When the Nigeria Naira was introduced in 1972, its exchange rate to the US Dollar stood at $1.00 = N0.658. It attained its strongest value in 1980 at $1.00 = N0.550. The exchange rate remained strong up till 1985 when it averaged $1.00 = N0.894. Then came the rise of local and international (IMF and World Bank) quasi-technocrats and pseudo-administrators who argued that the Naira was too strong and had to be devalued as a pre-condition for IMF loan.
The conditions imposed on the loan brought about the so-called Structural Adjustment Programme (SAP) which the local operators wrongly conceived to mean and depend solely on open currency trading, or rather setting the Naira currency “afloat”.
The consequence was that the Naira was hung on a presumably unsinkable US Dollar. Even though the US Dollar to Naira stabilized at about $1.00 = N9.00 between 1990 and 1991, the federal government foolishly devalued the exchange rate from N8.50 = $1.0 to N18.50 = $1.00 early in 1992. This marked the beginning of the problem, and can be viewed as a kink.
The fall of the Naira against the US Dollar has since then followed the terminal velocity concept of the sinking object. By the time Mr. Abacha died in 1998, the official fixed exchange rate was $1.00 = N21.98 with the parallel market at $1.00 = N88.90. With the lifting of restrictions on the official exchanged rate in 1999, both rates changed to $1.00 = N85.98 and $1.00 = N105.00 respectively.
The rates increased further under the civilian regime to $1.0 = N136 and $1.0 = N151 in 2004.
As if being pulled by a rope from its sinking position, the rates gradually appreciated to $1.0 = N115.50 in 2007. Now the rope seems to have cut, and the Naira sinks deeper to $1.00 = N150.00 (officially pegged) and $1.00 = N180 (parallel market) now (For further details on exchange rates, See: Historical Exchange Rates of The Naira, Wikipedia, http://en.wikipedia.org/wiki/Nigeria_Naira).
The official fall of the Naira against the US Dollar based on 1972 figures can thus be computed as (N150 – N0.658) / N0.658 = 226.96 or 22696% approximately. The import of the above as a fraction is that the current Naira = 1 / 227 approximately of what it was in 1972. But this is just one part of the tragedy that has befallen the Naira.
The US Dollar itself exchanged for gold in 1972 at $72.30 = 1 ounce of gold (See: Historical Price of Gold in US Dollar, Gold Market and Price: 1800 – 2008, Finfacts: Ireland’s Business and Finance Portal, http://www.finfacts.ie/private/currency/goldmarketprice.htm).
Today, the same ounce of gold sells for at about $900 on the average. In other words, the US Dollar has been falling against the international gold standard. The fall within the period under review is ($900 - $72.30) / $72.30 = 11.4481 or 1144.81%. Thus the current US dollar as a fraction of the 1972 US Dollar = 1/ 11.4481 approximately.
Based on the foregoing computations, the actual worth of today’s Naira in terms of its value in 1972 is the product of the two fractions (i.e. 1/226.96 x 1/11.4481) above. This equals 1 / 2598.27 or 1 in 2,600 parts approximately. On the average, an item worth N1.00 in 1972 is now worth N2,600 approximately in today’s Naira. With the parallel market, this is close to N3,120 approximately. The foregoing shows where our past economic and financial quasi–technocrats have led the nation to!
What brought Nigeria’s Naira to this level? Mismanagement! First, this mismanagement manifested itself in our inability to sustain existing industrial capacity utilization and the corresponding growth. Today, Nigeria rarely exports anything other than raw materials extracted from the ground by foreign firms with outposts based in the country. Our industrial output from other sectors has fallen so much that we have become a consumer nation rather than a producer.
Even agricultural items such as rice, wheat, etc that should have been locally produced are now being imported to mitigate hunger in the land. Textiles of all kinds too are being imported. Electronics are being imported. Cars are being imported rather than being assembled from our once reliable and functioning car assembly plants.
Second, our economic planners have been gamblers having tied the currency of Nigeria to a sinking global currency, the US Dollar without due consideration. Mr. Mobolaji Aluko once proposed that the Naira should have been tied to any locally available base mineral such as the crude oil or agricultural produce. Up till now, no one has considered that view concept for implementation.
Third, it exposes the danger inherent in mere sale of currency under ill-digested theories (apology to Mr. Audu Ogbe) of economic reforms: Deregulation, Open-Market Operation, Dutch Auction System, Banks Capitalisation, etc. The emeritus professor of Economics at the University of Ife (now Obafemi Awolowo University, Ile-Ife), Mr. Sam Aluko, warned many times that it was illogical to put the Naira on sale while still thinking of development. No one listed to him since the SAP era till date.
Fourth, it exposed the underlying weakness in our economists’ attempts to model the Nigerian economy falsely after Japanese own which was (and still is) believed to be a highly undervalued currency. Each time our so-called “Experts” write or speak, they refer to Japan as an example of a nation with devalued currency, and thus see nothing wrong with Naira devaluation. However, they forget that the difference between Nigeria and Japan is both large and too far.
One can liken it to Japan being on one extremity of a continuum while Nigeria is on its opposite end. Japan was an ally of Germany in World War II and was quite familiar with industrial production lines since then. Nigeria is yet to successfully manage one of such even after the turn of the new century. Today, most Japanese rely on speed train traveling at about 300km/hr for their mass transportation.
Ours have packed up, and there is no complementary good road system to fall back upon. Japan has crossed the corner on technologic relying on the powers of electronics and robots. We are here today still trying to cannibalize damaged parts of machinery and instruments imported from abroad, unable to produce even a new sparking plug. Japan is a producer nation while Nigeria is a consumer nation. How then can we engage in the same style of economic and fiscal measures?
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