Devaluation not only option to resolve Nigeria’s economic woes – Expert

Managing Director of Cowry Asset Management Limited, Mr. Johnson Chukwu, has said that not only devaluation; but a cocktail of policies amongst others are some of the alternative options to solving Nigeria’s economic crises.
Chukwu says these include exchange rate adjustment, creating windows of investment for long-term funds through concessioning of commercially viable infrastructure, full deregulation of the downstream petroleum industry and stimulating investment in sectors where Nigeria has comparative advantage, as well as investing heavily in social infrastructure such as health, education and security.
According to Chukwu, a flexible exchange rate is like a silver bullet that can be effective for both demand management and supply expansion.
“When the price of a currency is adjusted to reflect the earnings capacity, the citizens’ capacity to consume imported goods is automatically reset at a lower level as they can no longer afford many of the non essential imported items. Irrespective of the so called inelastic demand of Nigerians for imported goods, once the currency is devalued and their naira income is not adjusted in the same ratio, citizens will reorder their priorities and eliminate items that they can no longer afford,” he affirmed.

Chukwu noted in many instances, citizens will look for local alternatives to the imported items and shift their patronage to such local substitutes.
“The increase in demand for the local substitute will spur increase in production and possible improvement in quality. With improved quality and lower export cost, Traders may consider exporting such improved local products to neighboring African countries and may be from there to Europe, Asia, America and other parts of the World,” he added.

He says for emphasis, we had a proof of concept of this model in the 1980s during the Structural Adjustment Program (SAP) when made in Aba shoes, bags and other leather wears became export commodities to Ivory Coast, Ghana, Togo, Gabon, Cameron Congo Democratic Republic and others.
On concessioning of infrastructure, he noted the indication of the Federal Government to borrow about $4.5 billion from the international market to fund the budget deficit, which is basically going into infrastructure development.
Nigerian authorities had said that they have already started exploratory talks with African Development Bank (AfDB) and World Bank for concessionary budget loans of $3.5 billion.
“While we support these efforts, we are convinced that the government does not and will not have the financial resources to fund the infrastructure gap in the country,” Chukuwu noted.