PERSPECTIVE – Why Osinbajo is right on the dollar rate

PERSPECTIVE – Why Osinbajo is right on the dollar rate

By Etim Etim

In the six years and a few months he’s been our Vice President, Professor Yemi Osinbajo has never stirred controversy. Even in the heat of several public discussions and heated national debates on Ruga; lopsided appointments; the President’s strange pronouncement on cattle route; insecurity and the many storms created by the Attorney General, Abubarkar Malami, when it’s obvious that the VP might be holding a different opinion from the boss, Prof Osinbajo had managed to stay calm and steady, without ever disagreeing with the President publicly.

Nigerians will easily recall in horror the dirty fight that erupted between President Obasanjo and his Vice President, Atiku Abubarkar in their first term. It created major distractions for the Obasanjo presidency and probably prevented it from achieving a lot more in its second term. Osinbajo’s uncanny capacity to stay above the fray, support the President loyally and resist the temptation to express his views publicly have helped to stabilize the administration in its most vulnerable moments. I have seen many cartoons portray him as a man in a cage or one with a masking tape over his mouth, all portraying that he is too sedate for his professorial attainments. How mistaken. This professor does not only know the limits of a Vice President, he also understands the importance of collective responsibility.

The nation was therefore startled early in the week when many newspapers carried banner headlines that seemed to suggest that the Vice President was advocating for a devaluation of the Naira, an alternative policy view from the President’s. In the first day of a two-day Cabinet Retreat last Monday, the VP had made a long presentation on the overview of the economy at the end of which he argued for a single market-determined rate for the Nigerian currency, rather than the current system of dual rates with wide arbitrage that encourages round tripping and fraudulent practices.  But our newspapers had misinterpreted this to mean devaluation of the Naira by official fiat. The import of the VP breaking rank with government on such a sensitive issue as the exchange rate of our currency a little over a year to the next general election was a big story in the newsrooms. But it took the professionalism of the VP’s media team to manage the crisis creditably well all of Monday night till midweek. I commend them.

Now, what exactly did the VP say, and what are the implications of his statement? A statement from his office explained that the VP’s argument at the retreat that the naira value was kept artificially low did not amount to a call for devaluation. ‘’Prof. Osinbajo is not calling for the devaluation of the Naira. He has at all times argued against a willy-nilly devaluation of the Naira’’, the statement emphasized.

It stated further:  ‘’For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!

‘’This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.  It is a well known fact that foreign investors and exporters have been complaining that they could not bring foreign exchange in at N410 and then have to purchase foreign exchange in the parallel market at N570 to meet their various needs on account of unavailability of foreign exchange. Only a more market reflective exchange rate would ameliorate this. With an increase in the supply of dollars the rates will drop and the value of the Naira will improve. The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the Importers and Exporters window to work.  If we allow this market mechanism to work as intended, we will find that the Naira will appreciate against the dollar as we restore confidence in the system’’.

The VP is on point in arguing against the CBN’s dual exchange rate. Many senior government officials and some nefarious bankers have corruptly enriched themselves hugely through round tripping, the practice of buying dollars at official rate and turning around to sell at the unofficial rate.  The late Chief of Staff was said to be the master of this game. I am also aware that many of the Bureaus de change (they sell at the unofficial rates) belong to serving and retired CBN directors. The VP must have been sufficiently alarmed at the monumental graft that has been going on for years now. I would be surprised if Godwin Emefiele, the CBN Governor, is unaware of this.

Implicit in the VP’s presentation at the retreat is the time-worn axiom that the value of the Naira will only improve if the country’s productivity also increases, or if we do away with most of the imported things we ship into the country daily. The federal government should therefore focus more attention on growing our manufacturing capacity for exports and domestic consumption instead of worrying unduly about the exchange rates. There is no reason why the country cannot manufacture and export value-added agricultural products like tinned tomatoes, starch from cassava, chocolate from cocoa and textile from cotton. Why do we still depend so much on imported pharmaceuticals, artificial hair and beauty products? Every single Nigerian woman wears imported artificial hair that costs as high as N150, 000 in some cases. What are the exchange rate implications of these? (I don’t mean any disrespect to our beautiful women folk please). What about the school fees we pay in foreign universities for kids or the mortgages we remit periodically for homes we have abroad? With all the cattle we have in this country, is there any reason we are not exporting milk and other dairy products? Truly, the value of the Naira does not lie in tinkering with the exchange rate every day. We just have to start making some stuffs ourselves.

These, I suppose, are the Vice President’s major worries. He is not interested in manipulating the exchange rate for immediate dramatic headlines. We should keep in mind that Prof Osinbanjo as the Chairman of National Economic Council is at the center of the administration’s economic agenda. At the direction of the President, the VP and his team designed the administration’s Economic Sustainability Plan, the major policy thrust of the government. In addition, the VP also chairs a government’s committee which is working on taking 100 million Nigerians out of poverty in the next ten years. His interest in the exchange rate therefore is rooted in the core of his job function.

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