I. Yakubu

    Why would the exchange rate of the naira not continue to nosedive when privileged rogues amassed billions of naira illegally and are desperately chasing forex with the tons of stolen domestic currency. It is commonsense to expect that the the naira will continue to depreciate in the face of the many sordid acts of corruption in high places which are already in the public domain.

  • Noble-E

    So much talk . What has this man to offer? I curiously looked forward to that as I avidly consumed his epistle

  • akinwale

    i think the solution is to focus not on the nairas value but focus primarily on job creation , productivity and efficiency.
    what resources do we have that we can easily transform to productivity? primarily land and a population.we should use this in the first instance and educate/ train Nigerians. the government should provide the opportunities for people to be productive.
    Agriculture , mining industries , technical/practical education should be the main focus. Steel{ajaokuta] and petrochemicals will naturally follow.the basic petrol/diesel should be produced in Nigeria.

  • Daniel

    I do not believe devaluing or rebasing the naira takes away poverty.

    Nigerians are entrepreneurial. So my observation is the TACIT SUPPORT government gives to generator importers and imperialist friends to keep Nigeria in PERPETUAL DARKNESS.

    The Nigerian government does not appreciate the positively huge economic impact stable power supply will bring to Nigeria.

    A change government, as they say today, is also FAILING or COLLABORATING to ensure that NIGERIA REMAINS IN DARKNESS.

    Fashola is now the minister of darkness. He has shamelessly started repeating the same excuse of no GAS or pipelines are blown up or system failure.

    Until we fix power supply, the crude oil price that supports the naira will remains our nemesis.

    Obviously, we are not yet ready to develop and be self- sufficient.

  • Walt Bucci

    A failed state!