The Naira and Issue of Recession

T

he value of a country’s currency determines the purchasing power of the nation hence in general the state of her economy. Since 26^th September 1986, the Naira has been devalued and frittered away in unnecessary auction by the successive Federal Governments. Today the economy is only about 20% of the minimum level it is supposed to be at this point in time. Until we realise the rest of the 80% of unrealised economic potential of the country we should not be talking about increasing or contracting economy.

We should remember that up to December 1983, Nigeria economy was generally where it was supposed to be at the time. Unemployment rate in the country was negligible. Industries were working at full capacity. There were little or no unemployment among school certificate, OND, HND, first Degree and above holders. From the time you finished school, job was waiting for you to go into either in the public or private sector. There were not today’s wages and salaries’ arrears at both public and private sectors.

Between January 1984 and December 1985, the economy of the country was stagnant. From 1986, the economy never got off the ground for us to realising the enormous economic potential of the country. Things have since, about 30 years now, be going from bad to worse economically. We are not where we are supposed to be today economically because of the successive military Governments since 1984 - 1998, civilian Governments since 1999 where election riggings brought about many wrong people into the Legislature and Government, endemic corruption, mismanagement, vacillating and guileful leaders.

The semicircle growth only in the banking sector, where the banks and Governments traded their money with each other at high interest rates, which did not reach the larger sector of the economy that have been struggling with constant negative growth rates, could not be adjudged as national economic growth. There is not a Government that knows what go on in the informal sector of the economy let alone measure it. Therefore, the recorded economic growth rates by the past Peoples Democratic Party (PDP) Governments over the years can be described as baseless, exaggerated or fictitious.

Although issue of economic recession continues to resonate in the country today; it should be let known that we do not need to be talking about economic recession let alone being in it. Today, our country, Nigeria, has about 80% unrealised economic potential. There is the large capacity and elasticity for us to absorb or prevent any economic recession within the 80% unrealised economic potential largely within the country. Therefore, the current shortage of foreign exchange or reserve which some are being interpreted as recession is not an economic constraint if the Government knows what to do. By the way; if you do not know how I arrived at the above ratio of 8 - 2 on unrealised and realised economic potential of the economy of the country, please read my previous article, Financing Nigeria’s Annual Budget, which was published on this column twice.

Those who agreed that Nigeria economy is now in recession should tell us; for example, since 26^th September 1986, the beginning of the auction and decline of the Naira, when has the economy of the country actually improved? Expansion and revaluation without actual growth cannot be judged as improved economy. The country never had electricity, landline telephone, other infrastructure, interest and inflation rates have always been in double figures. Unemployment rate in the country has always been high and keep going up. Many people have been poorer day by day in the country. Many industries have vanished and the remaining ones have been working and struggling under half capacity.

From May 1999 – May 2015, PDP corruption swallowed much of the public fund. The PDP Governments went into privatisation of key and valuable public establishments when capable private sector operators to run and improve on the industries were not there. Moreover, the privatisations were inequitably and fraudulently carried out. Today where are those privatised industries? Have they improved more than they were under public ownership? Have their assets, services and high employment rate not vanished in the hands of incapable private owners? What were needed in the key industries were right management and adequate systems of control to maximise their efficiency and revenue.

The South provide the bulk of Nigeria foreign reserve and federally allocable fund. If the North can intensify efforts to adding value to the economy; remove Islamic religion from official and Government affairs; maintain harmony and conducive atmosphere for businesses and investments, non northerners’ businesses and investments in the North to thrive; the economy of the country and foreign reserve will improve significantly. If President Buhari can have inclusive Federal Government, stop his northernisation of the country and do what need to be done in national interests; the economy of the country would improve and grow.

The means to establish, grow our economy and fill much of the unrealised 80% gap in economic potential are largely at home with us and not necessarily in any amount of foreign reserve. The huge capacity within the 80% of unrealised economic potential in our country can be found, for example, in today inadequate electricity, landline telephone, domestic crude oil refining and related chemicals, works, informal sector in general, agriculture, food processing, sports, arts, right method of taxation, the Naira, management and organisation, etc. The saving grace in almost all of these is that you do not need huge amount of electricity and foreign exchange or reserve to operate the individual establishments economically and in large scale. These areas alone would today generate at least 12m direct jobs from about 30m of the currently unemployed and under employed in the country if they are developed.

The current inadequate foreign reserve, which is said to be mainly responsible for the currently contracting economy of the country, can be improved upon. The means and capacity to replenish the dwindling foreign reserve, which is now constantly much under $30bn, to at least $60bn are within us. We do not need to borrow a dollar from anyone nor export a drop of crude oil to bring the foreign reserve to a minimum level of $60bn. The augmentation can be instantaneous after successful arrangement. This level of foreign reserve would go a long way to sustain and improve our economy. Provided, the foreign reserve is utilised in the critical and neglected areas of the economy. That, the Federal Government does not force the Central Bank of Nigeria (CBN) to allocating the available foreign exchange to certain individual people or organisations at concessionary rates and for them to turn around to be round tripping at the parallel auction market.

Among the fallow, most neglected and untapped areas of our economy is the sports’ sector. The largest of the untapped sports’ sector that needs urgent attention is football (soccer). The current and quasi National Football Federation (NFF) we have is more of absurdity. Main Reasons! The Federation has very weak and corrupt management. Wrong people, many of whom that have never kicked football in their lives, have not even education in sports, because they came from certain parts of the country, always emerged as the management of the Federation. Fund meant for and generated by the Federation is always embezzled by those that manage it. This is notwithstanding the lack of organisation in the Federation.

It is time we re-organise the Nigeria Football Federation for economic and efficient professional football league system as found in Europe. We have the players, a large country, a large population, a large fan base, etc. to make a world class professional football league and as a major economic sector in the country. In the organisation of professional football, we should have a three division league.

The first of the leagues may be called First Division. It should have 22 clubs, which would play 42 league matches in a season.

The second could be called Second Division. This would have 24 clubs, which would play 46 league matches in a season.

The third could be called Third Division. It would have 26 clubs, which would play 50 league matches in a season.

Within these there should be non-league or non-professional football clubs in the country from which promotion would be made to the Third Division to fill the places of the numbers of clubs that are relegated from the division.

Football season in the country should be between 1^st September and 31^st May each year. This will enable the country to avoid the months of June, July and August which have the most frequent rainfalls in the country. Rainfalls from September to November, April to May though may sometimes be heavy but are less frequent to disrupt many matches. There are hardly rainfalls between December and March. Stadiums should nevertheless be built with cover to prevent rainfalls disrupting matches and waterlogged or flooded football pitches.

Stadiums should be constructed and owned by the football clubs. Where a football club in an area is unable to do these, the Local and State Government of the area and Federal Government should join together to construct the stadium. The stadium would then be leased or rented to the football club.

The Federal Government should repair and bring up to date the national stadiums at Lagos and Abuja. It is disgraceful that today we do not have a national stadium to play international matches and stage other sports events. The largest number of football fans in Nigeria with more money to watch football matches are in Lagos.

All the professional football clubs should be privately owned. The Local, State and Federal Governments should not own any professional football league club. Professional football clubs are used first and foremost to promote the places they are domiciled and the country. Therefore, all the professional football league clubs in the country should be named after the town or city they are situated. For example; if you have three professional football clubs in Enugu; you could have such names as Enugu United FC, Enugu City FC and Enugu Stars FC. This would be followed in other places such as Port Harcourt, Benin City, Ibadan, Lagos, Jos, Kaduna, Kano, etc. A professional football club must not be allowed to bear a person’s name even if such person own 100% of the equity shares of the club.

Where any professional football club has not got sufficient start up fund, the club should go to bank to obtain a loan. The State Government of the area and Federal Government should stand as guarantors of such loans at the banks. Professional football clubs’ transactions or takings are always in cash with little or no credit. Therefore, any club will not have problems in servicing any bank loan. The owners of the clubs should be monitored for any unnecessary, unusual and frequent cash withdrawal from the clubs. It is not that there is not business for Nigerian owned businesses or companies but the frequent and unnecessary withdrawal of money from the entities for personal uses by the owners do not allow the entities to have sufficient fund and cashflow. For this they always failed to pay their bank loans, other creditors and staff salaries on time or do not even pay at all. All these are anyway against companies’ law in the country. But who enforce law in Nigeria, especially when it concerns the bigman and connected.

Professional Football sport alone if it is well established, organised and managed in the country would initially generate about 2m direct jobs. This is notwithstanding the indirect jobs the game will provide and goodwill it shall bring to the country. It will occupy some of the current vacuum in many peoples’ lives. It will no doubt reduce crime considerably in the country. The rest of the world admire Nigeria football and wants to see more of the game. We have won the junior football World Cup four times. A well organised and efficient professional football league at home would help us to winning the senior football World Cup.

The only way out of the all along Naira quagmire is its restoration as a convertible currency at the foreign exchanges. Our country, Nigeria, is big, strategic, comparably economically strong enough to at least maintain her independent and convertible currency at the foreign exchanges. If these are in place today the realistic value of the Naira will be determined in relation to the size and actual value of our economy. Restoration would significantly enhance the purchasing power of the country.

As at 4^th August 2016 of writing this piece, the official auction rate of the Naira, from the website of the CBN was £1 = N407 and $1 = N310. This is the new auction rate of the Naira which the CBN termed Flexible Exchange Rate (a disguised devaluation). What the CBN did was an attempt to make the official auction rate the same as that of the parallel auction market. But the parallel auction market operators have since fought back. Their auction exchange rate as at the same date was £1 = N490 and $1 = N380. The same pressure on the Naira that came from the parallel auction market as a result of the dwindling foreign exchange and auctioning of the currency remain. It will be so as long as the Naira remain a non convertible currency at the foreign exchanges and only an auction domestic currency.

If the Naira is a convertible currency at the foreign exchanges today in terms of the current and actual value of our economy, the realistic value of the Naira can be found between N5 to N10 to $1 dollar, unless the Government decides otherwise on a different rate within the criteria for foreign exchange rate determination. As there is nothing wrong with the Naira in the first place, but for the temporary dip in our foreign reserve; as there is a huge economic potential at home from which to improve upon, the current devaluation of the currency was unnecessary. The Naira should be restored at the foreign exchanges at its realistic value and the parameters within which its rate shall float freely, plus or minus, would be determined. Nigeria is not a puny country.

A convertible Naira at the foreign exchanges would necessitate the introduction of the normal exchange control. Every major economy in the world has exchange control. We have already inadvertently established some of the procedures since the auction of the Naira. For example, over the years, we have the limited amount of foreign exchange we released into the auction market daily. We have specific transactions, goods and services upon which the foreign exchange can be spent These should be the benchmark of the fund to be released daily for foreign exchanges. Moreover, the use of new technology (computerisation) that was not available before would now facilitate the process.

The revenue that currently accrues to the Federal Government from the uneconomic auction of the Naira could be economically replaced by commission, etc. charges. The conversion would make the Naira a legal tender internationally. All the currency exchanges and remittances from and into the country would go through the normal banking and foreign exchange systems. It is not only that the conversion shall facilitate international financial trading at the Nigeria Stock Exchange, it will enable us to trade on the movement of major foreign currencies of the rest of the world. It would attract more inflow of foreign fund into our banks and Stock Exchange.

The Federal Government should abolish the domiciliary bank accounts system in the country. In as much as the commercial banks can hold some of their funds in foreign currencies for some cash transaction, the individuals and non-banking companies have not the actual need to holding bank accounts in foreign currencies. In addition to the foreign exchange round tripping abuses with these accounts; domiciliary bank accounts are the conduit through which the holders transfer corruption money, launder or take the money in the same foreign currency out of the country.

The minimum lending interest rate in the country as at date is 14% and inflation rate is 16.5%. Banks do not need high interest rate regime to making their huge profit nor the (CBN) need to control liquidity and inflation with high interest rate. Among all, high interest rate stifles the economy. The President should ensure that the minimum lending interest rate in the country is not more than 5%. The current high inflation or the loss of purchasing power, which some are interpreting as recession, only affect the formal sector of the economy that have been transacting at the much lower official auction rate of the Naira. But those that are in the informal sector of the economy that have been transacting at the parallel auction market rate of the Naira do not have actual inflation or loss of purchasing power.

The formal sector of the economy of the country is about 60% and the informal sector is about 40%. The informal sector of the economy of the country includes; all the uncontrolled and unaccountable businesses and incorporated companies, corrupt practices, underhand dealings, padding of budgets, payroll ghost workers, etc. If we have functioning Local Governments, prudent State Governments and effective leadership and adequate systems of control at Federal Government, the informal sector of the economy will not be more than 10% of the economy.

Looking at the current position of the banks, loans and repayments, supply and demand which are not recording any or an abnormal decline but the devaluation of the Naira and the jerking up of interest rate, which engendered high inflation and reduction of purchasing power only in the formal sector of the economy; the country cannot be actually adjudged as neither in technical nor full recession. It is all panic over current inadequacy of foreign exchange or reserve, which the Government is bewildered as to how to replenish in the immediate.

Alfred Aisedionlen (8^th August 2016)