Falling Naira: Buhari is making same error he made as military head 30 years ago- The Economist

International News magazine, The Economist, says
President Buhari is making the same mistake now he
made with the falling Naira when he was Military
leader 30 years ago. Find the article below ...


Give me lucky generals,” Napoleon is supposed
to have said, preferring them to talented ones.
Muhammadu Buhari, a former general, has
not had much luck when it comes to the oil
price. Between 1983 and 1985 he was Nigeria’s
military ruler. Just before he took over, oil
prices began a lengthy collapse; the country’s
export earnings fell by more than half.



The economy went into a deep recession and
Mr Buhari, unable to cope, was overthrown in
a coup. Now he is president again. (He won a
fair election last year against a woeful
opponent; The Economist endorsed him.) And
once again, oil prices have slumped, from $64
a barrel on the day he was sworn in to $32
eight months later. Growth probably fell by
half in 2015, from 6.3% to little more than 3%
(see article).


Oil accounts for 70% of the government’s
revenues and 95% of export earnings. The
government deficit will widen this year to
about 3.5% of GDP. The currency, the naira, is
under pressure. The central bank insists on an
exchange rate of 197-199 naira to the dollar.


On the black market, dollars sell for 300 naira
or more. Instead of letting the naira
depreciate to reflect the country’s loss of
purchasing power, Mr Buhari’s government is
trying to keep it aloft.


The central bank has restricted the supply of
dollars and banned the import of a long list of
goods, from shovels and rice to toothpicks. It
hopes that this will maintain reserves and
stimulate domestic production. When the
currency is devalued, all imports become
more expensive.


But under Mr Buhari’s system the restrictions
on imports are by government fiat. Factory
bosses complain they cannot import raw
materials such as chemicals and fret that, if
this continues, they may have to shut down.
Many have turned to the black market to
obtain dollars, and are doubtless smuggling in
some of the goods that have been banned.
Nigerians have heard this tune before. Indeed,
Mr Buhari tried something similar the last
time he was president. Then, as now, he
resisted what he called the “bitter pill” of
devaluation.


When, as a result, foreign currency ran short,
he rationed it and slashed imports by more
than half. When Nigerians turned to the black
market he sealed the country’s borders. When
unemployment surged he expelled 700,000
migrants. Barking orders at markets did not
work then, and it will not work now.

 Mr Buhari
is right that devaluation will lead to inflation—
as it has in other commodity exporters. But
Nigeria’s policy of limiting imports and
creating scarcity will be even more
inflationary. A weaker currency would spur
domestic production more than import bans
can and, in the long run, hurt consumers less.


The country needs foreign capital to finance its
deficits but, under today’s policies, it will
struggle to get any. Foreign investors assume
that any Nigerian asset they buy in naira now
will cost less later, after the currency has
devalued. So they wait. Those who fail to learn
from history... Mr Buhari’s tenure has in some
ways been impressive. He has restored a
semblance of security to swathes of northern
Nigeria that were overrun by schoolgirl-
abducting jihadists. He has won some early
battles against corruption

. Some of his
economic policies are sound, too. He has
indicated that he will stop subsidising fuel and
selling it at below-market prices.
This is brave, since the subsidies are popular,
even though they have been a disaster (the
cheap fuel was often sold abroad and petrol
stations frequently ran dry).

 If Mr Buhari can
find the courage to let fuel cost what the
market says it should, why not the currency,
too? You can forgive the general for being
unlucky; but not for failing to learn from past mistakes