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OPEN LETTER TO NIGERIANS
- NAIRA REVALUATION CANNOT BE IN ISOLATION
- THERE IS NOTHING TO CELEBRATE
- Being text of the Press Conference held by UAD on Wednesday, August 22, 2007
1. Introduction
Since Professor Charles Soludo unfolded the illegitimate Yar’Adua regime’s “new” financial fallacy last Tuesday, August 12, 2007, there have been 4 levels of reactions among Nigerians:
- Neo-liberal apologists and beneficiaries of finance capital, some of who have called for either the “bang” or “gradual” approaches in the implementation. The “bang” approach means Soludo ought to have started the policy immediately by taking “everybody” by surprise, while the “gradual” approach meant that the 100% revaluation should commence by installments.
- Traditional opponents of the regime (such as politicians in the Action Congress (AC) and others still seeking for Yar’Adua’s patronage) who have no articulated alternative economic policy different from the World Bank-IMF therapy, and who would be gladdened to have Soludo continues as their economy strategist were they to be in power.
- Apostles of legality or due process who object for lack of proper consultation adopted by Soludo in enunciating the policy, but are nonetheless not fundamentally in disagreement with the policy.
- Political economy perspective which reflect the realities of majority of Nigerians who are directly affected. However, most are confused because they lacked understanding of the “technicalities” used by economic “experts”, and their reactions have been mixed. It is this constituency the UAD chooses to defend from the Soludo’s new logic of robbery and policy somersault.
2. What are the issues raised by the Soludo’s Fallacy?
- Continuation of the IMF-CBN regime’s 13 point agenda launched on July 6, 2004 to reform the Nigerian banking and financial system.
- The thrust of the reform is to “stabilise exchange rate, reduce inflation, reform microfinance, restructure the lower denominations of our currency and re-introduce coins, as well as promote the efficiency of the payments system.”
- Desire to make Nigeria among the 20 largest economies in the world by 2020 through his Financial System Strategy (FSS) 2020.
- Strategic Agenda for the revaluation of the Naira is the phase 2 and anchored on the success of the phase 1 of the economic reform agenda. It also relies on the New Central Bank Act, 2007 (section 2) as the legal instrument that give Soludo the locus standi to disguise the same IMF-SAP therapy imposed on Nigerians since the 80s in “new” nomenclatures.
- Celebrating the success of phase 1, Soludo argues that the 13 point agenda have strengthened the economy more than ever before in the areas of banking consolidation, increased forex liberalization, improved banking operations and discipline (skills, technology, money laundering), and ownership structure of banks, etc.
- The Decision to share the part of the Federation Account in dollars only to FG and State Governments effective from September 2007. That such allocation will only be monetized in Naira cash and to pay for external transactions through letter of credits.
3. Where the Soludo’s Fallacy goofed:
- There is nothing “original” or “new” about the Soludo’s fallacy of currency revaluation. Essentially, it is the phase 2 of the National Economic Empowerment Development Strategy (NEEDS). It is dictated by the IMF doctrine of currency stabilization that put all major currencies in the world at the mercy and bondage of the US Dollar since 1945. United States had only devalued its dollar when she suffered trade deficits and was threatened by British pound, Japanese yen and Germany mark, which implied loss of confidence in the dollar.
- The drivers of the “new” strategic agenda as stated by Soludo are – the commitment of Mallam Yar’Adua to sustain the economic and structural reforms (started by Obasanjo) and the robust foreign reserves (for disbursement and payment for imports). What a robbery? Because, for the revaluation policy to be effective, interest rates and rates of foreign exchange have to be stabilized, and Goods in process which are on credit line have to be paid for (with the robust reserves) during the period.
- Soludo’s fallacy anticipates servicing the demands of foreign exchange parallel with the foreign reserves. Could it be another ploy to deplete the foreign reserves earned through oil windfall, part of which, were used to settle the questionable debt in anticipation of the real investment?
- Interest (lending) rates still high at 16.9% in Nigeria. Whereas, interest rates are 4.5% world average and 3% for the advance economies.
- Banks’ strength from 3,200 to 4,100, employment from 55,000 to 61,000, and foreign investment now $1.5 billion, etc. Granted that the banking sector generated 6,000 jobs in the last 3 years, how come millions of jobs were lost in the industrial, manufacturing, oil and gas, food processing, marine and shipping, mining, energy sectors, civil services sectors, etc?
- Redenomination of the Naira to its pre-1986 units is not the same thing with restoration of its value. Thus, reverting to the coins – 1k, 2k, 5k, 10k and 20k; and notes – 50k, N1, N5, N10, and N20 are not the real issue.
- IMF-World Bank devaluation of the Naira started in the 80s at 15% and gradually moved to over 135% currently. Nigerians didn’t have to go the banks to add two zeros since the 80s, instead, they lost the two zeros (actual value) to the SAP forces of “demand and supply”.
- How will the Naira fare? Will the removal of two zeros meant that all debts, contracts, income, goods, assets, prices, taxes, remained unchanged in monetary values? This is the implication of the Soludo’s fallacy because it is only the nominal unit of Naira that is changing, not its value.
- Also, the poor stand to loose the more, and inflation would definitely rise. For instance, the poor will pay more for a sachet of pure water that currently sell for N5.00 because the nominal unit of N5.00 which ought to be half a kobo is not accommodated by the Soludo’s proposed new coins whose lowest unit is 1k. Therefore, all consumables under N10 now will automatically attract higher price of 1k in a de-nominated currency regime.
- Soludo has also argued that “all these will also provide important building blocks for the external current account convertibility and attainment of the IMF Article VIII status”. What does the IMF article state?
- Professor Soludo was very smart to admit the failures of the reform agenda to transform the lives of Nigerians when he said: “at the economy-wide level, there are still chronic challenges of insecurity of lives and property, infrastructure deficiency (especially power and transportation), education crisis, among others”. But his “new” financial fallacy has no answers to the chronic challenges he raised.
- The Soludo’s chronic fallacy admitted that only a sound sustained stable macroeconomic environment can enhance the realization of the 2020 dreams. What other strategy is required to drive the macroeconomic environment other than focusing on the productive economy sector?
4. Normative economy versus Productive economy – Which Way?
- From the periodic statistics released by the Manufacturers Association of Nigeria (MAN), there have been fall in real investment for the past 8 years up till now. For instance, the Textile Industries workforce strength of 500,000 is now reduced to about 50,000. Because under the fiduciary (fiat money) investment that is the trademark of the Soludo’s fallacy, preference is given to importation rather than boosting local production. Thus, Nigeria becomes the dumping market not only for all consumables but records unprecedented net outflow of capital because there is no significant contribution from the manufacturing and industrial sectors to the GNP.
- The Soludo’s fallacy is just in the realm of Normative economy and the concern on investment is simply fiduciary. It is just money making for the Big Capital through banking operations, and not concerned about the continuing job losses and job insecurity.
- Real investment means emphasis on the productive sectors which would give employment that not only give wages but also give income and promote savings. For the past 8 years, there were no real investment in industries, shipping, agriculture, infrastructure, manufacturing and processing, science and technology, etc that are key to productive economy.
- Soludo and his likes have argued that the recapitalization in the banking industry have “restored sanity to the sector in terms of more funds available for local investors and its improvement of Nigeria’s financial sector’s ratings abroad”, our question is: what is the impact of such on employment and living standard of Nigerians?
- Why are the declared excessive profits by the consolidated banks not translating into mass employment but more money to finance capital? Because it is an avenue for unproductive wealth to the benefit of few people at the expense of the mass of people.
- Our studies of other countries’ experience at currency redenomination have shown that it is not an approach that works in isolation of the real productive sector of the economy, which in our case and other third world rated economies have become hostage to conditionalities set by IMF in obedience to the Washington paradigms. No currency redenomination theory can transform the economy where mass unemployment persists, Naira depreciates in value, imports exceed the exports, local industries are collapsing, and cost of production are prohibitive, etc.
- If economy is understood from its essence, the role of exchange in the context of production relations is in the third category, i.e. production-distribution-exchange-consumption. Hence, money if correctly correlated should be in terms of its purchasing value, production output, resource availability and allocation, consumption, demand and supply, etc.
- The Soludo’s fallacy only bring to fore a new opportunity for the looting elites to cover up ill-gotten wealth through primitive accumulation. Our concern are not those statistical figures that give false impressions and illusions about reduction in inflationary percentage but the real worth of our currency to material existence as defined in the expectations of the Millennium Development Goals (MDGs), and our local instrument – Section 16 of the 1999 Constitution that states clearly the Economic Objectives of Government.
5. Contending the Legitimacy issue?
- The Soludo’s fallacy came in the wake of emergency declarations on the Energy sector and on the Niger Delta. Could it be a diversionary antic to induce sympathy for a regime wanting to buy legitimacy?
- Could the policy be a divisive ploy to give the unsuspected public the impression of a break by Yar’Adua from the Obasanjo’s wasted years?
- Is it not deceptive for people to assume that “Soludo really meant well” with the policy? Yet such a policy shift would be enunciated without the knowledge of the foxy Yar’Adua and his kitchen cabinet?
- Why were other stakeholders (Labour, Manufacturers Association, Chambers of Commerce, Bankers Association, etc.) in currency financing excluded in the decision on the Policy Shift? Even the IMF issue in the 80s up to the Babangida dictatorship’s adoption of SAP in 1986 was subjected to a countrywide debate.
6. Why the 7-Point Mallam Yar’Adua Agenda Fall Short?
- The thrust of the agenda as articulated by the just concluded Presidential Retreat are on: security of lives and properties, constitutional restructuring, wealth creation, investment in education, mass transit, making oil and gas productive not extractive, and parleying with the Niger Delta militants.
- The agenda can never work on the basis of the neo-liberal economic paradigms. For example, the greatest enemy to insecurity of lives and properties is the NEEDS fallacious policy that encourages retrenchment and unemployment in the guise of right-sizing, down-sizing, etc. Thus, the goal of protecting lives and properties cannot be achieved in the face of millions of unemployed.
- Why sell off the fixed asset and productive base of the country - NNPC, NPA, NITEL, NEPA, Refineries, etc if the concern of government is to promote the welfare of the citizens? For instance, since the privatization of the Nigerian National Shipping Line (NNSL), more of the shipping is done by foreigners. All the big haulage which ought to attract jobs and income were it done by Nigerian shipping line are benefiting the foreign shippers.
7. Why Nigerians Must Reject the Soludo’s Fallacy and the Neo-Liberal Paradigm?
- Our preliminary survey of opinions of the average Nigerian shows wide applause and expectation about the policy. This new wave of enthusiasm is informed largely by ignorance on one part, and on the other by the hope to get out of the economic nightmare.
- Naira appreciation should ordinarily have attracted some joy but the Soludo’s fallacy raises serious class question as regards the sinking and deeper integration of Nigeria into the world of finance capital, where the few owns the rest of the world. Why would an average Nigerian celebrate the rating of Nigerian banks being ranked among the top 500 (355th) in the world at a time the so-called “sound economy” make only six Nigerian universities appear in the top 10,000 (7,300th) in the world?
- Why are we (in Nigeria) still having life expectancy at 46.7 years when Ghana, Libya, South Africa, Morocco, Egypt, Tunisia are between 56 to 74.9years. Education vote in Nigeria is 0.7% of GNP, in Ghana (4.2%), Egypt (4.1%) and Tunisia (7.2%).
- Currency revaluation, good as it sounds, cannot be done in isolation because the motive force of history is the contradiction between capital and labour in production relations. Do you promote few riches at the expense of majority poor?
- In what way has the 6% economic growth rate being celebrated by Soludo and the “experts” addressed the challenges of productivity and development? Economic growth does not automatically translate to development and the imposed policies of SAP-NEEDS-FSS have failed to address the challenges of productivity, energy, oil, rail transportation, etc., till date.
- The so-called goal of growing the Nigerian economy to 13% is only feasible in the realm of an economy strategy that would develop agriculture, mining, oil and gas, quality human resources and services to propel industrialization. What the Mallam Yar’Adua’s retreat has done was to follow the path of successive regimes that made lavish pledges which are not tied to any workable strategy. How does Yar’Adua hope to remedy the energy situation in the country with the NEEDS and Soludo’s Fallacy as his strategy? We were promised “light for all in 1990, the goal post was shifted to “2000” and later to 2005/6 when the defunct Obasanjo dictatorship admitted that it might take the country till 2025 to attain uninterrupted power supply. UAD is aware of the fact that only 30% of Nigerians are connected to (PHCN) light, which meant that majority of Nigerians have no access to electricity supply and its implication for industrialization. Yet Nigeria needed to generate about 10,000MW in 2006 and 20,000MW by 2010 to be assured of adequate supply of electricity. Energy requirement for uninterrupted supply in 2020 is 125,000MW. Did the retreat address these concrete challenges? Can we have the work-plan on how the additional MW is to be generated?
8. The Way Forward
- THE SOLUDO’S FALLACY IS ANOTHER PHASE OF THE IMF-SAP-NEEDS THAT WILL CONTINUE TO DEEPEN POVERTY AND SUFFERINGS. NIGERIANS HAVE A CHOICE NOW TO REJECT THE NEO-LIBERAL ECONOMIC PARADIGM.
- THE ALTERNATIVE IS EITHER A SOCIALIST TRANSFORMATION OF THE ECONOMY OR A PRAGMATIC PEOPLE-ORIENTED POLICY (adopted by the developing economies in Asia, South and Latin America), either of which should entail:
- Full employment, living income and job security.
- Policy to expand and protect the manufacturing sectors, including subsidies and lowering the interest rates to 5% raise tempo of economic activities.
- Repatriation of the “robust foreign reserves” to develop the requisite infrastructure and energy capacity for Nigeria’s transition into industrial and technology based economy.
- Encouragement of investments and savings through productive activities.
- Private sector participation outside the major economic sectors and a stop to the sale of public fixed assets at ridiculous prices to cronies and looters in the guise of privatization.
- Adequate funding of education and health sectors in line with UNESCO and WHO standards.
- Restoration of mortgage institutions and credit lines that is anchored on a policy that ensures that the worker’s income is not more than 20% to own a house. In the 70s and early 80s before SAP, there used to be functioning Students’ Loan Board and Mortgage banks.
- Social security fund and welfare benefits for the unemployed, disabled, and the aged.
Comrade ABIODUN AREMU TAIWO OTITOLAYE
Convener
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