I never called for naira devaluation – Osinbajo

Vice President Yemi Osinbajo has denied calling for the devaluation of Naira as reported by a certain section of the media (Blueprint not inclusive).

In a statement issued by his media aide Mr Laolu Akande, Tuesday in Abuja, the vice president said he had consistently been against what he referred to as “a willy-nilly devaluation of the Naira.”

Osinbajo had spoken Monday at the two-day Mid-Term Ministerial Performance Review retreat, presided over by President Muhammadu Buhari.

What Osinbajo said

At the event, he reeled out the progress report on the Economic Sustainability Programme (ESP) and delay experienced in burse disbursement.

He also  called on the Central Bank of Nigeria (CBN) to review its strategy on foreign exchange and ensure  the Naira value reflects the market reality, rather than what he described as “artificially low,” deterring investors from bringing foreign exchange into the country.
“As for the exchange rate, I think we need to move our rates to be as reflective of the market as possible. This, in my own respectful view, is the only way to improve supply,” Osinbajo had said.
“We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is my view.
“Currently, the naira is changing at N411 to $1 at the official side of the market, while the same goes for about N565 at the parallel market.
“There must be synergy between the fiscal and the monetary authority. We must be able to deal with the synergy, we must handle the synergy between the monetary authority, the CBN, and the fiscal side,” the VP had said.

My position -VP

Reiterating his position, Vice President Osinbajo said  he was never at any time a fan of naira devaluation.

In a statement, Osinabjo’s  media aide, Mr Akande said:  “Our attention has been drawn to statements and reports in the media mis-characterising as a call for devaluation, the view of Vice President Yemi Osinbajo, SAN that the Naira exchange rate was being kept artificially low.

“Prof. Osinbajo is not calling for the devaluation of the Naira. He has at all times argued against a willy-nilly devaluation of the Naira.

“For context, the Vice President’s point was that currently the Naira exchange rate benefits only those are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!

“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption. 

“It is a well known fact that foreign investors and exporters have been complaining that they could not bring foreign exchange in at N410 and then have to purchase foreign exchange in the parallel market at N570 to meet their various needs on account of unavailability of foreign exchange. Only a more market reflective exchange rate would ameliorate this. With an increase in the supply of dollars the rates will drop and the value of the Naira will improve.

“The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the Importers and Exporters window to work.  If we allow this market mechanism to work as intended, we will find that the Naira will appreciate against the dollar as we restore confidence in the system.”

Academics say no to devaluation

Also lending their voice to the issue, Association of Capital Market Academics of Nigeria (ACMAN) said  devaluing the naira poses grave consequences for the 2022 budget proposal as it would not be implementable. 

The naira presently exchanges for N411/$ at the official market but N565/$ at the parallel market. 

Speaking at a media parley on the 22 budget proposal in Abuja, ACAMAN President  Professor  Uche Uwaleke noted that given the fragilities, structural imbalances and vulnerabilities, the economy may not be able to withstand a naira devaluation at this time. 

He said: “As you all know, this economy remains a mono-product economy. The export base is not well diversified. Over 90 per cent of the forex we get is from a single source-oil. You can see that the supply side is challenged by the mono-product nature of the economy. The demand side is also challenged because it is an import dependent economy. This is an economy that imports virtually everything including toothpicks.

“Except these fundamentals are addressed, it’s difficult to talk about, if you like, allowing market forces to completely determine the value of the naira. You can’t float the naira when fundamentals are not there. So, I am saying that it’s important we address these fundamentals to ensure that this country has multiple sources of earning forex as well as also deal with the demand issue.”  

The ACMAN president also said  the argument that naira devaluation would  incentivise foreign investors remains to be seen as other factors such as insecurity equally play a part.

“To be sure, the naira has suffered several devaluations in recent past. It has neither solved the fundamental problem of helping to diversify the export base nor curbed unbridled imports. Doing so yet again will not change anything. Rather, it’s a recipe for high poverty and unemployment levels.

“Again, suggesting that the CBN should discontinue its forex demand management strategy to the effect that certain items are excluded from accessing the official window has grave implications for exchange rate and the economy. If anything, it negates the import substitution drive of the present administration,” the first Capital Market Professor in Nigeria told Blueprint. 

‘No synergy among managers of nation’s economy’

Also  speaking on the telephone with one of our correspondents, a political economist and development researcher, Mr Olamilekan Adefolarin, said the  VP’s position  is an indication that Nigeria’s “economy managers are working at cross purposes, a development  that it is not good for the health of the economy.”

According to the political economist, the current dilemma of the naira goes beyond what ordinary devaluation can address.

“What is happening right now in my assessment is a deliberate action to weaken the naira on all front, and the vice president shouldn’t be the one doing the bidding or calling of the obvious enemies of the naira.

“What we expect from the vice president being the chairman of the national economy committee is how to suggest more proactive fiscal policies that would foster realistic monetary policy in strengthening the naira, not to suggest outright devaluation.”

On his part, MD/CEO SD&D Capital Management Limited, Idakolo Gabriel Gbolade, shared the thinking and views of the vice president.

“I share the opinion of the Vice President because this measure will actually free the FX market and allow new Dollars to come into the economy. The devaluation of the Naira to reflect the true reality on ground is the way to go.

“Nigeria presently does not need a multiple exchange rate regime where official rate is far different from the parallel market.

“The present intervention by the CBN has not yielded the desired result as it has further caused the Naira to continue on a downward slope,” he said in a chat with Blueprint. 

Way forward

For Professor Uwaleke, the good news is that the CBN has sufficient external reserves to meet genuine demands for forex at the investors and exporters’ window. “The CBN should continue to manage it while joining hands with the fiscal authorities to create multiple sources of forex beyond oil,” he said.

Adefolarin averred that redoubling the federal government’s diversification policy with strong focus on the productive sectors, especially non-oil that includes, ICT, revamping local industries such as the paper mills, Ajaokuta and other steel mills scattered all over the country would help. 

“More so, the CBN must not push back on its stand to strengthen the naira. And the last thing the apex bank cannot bear is pressure from the executive to devalue the naira,” he said.