According to international publication, The Economist, President Muhammadu Buhari is making the same mistakes in handling Nigeria’s economy that he made as a military ruler.
The publication also criticized Buhari for failing to devalue the Naira in an article titled “Nigeria’s economy; Hope the naira falls.”
Read the article below:
“GIVE
me lucky generals,” Napoleon is supposed to have said, preferring them
to talented ones. Muhammadu Buhari, a former general, has not had much
luck when it comes to the oil price.
Between 1983
and 1985 he was Nigeria’s military ruler. Just before he took over, oil
prices began a lengthy collapse; the country’s export earnings fell by
more than half. The economy went into a deep recession and Mr Buhari,
unable to cope, was overthrown in a coup.
Now he
is president again. (He won a fair election last year against a woeful
opponent; The Economist endorsed him.) And once again, oil prices have
slumped, from $64 a barrel on the day he was sworn in to $32 eight
months later.
Growth probably fell by half in
2015, from 6.3% to little more than 3% (see article). Oil accounts for
70% of the government’s revenues and 95% of export earnings. The
government deficit will widen this year to about 3.5% of GDP. The
currency, the naira, is under pressure. The central bank insists on an
exchange rate of 197-199 naira to the dollar. On the black market,
dollars sell for 300 naira or more.
Instead of
letting the naira depreciate to reflect the country’s loss of purchasing
power, Mr Buhari’s government is trying to keep it aloft. The central
bank has restricted the supply of dollars and banned the import of a
long list of goods, from shovels and rice to toothpicks. It hopes that
this will maintain reserves and stimulate domestic production.
When
the currency is devalued, all imports become more expensive. But under
Mr Buhari’s system the restrictions on imports are by government fiat.
Factory bosses complain they cannot import raw materials such as
chemicals and fret that, if this continues, they may have to shut down.
Many have turned to the black market to obtain dollars, and are
doubtless smuggling in some of the goods that have been banned.
Nigerians
have heard this tune before. Indeed, Mr Buhari tried something similar
the last time he was president. Then, as now, he resisted what he called
the “bitter pill” of devaluation.
When, as a
result, foreign currency ran short, he rationed it and slashed imports
by more than half. When Nigerians turned to the black market he sealed
the country’s borders. When unemployment surged he expelled 700,000
migrants.
Barking orders at markets did not work
then, and it will not work now. Mr Buhari is right that devaluation will
lead to inflation—as it has in other commodity exporters. But Nigeria’s
policy of limiting imports and creating scarcity will be even more
inflationary.
A weaker currency would spur
domestic production more than import bans can and, in the long run, hurt
consumers less. The country needs foreign capital to finance its
deficits but, under today’s policies, it will struggle to get any.
Foreign investors assume that any Nigerian asset they buy in naira now
will cost less later, after the currency has devalued. So they wait.
Mr
Buhari’s tenure has in some ways been impressive. He has restored a
semblance of security to swathes of northern Nigeria that were overrun
by schoolgirl-abducting jihadists. He has won some early battles against
corruption.
Some of his economic policies are
sound, too. He has indicated that he will stop subsidising fuel and
selling it at below-market prices. This is brave, since the subsidies
are popular, even though they have been a disaster (the cheap fuel was
often sold abroad and petrol stations frequently ran dry).
If
Mr Buhari can find the courage to let fuel cost what the market says it
should, why not the currency, too? You can forgive the general for
being unlucky; but not for failing to learn from past mistakes.
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