While the debate on devaluation has been
ongoing in Nigeria, and some writers like to
cite The Economist of London to justify their
arguments about the efficacy of devaluation,
they need to cast their net wide when reading
about this subject matter in The Economist.
We do not want to add too much of our own
prose to the empirical and analytical evidence
on devaluations which the authoritative
Economist has provided in spite of its writing
on Nigeria.
On January 9th 2016, the Economist published
an article on "After the dips: Big Currency
Depreciation is not boosting exports as
much as they used to.”
According to the Economist, “Large currency
depreciations can hurt, by raising the price of
imports and spurring inflation. Pricier imports
should encourage consumers to switch towards
domestic products and stimulate local
production. A cheaper currency should also
boost growth by spurring exports… Between
1980 and 2014, according to an analysis of 60
economies by the IMF, a 10% depreciation
relative to the currencies of trading partners
boosted net exports by 1.5% of GDP over the
long term, on average…“
The Economist continues “But devaluations
do not seem to have provided quite the
same boost recently….Russia is a good
example...the Russian rouble is one of the
cheapest currencies around, 69% undervalued
against the dollar…”Yet,” non-energy exporters
appear to be struggling despite the ruble’s
plunge. Over the 1st half of 2015, as the
volume of energy exports surged, non-energy
exports fell, according to Brigit Hansl of the
World Bank. She points out that it is not enough
to have a price change: First, you have to
produce something that someone wants to
buy.” The rouble’s weakness is an opportunity
for industries that already exports such as
chemicals and fertilizers. But boosting other
exports requires investment in new
production, which takes time…. Devaluations in
other countries including South Africa and
Turkey, have also disappointed”
On Feb 22nd 2016, The Economist, ina recent
article,Don’t Cheer devaluation, writes as
follows: “Devaluation is a cut in a nation’s
standard of living. It costs more to buy other
people’s goods. And there may be no gain to
exporters as we recently reported recent
devaluers have seen little benefit.”
The Economist further notes that “The IMF and
the World Bank have highlighted another
possible explanation for the weak performance
of exports in countries with falling currencies:
the prevalence of global supply chains.
Globalization has turned lots of countries into
way-stations in the manufacturing of individual
products. Components are imported,
augmented, and re-exported. This means much
of what a country gains through devaluation in
terms of competitiveness of its exports it loses
through pricier imports. …The World Bank
argues that it explains about 40% of the
diminished impact of devaluations globally…”
On September 30, 2015, The Economist in
“Devaluations didn’t work”writes that
Stephen King, the senior economic adviser at
HSBC, notes that currently “attempts by
individual central banks to boost growth and
inflation via currency depreciation have been
collectively self-defeating…Rather than pursue
devaluation, Mr. King argues that countries
should try to improve their productivity
records, which have been poor. But that
implies pushing through the kind of economic
reforms that special interests (and many
voters) dislike. Devaluation is the more
tempting, and easier, option.”
We hope this message is not lost in the
devaluation debate in Nigeria, whichfor the
most part appears to be long on polemics and
rhetoric, but short on logic and empirical and
analytical evidence.
**Dr. TemitopeOshikoya, an economist and a
chartered banker, is CEO of Nextnomics
Advisory
https://www.proshareng.com/news/Nigeria-Economy/The-Economist-s-evidence-on-devaluations/30168

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