According to a 1st February 2024 Financial Times report, Nigeria devalued its currency twice in eight months, ostensibly to clear up the country’s chaotic system of exchange rates and attract foreign investment to its flailing economy. Yet, these decisions have not produced the intended outcomes. This is because currency devaluation is not a good economic policy for a consumption-driven economy like Nigeria and many other African countries. To make progress, Nigeria and, indeed, other countries in Africa with similar economic situations may have to look away from the Global North’s financial sharks, and learn from countries like China and Latvia, whose currency devaluation policies and strategies brought them great economic recovery and prosperity.
Why devaluation is not the solution
Many Africans have argued that the cardinal reason behind such currency devaluation is to satisfy the Global North financial sharks like the IMF and the World Bank, and act their scripts. It has become clear that the major interest of these financial institutions is to stifle the economies of developing countries and keep them under the control of world superpowers, as witnessed in Pakistan and Sri Lanka.
Nigeria’s economic situation is already experiencing the consequences of these devaluations, which include a high cost of living, a high inflation figure at 28.92%, increased food inflation at 33%, and an increased unemployment rate at 56.1%, to name a few. The current situation has pushed 133 million Nigerians into multidimensional poverty, according to the latest data from the National Bureau of Statistics. Nigeria’s challenges are compounded by a shift in economic activity towards agriculture and a slowdown in the manufacturing sector. Insurgency, kidnapping, and farmer-herder crises worsen the situation by keeping farmers out of farming, while manufactured goods as a share of total exports remained low at 5.2 per cent in 2021. This means that the manufacturing sector is being weakened rather than reinforced. As a result, currency devaluation is having inimical effects on the economy.
Production economies benefit from currency devaluation through the export of goods and services more than those bedevilled by over-dependence on imports, insurgency, kidnapping, farmer-herder clashes and other social vices that deny them productive capabilities. Yet, while defending the decision to devaluate at the 2024 Macroeconomic Outlook organized by the Nigeria Economic Summit Group (NESG), the central bank governor, Olayemi Cardoso, presented an economic formula to reining inflation at 28.92% in December 2023 to 21.4% in 2024 but remained elusive on how to achieve this objective considering the current local and global economic pressures.
China’s and Latvia’s experiences
Taking cues from China’s and Latvia’s experiences might be a way out. For example, in 2015, the Central Bank of China devalued her currency, making it weaker in order to make the country’s goods more appealing globally with the consciousness of avoiding sharp currency depreciation, creating stability and encouraging the Yuan to play a more significant role while remaining little used outside of China. This reform was targeted towards a more market-oriented economy to make exports look more attractive. The aim was to give market forces a greater role in determining the Yuen exchange rate to enable deeper currency reform and gradual economic expansion, daring global repercussions on countries including the United States and India. For devaluations to play a positive role, Nigeria will have to transform its economy from a consumption economy to a production one.
Nigeria’s economy is similar to Latvia’s during the depression of 2009-2010. Latvia’s economic situation in 2008-2009 was characterized by a huge debt profile, a low gross domestic product (GDP) of about 24 per cent, high unemployment rates and several other negative economic indices. But unlike Nigeria, the Latvian government tackled this poor economic performance through a mechanism of fiscal tightening of their GDP and fixed local currency, coupled with the implementation of fiscal and monetary policies that promote a rapid economic recovery and growth. Despite the European and IMF disagreements on the Latvian government’s decision to peg the exchange rate, tagging it a ‘bad economic policy,’ the decision launched Latvia on the path of slow but sure economic recovery in 2010. Latvia embraced this ‘bad economic policy’ (so tagged by the IMF), which launched its people out of the woods.
Nigeria’s situation and Africa’s economic recovery
The situation in Nigeria is not different from Latvia’s situation, with her economy sliding from surplus export earnings in the 1980s to a staggering import expenditure in 2023 with continuous rising food imports, evidently showing a slide further into the consumer economy! Nigeria’s deregulation of the downstream petroleum sector, the collapse of the FX market within two weeks of the administration, and the subsequent increase in taxation without relief provisions further complicated the situation. Today, Nigeria is neck-deep in food crises.
The leeway for Nigeria is a total departure from the failed Euro-America economic recovery policies to embrace pro-African economic strategies, taking cues from other experiences, such as the Chinese and Latvian models. These models are pointers that exploring indigenous policies could strengthen Nigeria’s economic growth rather than leveraging non-performing policies and instructions from the IMF and World Bank.
Nigeria needs to look inwards to formulate radical economic measures that will rescue the 133 million multi-dimensionally poor Nigerians and several other millions transiting to starvation and multidimensional poverty. As a matter of urgency, further implementation of economic templates by these global financial institutions (led by the World Bank and the IMF) should be jettisoned. It is time for Africa to take her destiny into her hands and put the continent back on the strata of economic growth! African leadership should be pragmatic, proactive, and holistically embrace internal devaluation mechanisms through drastic cuts in the cost of governance, reduction in the cost of education and healthcare tourism abroad while increasing massive investments in infrastructures, education, agriculture, and combating insecurity. Furthermore, frontal implementation of Pan-African democratic ideals and the enforcement of stiff punishments for corrupt and selfish public office holders.
Finally, rather than adopting the non-performing policies from financial institutions in the Global North, Nigeria and other African countries with similar economic situations should embrace the strict implementation of indigenous and out-of-the-box models to re-position Africa on the path of economic growth.
