The beauty of Professor Soludo's intervention is that (hopefully)
it can move us from debating 'body language ' towards debating policies.
Now to devaluation:
I actually have an issue with the concept of 'devaluation '. My
preference is a market determined exchange rate. Dollar is selling for N196 in
'official market' while it is N230 in Mallam's booth at Eko hotel. Today there
is a market for those who have the 'connection' to get official rate foreign
exchange. And whether we acknowledge it or not there is arbitrage going on.
In my view any economic policy that requires 'extra intervention ' to make it work properly and creates room for corruption is neither an efficient nor a sustainable policy. All these are inherent in our current foreign exchange policy.
What is the alternative?
In my view any economic policy that requires 'extra intervention ' to make it work properly and creates room for corruption is neither an efficient nor a sustainable policy. All these are inherent in our current foreign exchange policy.
What is the alternative?
Let the market determine the rate. It would probably stabilize
circa N220. That is an extra N20 for each dollar earned by Govt. will eliminate
the corruption associated with the current system and act as tax on importation
of frivolities. Will also make the export of whatever we export
today---cassava, cocoa, tantallite, charcoal etc--- more profitable for the
exporters.
The negative is that the same tax is paid on plant and machinery and raw materials for industries. That is where fiscal policies come to play. We can use the mechanism of reduced import tax, reduced VAT etc on industrial machinery and raw materials to offset this problem,
The negative is that the same tax is paid on plant and machinery and raw materials for industries. That is where fiscal policies come to play. We can use the mechanism of reduced import tax, reduced VAT etc on industrial machinery and raw materials to offset this problem,
The practical fact of the matter is that in an environment
of falling oil prices we can only support a fixed exchange rate for so long. As
the reserves keep depleting we will inevitably 'devalue' the currency anyway.
Or what do you suggest the CBN should do if the crude price remains at its
current low level over the next one year and the reserves keep depleting at the
current rate?
Many of us in Nigeria now gradually prefer ofada rice to the imported variety. You'd be surprised how policy can cause shift in consumer behavior.
Many of us in Nigeria now gradually prefer ofada rice to the imported variety. You'd be surprised how policy can cause shift in consumer behavior.
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