In the on-going debate on whether or not to devalue the currency in the face of Nigeria’s forex  shortage caused by the fall in the price of oil. The two different camps have argued thus:

PRO-DEVALUATION TEAM: 

They think the Naira should be devalued because as it will reduce the pressure on Nigeria’s external reserve.
They believe devaluing the Naira will make Nigeria’s product cheap for foreign buyers. There by boosting export and foreign investment.
ANTI-DEVALUATION TEAM:

They believe devaluing the Naira will cause inflation and hardship on the masses.
They believe that some businesses that depend on importation may find it difficult to survive because imported products will become expensive. Since Nigeria is an import dependent country.
From my honest point of view both teams are right and wrong at the same time. The economics behind the strength of the Naira is a complex situation because it’s like killing John to save Peter.

Here is a simple analogy to paint a clearer picture how the currency and Nigeria’s economic situation plays out.

 

Scene 1:

Mr Sunday (a hypothetical individual) got a new job and decided to invest part of his salary in a taxi business since it’s a fast moving and a lucrative business at the Lagos Airport. He called Mr Ben (another hypothetical person) an unemployed driver who is also a member of his local church and has a passion for driving. Mr Sunday employed him and bought him a Toyota Camry for the taxi business. The driver started the job in November 2013 and he made good returns for his boss. He also smiled home with good cash every month.

Lesson 1: Like Mr Sunday, Nigeria earns good money from crude oil exports when oil prices are at their peak.

 

Scene 2:

By May 2014, Mr Sunday was getting short paid by Mr Ben whose excuse was that there aren’t sufficient passengers as before, and that the car usually developed some fault most times he gets passengers. By June it got so bad that Mr Sunday was getting almost no income from the business because the car would spend weeks in the mechanic workshop, being fixed for one fault or the other.

Lesson 2: Just as transport business has it peak and rough period, crude oil also has it peak and rough period too. As the car develop faults during the down time so does Nigeria’s reserve fall during bad economic period.

 

Scene 3:

By July, Mr Sunday took a painful decision by taking a large pay-cut  to buy brand new parts for his taxi in other to save the business. He got positive results for some months until his driver came up with another excuse, saying that police men, road safety and LASTMA officials were demanding too much bribe, which affected his weekly returns. Mr Sunday believed Mr Ben since they are both members of the same church.

Lesson 3: Like Mr Sunday who feels financial hurt each time he replaces spare parts for his car, so do Nigerians feel the pain each time we devalue the Naira. As Mr Sunday sees some positive results for a short while after replacing the parts, so does Nigeria see some positive results after a devaluation (FPI, increased exports, foreign investments e.t.c).

Just like the case of Police and LASTMA, which Mr Ben gives as excuse, Nigerians also notice that after the devaluation prosperity does not really reflect in the lives of the masses, there are still some sort of economic complaints.

As Mr Sunday trusts Mr Ben because they are both members of the same church, so do Nigerians trust their leaders that they will drive economic policies for the interest of the nation. Which may be true.

 

Scene 4:

By December 2014, the car developed another major fault. Mr Sunday is now getting frustrated but he has no choice but to withdraw from his savings to fix the car, since the business peaks in December, which is the holiday season. Mr Ben delivers well enough during Christmas and New Year but yet Mr Sunday is not satisfied because he had invested more than he gained.

Lesson 4: Now Mr Sunday is getting frustrated, as regular repairs is eating a huge chunk of his regular income. Same way regular devaluation has caused the ANTI-DEVALUATION team and many Nigerians worry because it is eating a huge chunk of the buying power of the Naira.

 

Scene 5:

After the 2015 New Year Holiday, Mr Sunday discussed his dissatisfaction in the business with his wife Mrs Sunday. And how he plans to replace his driver. His wife quickly responds “No don’t sack him o, do you want the church members to see you as a wicked man? You know that man’s family depend on this taxi business. Why not talk to him and give him a second chance, but if he doesn’t change then sack him”

Mr Sunday summons Mr Ben to his home. Mr Sunday expresses his disappointment, telling him that he can no longer condone the fact that Ben could not manage regular taxi driver challenges by himself and he had to always make him spend more.

Mr Ben knowing that his boss’s dissatisfaction has reached the ceiling, quickly apologised and promised that year 2015 will be better.

Mr Sunday didn’t stop there, he went further to tell him that if anything got damaged in the car in the following 3 months, Ben would be accountable for it. Mr Ben reassured him that everything was going to be fine.

Lesson 5: Like Mr Sunday rightly suggested to his wife that he will sack his driver and get a new driver since the current driver couldn’t deliver profits., same way it has been suggested to the Federal Government of Nigeria to remove fuel subsidy and invest that money in other economic sectors that will yield productivity for country.

Like the Mrs Sunday who is more concerned about what church members will say than the success of the family business, so is our Government more concerned about what the masses will say about a newly elected government when they buy fuel for a higher price, thereby causing hike in prices of goods in a country that depends so much on imported fuel. The government is more concerned about pleasing the masses in other to secure re-election. Therefore they leave fuel subsidy untouched.

As Mr Sunday made it clear that Ben will be responsible for any form of repair that shows up within the next 3 months, this can be likened to President Buhari and Prof Osinbajo saying that the Naira will not be devalued any more.

 

Scene 6:

Three weeks later, one rainy night, Ben ran the car into a power distribution pole by the road and damaged the car. Knowing that his boss will be mad at him, he submitted the car at the mechanic and went on to borrow money from the taxi union.

Now the pressure became real on Ben as he has to settle his boss every week and also pay back the debt. He couldn’t meet up with cash to service the loan he collected from the union. Three months later the union seized the taxi from him.

Knowing the consequences of what he had done, Ben ran away from home. Leaving his wife and kids. Ben’s wife came crying at Mr Sunday’s house about her missing husband who has been absent for two days. Mr Sunday took a day off work and went to complain to the chairman of the taxi drivers’ association about his missing driver and his car.

The chairman let the cat out of the bag and Mr Sunday was astonished at what he heard. The chairman reported that:

 

Ben is a lazy driver who spends almost the whole day drinking and womanising when his colleagues are at the airport waiting for passengers.
 

FRSC has arrested Ben several times because he drinks and drive.
 

Ben carries over load in other to make profit because he comes late to work, therefore police men use that opportunity to extort him.
 

The chairman narrates how Ben borrowed money from Union to repair the damaged vehicle.
 

Mr Sunday knew he had been a fool all along because he was not addressing his problems from the real root cause. He had entrusted his business in the hands of the wrong man because he was a member of his church. Does that recover his lost investment?

 

Lesson 6:  The pressure fell on Ben because he his not a productive driver. In other words, he is ‘bad market’. This is why Mr Sunday had to use his savings to fix car problems in the first place. Same way pressure is likely to fall on Nigeria’s reserve, as our major source of income – oil, is not productively managed well enough to meet the needs of the country.

Ben went bankrupt because he was not productive enough to service the loans and also pay his boss. Guess what may happen to Nigeria if our reserve eventually hits ground zero, all because we depend so much on oil and it’s not generating enough income to run the nation.

At the end of the story Mr Sunday investigated the root cause of his problem. He now knows that the car is not the problem, neither is it the police who collects bribe. But he knew his problem at the late hour.

 

Scene 7:

Now let’s twist the story this way. What if Mr Sunday had continued to replace the car’s spare parts and didn’t tell Ben that he would be held accountable if any more damage is done to the car?

This is what is most likely to happen: Mr Sunday will keep spending until the business makes him bankrupt and he would not have money to keep the business running.

Lesson 7: This is more like saying: “what if Nigeria keeps devaluing the Naira just to ensure we do not exhaust our reserves; and keep foreign investment coming; and also keep exports moving”. The devaluation may lead to Hyperinflation, resulting into economic recession.

Now we can see now that Devaluing does not solve anything because it has been done before and it didn’t solve anything in long term.

And if we decide not to devalue and we fold our arms and do nothing, we put our reserve under pressure and we may still hit the same end point as devaluation.

 

Solution: Change the driver of the economy – Oil. The political fear of the government that inflicting the pain of changing the driver of the economy may bring strong criticism from the opposition party, causing them to lose support for the next election should be shunned.

The best way to solve a problem is to know the root cause of the problem. The root-cause of the Naira problem is not to Devalue or do nothing, it is production. If Nigeria can tap into other source of wealth generating income in the country our currency will be fine even if we devalue it or not.

I am glad our leaders know this now, it is knowledge to know a thing but it is wisdom to know how to apply that knowledge to get desired results.

My question is this: ‘Is Nigeria doing what is required in other to diversify?’ I will quote what the CBN governor said recently.

What we are trying to concentrate on right now is how to improve and deepen the foreign exchange market by improving supply of foreign exchange into the market.

And to do so, we are trying to encourage people to export and earn your export proceeds and use your export proceeds to import whatever you need to import.

We are also concentrating on how to reduce the import of items that we can produce in the country today,”

 This is more like the solution I am looking for. But I will like to hear more from the CBN governor on how he wants to archive this.

What sector his he looking at? Agric, mining, textile, chemical e.t.c?

What plans does the government have for stakeholders who are already in those sector?

Considering the current state of the economy how does the government intend to financially support indigenous businesses in Nigeria to begin exportation?

Considering the fact that oil is currently cheap, don’t you think investing fuel subsidy funds on other productive sectors of the economy will be beneficial?

 

My position as an Investor:

I will still hold my Dollars just in case the government’s reason for not devaluing the Naira is that they want to boost other sectors of the economy for export ends up as just LIP SERVICE. They will end up killing the Naira if they do nothing.

And if CBN comes back tomorrow to devalue the Naira. It’s still a win-win situation for me. And they lose because they end up killing the Naira by devaluing.

I am holding my hard assets in agriculture just in case CBN comes out real and does something to really boost export. This will give a boost to the Naira.

It’s intelligence to understand complex things but it’s only divine wisdom to understand complex things by the knowledge of simple things. Wisdom is profitable to those who use them.

 

 Source: http://nairametrics.com/a-taxi-drivers-guide-to-understanding-the-current-state-of-nigerias-economy-and-the-naira-devaluation/?utm_source=ReviveOldPost&utm_medium=social&utm_campaign=ReviveOldPost

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Make I follow spread this lovely joke..



I was in Mr Biggs yesterday when I suddenly realized I desperately needed to mess, They were playing Don Jazzy’s Dorobucci. The music was really really loud, so I timed my mess with the beat of the music. I was releasing my mess alongside the music so that nobody would hear the sound of the mess although the mess was very loud too. When I finished, I started to feel better but I looked around and noticed that everybody in the restaurant frowned and was staring at me….. Why? Then I suddenly remembered that I was listening to the music with my ear-phone. I almost fainted!!!

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