Francis E. Ogbimi questions fixed exchange rate, intensive learning and industrialization
The Nigerian intelligentsia and intellectuals have hitherto lacked the skill to assess an economic program. All development programs implemented by Nigeria since independence have always been designed in Britain and America. Nigeria started with the National Plans from 1960 to 1985 and then the Structural Adjustment Program (SAP) from 1986 to present. The sad thing is that although the West is technologically advanced, it still does not understand the process of human development. Thus, the West cannot and should not design a development agenda for Africa. Programs designed in the West for Africa generally lack growth-promoting elements. They always promote unemployment, poverty and abstract and sterile arguments. Africa would not have embraced the plans devised by the National Plans and SAP if Nigerians had the skill to assess a development agenda.
The Naira exchanged 194 units against one dollar on the official market until May 2015, today it is trading around 500 Naira against one dollar. Is devaluing the Naira the way forward for the Nigerian economy? No! Mandatory currency devaluation ruins a nation; it is not the way to go for any nation. The Nigerian foreign exchange market was today the mandatory foreign exchange market that was introduced in Nigeria as part of the SAPs introduced in indebted African countries by the World Bank and IMF in the early 1980s.
A compulsory devaluation is a devaluation imposed on a nation on the pretext that the nation is under pressure from the scarcity of foreign currencies. Germany was the first nation to be forced to adopt the German SAP in the period 1919-1923. The World Bank and the IMF did not exist then. Germany, as the leader of the Axis powers, lost World War I to the Western Allies. The Allies demanded $33 billion from Germany in war reparations. Germany could not pay. Therefore, the Allies forced Germany to sign the Treaty of Versailles, which contained the mandatory program of currency devaluation. It was the German SAP.
The German Mark had exchanged 4.2 units for one dollar in 1918 at the end of the war. The German SAP began in 1919. A year after the start of the German SAP, in 1920, the German Mark traded at 63 units per dollar. In 1921, 200 Marks were exchanged for one Dollar. In 1922, 2000 Marks were exchanged for one Dollar. In 1923, the German Mark collapsed, 4.2 trillion Marks exchanged for one dollar. The German economy was destroyed. Although Germany is a world power, Germans and Germany have been humiliated.
The Nigerian SAP which started in 1986 was imposed on the nation because Nigeria is indebted to foreign creditors. The Nigerian experience from 1986 to present can be reported as follows: In 1985, the Naira was equivalent to 112.4 cents. In 1986, one Naira exchanged for 49.5 Cents. In 1993, the Naira was trading for 4.5 Cents. In 1998, one Naira exchanged for 1.2 Cents. In 2004, the Naira traded for 0.7 Cent. The Naira was trading for 0.5 Cent in 2015 and today the Naira is trading for 0.2 Cent.
Could the Allies have introduced German into the German SAP to strengthen Germany economically and the German military at the end of the war? No! The humiliation of the Germans and the destruction of the German economy was evident immediately and at the end of the punitive four-year program. This is why Britain’s first female Prime Minister, Baroness Margaret Thatcher, once said that when you want to destroy a nation, you must first destroy the currency. This is the reason why Great Britain always defends the Stirling pound.
The German people rose up, abandoned the German SAP and restored their honor. National Currency Commissioner Hjalmer Greecy Schat promptly stopped printing the mark and issued a new currency (the rent mark) equal to one trillion old marks and restored the exchange rate to 4.2 marks for a dollar. World War II was probably caused by the German SAP. John Maynard Keynes had warned Britain to be ready for World War II if it signed the Treaty of Versailles. Why would the West subject Africa to the SAP again? Was it for lack of sense of history or malice?
Economists, accountants and bankers don’t understand how the economy works. They don’t have a sense of history and don’t understand the science of Sustainable Economic Growth, Industrialization and Development (SEGID). They are only good at making abstract and irrelevant arguments about economics. Africa will stagnate as long as economists and related institutions like the World Bank and IMF continue to influence planning on the continent.
Economists and related institutions claim that irresponsible devaluation will lead to a market-determined exchange rate, make the Naira a convertible currency and encourage the influx of foreign investment into Nigeria. What became the market-determined exchange rate for the German mark, the currency of a world power between 1919 and 1923?
The Nigerian SAP has undermined and disgraced Nigeria for 35 years. The convertibility of a currency is not obtained by a compulsory devaluation. A convertible currency is a currency held by a productive nation. It is the currency of an economy that produces a significant part of the total quantity of goods produced in the world in a year. The US dollar, British pound and Japanese yen are convertible currencies because the US, Britain and Japan each produce a sizeable proportion of the total amount of goods produced in the world in a year. Therefore, many nations that buy the goods need dollars, pounds, and yen to pay for them. The Nigerian Naira traded at 112.4 cents in 1985 and trades at 0.2 cents today. The naira was devalued by 99.8% and the economy was ruined.
So what is the way forward now? Learning (education, training, employment and research) is the main basis for the realization of SEGID in a nation. Capital investments, including foreign investments, do not favor SEGID. Thus, no wise nation destroys its currency to attract foreign investment. No one has learned since the launch of the Nigerian SAP in 1986. The learning system is dead in Nigeria. Usually, a nation’s currency serves as a medium of exchange. Compulsory devaluation destroys a nation’s system of production by greatly increasing speculation in the nation and making destroyed currency and foreign currencies tradable commodities. In Lagos and many other cities in Nigeria, you hear of dollar-pound, dollar-pound, like buy guguru/epa, akamu and akara. Young people sell imported items on the streets or cycle on motorbikes for a living or idle. Production has been declining since 1986. So unemployment has increased, real inflation, poverty and insecurity have increased. SAP was introduced to humiliate Nigeria and other African nations. A nation with an agricultural economy is necessarily poor. Submit an artisanal/agricultural nation to the SAP in wickedness.
The way forward is to abandon SAP, adopt a fixed exchange rate, focus on intensive learning and industrialization. Nigeria should mobilize all its citizens to learn as Japan did from 1886 to 1905 and China from 1949 to the early 1980s and achieved rapid industrialization.
Professor Ogbimi, [email protected]