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Blaming CBN for devaluation is unfair (1) – Dele Sobowale

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“There is no good arguing with the inevitable. The only argument available with an east wind is to put on your [raincoat].

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J R Lowell, 1819-1891, VANGUARD BOOK OF QUOTATIONS, VBQ, p 12.

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 The Central Bank of Nigeria, CBN, just devalued the currency by eight per cent; and all the expected noise is being heard from the usual quarters – politicians playing to the gallery, Labour leaders, and most opinion makers. It is not surprising. Most Nigerians, like most people worldwide, are economic illiterates. Albert Einstein, 1879-1955, generally regarded as one of the most intelligent men who ever lived, said that he gave up reading Economics “because it was too tough”. So, it is not an insult to call Nigerians who never studied the subject illiterates. If the topic is Engineering, Architecture, Music, Astro-physics, Law, I gladly admit my stupidity. Nobody can be good at everything.

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 General Babangida is often quoted asking why the Structural Adjustment Programme, SAP, which saved the economies of the Asian Tigers – Malaysia, Thailand, Indonesia, and Singapore from collapse, failed in Nigeria. My answer to him then, published in VANGUARD was blunt. “Economics assumes the individuals in a society are rational. Nigerians are irrational people.” That reply is still valid today. Two examples will illustrate the point.

 Nigerians are aware of the vanity of the Yoruba when they buy and dress in uniforms (aso ebi) for special occasions. Many of those who gladly purchase the cloth might not have paid their rent or children’s school fees. Is that a reasonable allocation of financial resources? Yet, it endures.

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 Two weeks ago, the Economic and Financial Crimes Commission, EFCC, arrested a young man in Lagos, trying to buy a new SUV for N44 million with Bitcoin. The unreasonable fellow lives with friends in a two bedroom rented flat. He could have bought a modern three bedroom flat for under N30 million; invest N10 million in other income-generating ventures and perhaps spend about N4 million on a good “Tokunbo” car. That is what his Hong Kong counter-part would have done. But, the vainglorious Nigerian had to reveal himself. Most Nigerian internet fraudsters are the same. EFCC detention centres are filled with exotic luxury vehicles bought by people living in a room and parlour.

 The two examples represent Nigerians, not only in private, but, in public life as well. The politicians elected to office have invariably made profligacy and kleptomania their primary economic policy; they do so with our support all the time. Even the educated elite – professors – join in entrenching economic waste and grand larceny.

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 Tucked in the middle of Yorubaland is what should have been an airport – about 90 kilometres from Ibadan. The former Governor, who started it, was widely hailed – including by a retired Professor and former columnist in a national newspaper. Despite my text message to Prof, he continued to the end heaping praises on the former Governor. Today, there is no airport and the state is indebted – in DOLLARS – for the scam. The scammer is still walking around free and still being hailed by those who assisted him to loot the state – which is now in search of dollars at N410/US$. Exchange rate was about N250/US$ when the swindle started. Every state owned airport established as a strictly commercial airport, is a monument to somebody’s ego and a deliberate waste of state funds to which millions of dollars have been corruptly committed. That is only one of several thousand ways by which the people we elected into office, and not CBN, got us into the mess we are in now. It is not even the most important.

DELUSION OF LASTING OIL-BASED ECONOMIC PROSPERITY

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“Oil export revenue dropped by 98% in April – NNPC” News Report.

 That report went on to state that the “total revenue from crude oil fell to N723m from N35.72bn in March”. That report, which most people would have read, and turned the page, without further reflection, has pointed to greater economic disasters ahead. Crude oil remains our largest and most dependable foreign exchange earner. The quantum of dollars generated from the sale and export of this commodity largely determines the exchange rate – which ordinarily should be anchored on supply and demand – except Nigeria.

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“You can’t bully reality.”

 Every Nigerian government had allowed itself to be bullied by the people, led by organised labour and the media, to handle issues pertaining to oil commodities differently from other products. The ultimately ridiculous arguments remain the same. First, Nigeria is an oil producing country. Second, we have four refineries. So, fuel prices should be fixed as low as possible by governments. Those making these arguments have never explained why other oil producing nations, with several functioning refineries – Saudi, Russia, USA, Norway etc – don’t have fuel prices fixed by their governments. The reason is simple. Any time government gets involved in fixing the price of any commodity, political pressures invariably lead to unsustainably low prices which result in fiscal problems later.

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 My first experience with the Federal Government’s attempt to deregulate fuel price was during the Babangida administration. The pump price then was three (3) kobo per litre. IBB’s government discovered that the fuel price was heavily subsidised, so 7 kobo was proposed as the new price. There was a backlash, but the FG stuck to its guns. Three years after, there was another adjustment to 11 kobo per litre. Again, there was negative fall out.

 From IBB till today, seven governments have addressed the same problem in the same way – while the PMS price had escalated from 11 kobo to N170. Now, we are facing the possibility of N380-420/litre fuel; again, with government fixing the price. When the FG does, Labour will call us out on a national strike. Most of us will follow them out. A new price will be negotiated; the strike will be called off; and in 2025, the next government will announce that trillions of naira and dollars are being spent on fuel subsidy. The cycle of economic insanity will start all over again. Surely, we have more sense than this.

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It is unthinkable that wisdom should ever be popular.”

Johann Goethe, 1749-1832, VANGUARD BOOK OF QUOTATIONS.

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We continue to fall into the same self-created man-hole on fuel prices because our continuing reliance on governments to set the “correct” price of fuel represents the triumph of hope over reason. Those in government themselves are self-deluded. Politically-determined prices are never satisfactory or sustainable for long. They create eternal conflicts between the government and the governed.

That is why governments in other oil-producing and oil-refining countries don’t determine the price of oil products. Incidentally, our confusion and hypocrisy regarding government intervention in fuel pricing are revealed by the fact that we want government to establish only the price of petrol. We are prepared to allow the market to set the prices of diesel, engine oil, brake oil and other by-products of refining. That is merely stupid. We either want deregulation or we don’t. Otherwise, importing massive amounts of fuel to sell at subsidised prices will continue to devalue the naira —  and not CBN.

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 In fact, governments and Nigerians create problems for CBN; not CBN for us.

 

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