Classics, People

CLASSICS: Pat Utomi explains why naira is crashing, ‘Capital flight is ruining our economy’

PROFESSOR Pat Utomi has blamed the fall of the naira on loss of confidence in the economy. The Director of Lagos Business School and renowned political economist made this known in an exclusive chat with ENCOMIUM Weekly on Tuesday, June 19, 2012. He further explained that investors are dumping Nigeria, investing their funds in more stable and predictable economies.

When asked if President Goodluck Jonathan is on the right track as regards reviving the economy, Professor Utomi argued that the issue was rather a complex one. The two-time presidential aspirant said the solution lies in a collective effort and determination to fix Nigeria.

Economic indices have shown in the last few weeks that Nigeria is heading for harder times. Inflationary rate is hitting the heavens, while the national reserves is going down as the naira is depreciating like it never did before. The naira which exchanged for about N156 to a dollar hat hit N163 by Wednesday, June 20, 2012. Nigeria’s foreign reserve also continued its downswing as it reduced further by $220m (as at press time) to close at $37.242 billion. Emerging market strategist, Mr. Samir Gdio of Standard Bank Plc, in a newspaper interview said the flattening and marginal decline in foreign reserves was expected since the Central Bank of Nigeria (CBN) had increased the size of its forex sales at the Wholesale Dutch Auction System (WDAS). He also said that efforts to support the weak naira has certainly affected Nigeria’s foreign reserves.

Gadio equally argued that the continued trend of sharing the Excess Crude Account (ECA), proceeds amongst the three tiers of government had left Nigeria virtually without any fiscal savings. He argued that the naira would have been stronger and our foreign reserves hovering around $60 and $70 billion if Nigeria had managed her revenue properly.

“This would have certainly helped smoothen inter-temporal boom and bust oil cycles, improved sentiment in the forex market and ensured a more viable exchange rate frame work.”

Professor Pat Utomi while acknowledging some of these points, however, alleged there are so many people sabotaging the nation’s economy. Hear him…


Why is the naira crashing again?

The value of naira is a function of so many things. Confidence in the economy is a very critical part of determination of exchange rate. If people think there is so much uncertainty, they would begin to hold positions outside of that economy. What this is telling you is that a lot of Nigerians who have money and non-Nigerians alike are moving their money out of Nigeria, because they are uncertain about the way things are. That’s one possible reason. Another reason is that there are too many people who are buying things outside of Nigeria. Therefore, the relative value of the naira is seriously affected this way. Again, oil prices are dropping. And if oil prices are dropping and people have confidence crisis, that is double jeopardy. You will see it in the exchange rate.

But some economists think it’s good for the economy?

It is good to the extent that you are taking advantage of it to produce for export. If you are not producing for export, it’s not helping you much. The global economy is about competitiveness. But I’m not sure we are doing a lot to tap from this.

What then are the panacea to firming up the naira?

We have to sit down and really determine collectively what we want to make of our country. Politicians of the First Republic focused on how to bring progress to their people. You have Michael Okpara in the old Eastern Nigeria, who worked so hard to make the region the fastest growing economy in the world. He didn’t get himself a plot of land in Enugu. That’s not the case now. Our leaders are only taking care of themselves. That is the major problem we have in Nigeria. You have heard about all the jokes about cap banking. It’s only when they serve selflessly that we will get progress.

Would you say President Jonathan is doing the right thing as regards the economy?

It is a more complex thing now. I think the only thing that makes sense now is to get everybody together to fix Nigeria. It is better to have everybody inside the house pissing out than some people inside the house pissing into the house. Those pissing in the house make the place stink. There are so many people who have vested interest in preventing Nigeria from making progress right now. So, the starting point is to make everybody have a stake in a progressive Nigeria.

Is there hope for Nigeria?

Personally, I’m very optimistic in spite of all these. Nigeria is really in a mess, but we don’t have another country. Right now, we have allowed our country to be hijacked by the cabal.

Is Nigeria’s monetary policy too tight?

Right now, there is a weak access to credit in our country. And we need to facilitate access to credit to ginger the economy.



This story was first published in Encomium Weekly edition of Tuesday, June 26, 2012

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