Babawale Olubiyi Dolapo is a financial market enthusiast. He is on Facebook.
Adefisayo Adesope: Our so called economists seem to always make the same mistake. You cannot shut down imports totally or impose FX policies without a strong export base. You will kill the currency and mess up the economy. Once we are able to feed ourselves through an agricultural revolution, we can then shut down imports and focus majorly on exports.
!BRR: Now to the serious observation Fisayo has raised I will try to explain, align with some and contend with the remaining views. Very salient point you have raised, however, our present problem isnt really about shutting down import to boost local production. Our problem is short supply of petrol dollar and towering demand for same from Nigerians. As any import restriction regime, local production enjoys the tradeoff and in our history we know this is usually short lived as soon as petrol dollar piles up and restrictions lifted. So I agree with your notion that you will harm your currency if you restrict import and there are no local alternatives. I also agree that we can feed ourselves, shut down import and also export…
…however, I do not believe or align with your assumption that this import restrictions was done with the mind of generating local production; rather the CBN is trying to maintain a minimum balance on our fx holding as supply dollars to every demand for it will thin out our fx reserve and we will be barely become the Greece of Africa. Alternatives suggested by Economists and Pundits are: 1. Devaluation 2. Floating Let me start with floating: it will interest you to know that what the CBN was operating before totally yanking BDCs off it’s list of dollar receivers is called “managed float” where BDCs and market forces determine a fair price for dollars while CBN maintains an official rate to protect genuine Nigerian businesses, but we ended up with a “spread” of more than 60naira and same people asking for devaluation after they have starked up dollars in their vault. Now if the CBN buckle and goes ahead to float totally, pundits assume dollars will regulate. I disagree, rather, the power to regulate leaves CBN and market forces determines Naira’s perceived value, I don’t know a single nation serious about economic security that floats it’s currency…Devaluation (to be contd.)
Devaluation is not new to us, in fact it seems like our default retort when we have a little issue with fx supply or when the CBN governor feels honored to be “The Economist” person of the year. Devaluation has been done so many times that the Naira is already numb and hardly appreciate significantly months after our petrol dollar floors our fx account; so with the 2 options economists are suggesting (it is imoerative I say that they want either of these done with the CBN taking those items of restriction list), you will project that the specualtion will wane but the news around town is that growth is slowing down globally; when this happens, hegefunds, foreign investors take flight to safe haven (dollars and gold) and this is one of the main reasons gold is appreciating while other metals and commodities are tanking. We as a nation cannot pretend the world growth decline wont affect us neither can we start expecting harvest when we failed to plant. Now that we are finally here, which way forward?
Way forward: if I was given a chance to advise, I will say the following- -commend the CBN for it’s stick-to-it-tive-ness -suggest we run and tidy up the planned 25billion dollars infrastrucre fund planned by FG apart from the following, there’s very little we can do , the monthly demand for Fx for November was around 2.5billion dollars down from over 5.6billion in previous months(if my data is accurate). Restricted items on CBN list are not restricted items on customs’ list so importers are at liberty to source through alternate means. If we commence industrial and agric revolution now(which I support just like you do too) we cannot expect the gains in 6months. For me, the first thing we need to get out of this quagmire is for brent crude price to head back up; we haave learnt our lessons, we have a new govt with a new promise of better economic planning, we need forces of nature to work in our favor.lol. I stand to be corrected on any error or mis representation of facts. Thank you for the audience. Robust reply is not so difficult afterall, I therefore call on Pastor Fatoyinbo of “higher level of grace” fame to swallow his pride and render unto us that anticipated robust reply. Enjoy.
Editor’s note: This post is copied from a Facebook thread with permission.