The fact that the price of petrol can drop if the value of the Naira appreciates should not surprise an accountant like President Bola Tinubu. The inverse relationship of the value of the Naira and the price of petrol happens because, petroleum, described as an “international citizen,” is largely traded with the American dollar.
You may have observed that the Nigeria National Petroleum Company Limited took pains to convert the price of the first consignment of petrol it bought from Dangote Refinery from Naira to the American dollar, the current store of the value of practically all currencies of the nations of the world.
The Crude Oil Refiners Association of Nigeria recognised this obvious relationship, and suggested that local refiners, like Dangote Refineries, can bring the price of petrol down to N550 if the Central Bank of Nigeria pegs the exchange rate to N1000 to the American dollar.
Therefore, the quartet of President Tinubu, Wale Edun, Minister of Finance and Coordinating Minister of the Economy, Heineken Lokpobiri, Minister of State for Petroleum Resources, and Yemi Cardoso, Governor of Central Bank of Nigeria, must find a way to strengthen the Naira.
Obviously, an increased inflow of the dollar, that the sale of petroleum should bring to Nigeria, will provide foreign exchange to service Nigeria’s foreign loans, as well as pay for the importation of petroleum products that fuel the transportation system and power Nigeria’s economy.
But one must admit there is a challenge to trying to strengthen the Naira, because Nigeria is essentially an import-oriented economy that has little or no control over the mechanisms used for tweaking currency exchange.
The odds are stacked against Nigeria’s quest to strengthen the Naira. But if the Naira is not strengthened, the price of petroleum products will continue to rise through the roof. And that has significant negative impact on headline inflation and purchasing power of Nigerians.
China, Japan, Russia and many of the Organisation for Economic Cooperation and Development countries led by America and Britain, produce most of what they consume. Bar members, in Central and Eastern Europe, OECD countries also have the technological, financial and managerial capacity to manufacture machineries and
Of course, they import exotic foreign consumer goods too. But they have enough to spend on those luxury items, and the net effect of the volume of such imports make no significant impact on their currency’s exchange rate. They have positive net trade balance.
In fact, countries like America and China deliberately devalue their currencies, so that the excess they produce for export can be considered relatively cheap and affordable by consumers in other countries that import from them.
That is the model prescribed by Adam Smith in his seminal book, “The Wealth of Nations,” published in 1776, which, incidentally, was the same year that America’s revolutionary Declaration of Independence was written.
But one must point out that, by consigning Third World countries, like Nigeria, into the role of net exporters of primary agricultural and mineral commodities, and net importers of consumer produce, the metropolitan economies have permanently institutionalised trade imbalance against poor Third World countries.
This is how this evil plan works: By importing cheap unprocessed agricultural and mineral commodities from Third World countries, and exporting more expensive processed products to them, the metropolitan economies always have surplus from the transactions. Processed products sell higher than unprocessed primary commodities.
Nigeria earns less by sending crude petroleum to foreign refineries, and pays more for refined petroleum products. To the cost of processing in metropolitan economies that have high cost of living, you must add the accompanying landing costs –of shipment in and out of Nigeria– of the petroleum products.
These are some of the issues that Governor Cardoso of CBN must contend with, especially in a situation where, over the years, the fiscal and macroeconomic policies were either unavailable, inappropriate or ineffectual. Even now, the economic team is still grappling with deciphering the magnitude of Nigeria’s economic quagmire.
Indeed, the team is desperately trying to articulate appropriate policy solutions to combat the degradation of the economy. To borrow a phrase, from the streets, to describe the overwhelming nature of the situation, “Water don pass gari.”
The CBN must firmly resist giving Ways and Means loans to the government, and hold Minister Edun to his word that the Federal Government has “exited Ways and Means” loans template. This should appreciably help CBN’s efforts to curb headline inflation that directly affects cost of living. By the way, Nigeria Bureau of Statistics recently reported that headline inflation dropped two months in a row.
It is a good thing that the CBN is encouraging the Federal Government to repay the accumulated Ways and Means loan, even if it is in piecemeal tranches. It reduces government loan servicing encumbrances and frees government revenues for infrastructural, other developmental and social service purposes.
But the Minister of Finance must play a more strategic role in the quest to raise the value of the Naira: He should prepare an annuity plan so that a portion of government’s loan principals is paid, in piecemeal, alongside the loan servicing payments, to Nigeria’s foreign lenders especially.
He should then talk to Dr Ngozi Okonjo-Iweala, one of his illustrious predecessors, to explore possibilities of approaching the foreign creditors to consider forgiving Nigeria’s debt after paying an agreed portion.
The first plan should convince the creditors that Nigeria is willing to service its debt and also end the binge. Also, they would thus be willing to forgive a portion of the loan. After all, payments made toward servicing the debts must have exceeded the loan principals.
Recently, The Punch Newspaper reported the cheery news that the World Bank acknowledges that Nigeria is prompt in servicing as many as 69 loans it had gotten from the beginning of this Fourth Republic.
Standard & Poor’s rating for Nigeria’s debt, currently a positive B- outlook, should improve. While Moody’s has rated Nigeria a Caa1, with a positive outlook, Fitch Ratings also assigned Nigeria a B rating with a stable outlook. This suggests that Nigeria is in a good stead, if the denizens of International Monopoly Capital do not throw another devilish spanner in the works.
When Nigeria has very little foreign debt portfolio, the need to scramble for the dollar, or any other convertible currency, to service its loan, is eliminated or considerably reduced. This takes away the immense pressure on the Naira and thus shore up its value.
The Minster of Petroleum Resources, who is also the President, and his Minister of State for Petroleum Resources, must initiate credible strategies to curb oil bunkering and increase Nigeria’s petroleum production to somewhere north of the promised 2 million barrels per day.
Dangote Refinery and other local refineries should be encouraged to earn more foreign exchange by selling their products across the West and Central African regions, but at the price it is sold in the country with the lowest price.
The economic management team must take unusual corrective steps to revive Nigeria’s economy. After all, he that is down needs fear no fall. The government that adopted the unusual policy of selling petroleum to (at least) domestic refineries for Naira must not hesitate to adopt other innovative policies.
