The debate surrounding devaluating the naira appears to have been conducted in abstract terms that make it difficult for many folks to participate in it. This shouldn’t be the case. In fact, the economics of devaluation or revaluation appears to be plain and simple, though there are no simple answers to the questions that they raise.
The debate has highlighted some inconvenient truths about the economy that we have operated since the beginning of the republic. But the inconvenience of these truths does not diminish their status as truths. In the language of popular introductory books, then, I present “Devaluation for Dummies.” I would still be one of the dummies but for my power couple who broke the issues down for me in plain language.
First, we operate an economy that is fundamentally based on foreign exchange earnings from one product, that is, fossil fuel. The vibrancy or otherwise of the economy is therefore dependent on fluctuations in the oil market. There is no better evidence for this truth than the benchmarking of our annual budget on the price of oil. To allow for the shock of the fluctuation, we use conservative figures so that we may have a pleasant surprise for our Excess Crude Account, an extra constitutional device cleverly designed as buffer for us in the rainy day.
Second, we do not produce any tangible products for export besides oil and we do not produce most consumer goods. So we are fundamentally a consuming nation. As President Muhammadu Buhari has repeatedly observed, we even import toothpicks.
Third, from the foregoing, it follows that we need more foreign exchange than we earn from the export of oil, our only commodity, in order to pay for our cravings for imports. If the individual importers of these goods have access to their own foreign exchange earnings, e.g. through their business and professional incomes, they would not need any from the government through the CBN. However, the vast majority, including most businesses, have no independent sources of foreign exchange. Therefore, they rely on government for supply. Additionally, we also now import education for our kids by sending them to foreign institutions for which we have to pay their tuition in foreign currencies.
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