Smart and Aggressive Development or Time-Up for Nigeria and Africa -By Saliu Momodu

Over the last two decades, China has been scathingly accused by the West (the United States in particular) of currency manipulation. The US says China continues to artificially and systematically undervalue her own currency against the dollar so that it maintains a value below a supposed real market rate. This they claim is for a competitive edge in pricing of Chinese manufactured products over those made in the US.

To put it simply, if the Chinese Yuan exchanges significantly less than the US dollar in market value terms, Chinese goods come along as more affordable to customers than what would have obtained ordinarily. This strategy seems to have worked and continues to work for the Chinese being that their high economic growth and very large GDP are almost entirely hinged upon an export manufacturing industry.

So if a high exchange rate is cutting it for the Chinese, why are Nigerians perpetually whining over high dollar to naira exchange rates? A simple answer to this question has to do with the overwhelming volume of annual imports in goods and services that Nigeria compulsively makes dollar payments for. So as our dollar demands spike perennially, the value of the currency against our naira follows suit in obedience to the economic forces of demand and supply. In the same vein, the gap between the two currencies widdens further, requiring us to hermorreage more naira in exchange for fewer dollar bills. Little wonder that inflation, as we manage to endure today is also a belligerent follow up in the despicable scenario.

But it works for the Chinese one might say, begging the question therefore as to what could be the true differences at play in the case of Nigeria. The functional difference which has nothing to do with population size or skin colour is actually all about PRODUCTIVITY.

China isn’t just subduing her currency only to sit idly by thereafter. The country is being strategic with the privailing low rates by multiplying her productivity, improving quality and pushing her competitiveness. This maintains jobs, creates much more, and buys them time to explore new frontiers for sustainability and further growth.  Yes this all comes at a cost which is that China has to keep buying up excess US dollar bonds to create an artificial demand for the US currency in a scheme that fools the dollar in the exchange rate equation. To put it simply, the Chinese Central Bank keeps buying up investments in US dollars thereby synthesising one of the main conditions for a stronger dollar against the Chinese Yuan. This essentially is a mechanism for a false demand for the US currency to keep it’s market value relatively higher than supposed. By doing this, those spending on consumer electronics and clothings amongst a host of other manufactured products would find Chinese options more affordable. That the overheads, utilities and general  production enterprise in the manufacturing country are denominated in a relatively “weaker” Chinese Yuan currency makes it all the more a clever economic manouvering.

In reality, the Nigerian Apex Bank also tries to peg the dollar-naira exchange rates as the Chinese have been shown to do. But the missing link that continues to deal the death blow to the naira and it’s economy is the abysmal productivity index that the country has got to show perhaps particularly in the past 10 years.

So how do the Chinese plan to continue this rather risky and unsustainable economic practice? Well, that’s where Africa and many other countries like in Latin America come into the equation. To maintain her business and economic machinations, the Chinese insist on seeking out cheap raw materials especially from African countries to sustain their production plants and to keep their manufacturing lines uninterrupted.

In Africa, China explores for everything from solid minerals, crude oil, agricultural produce, water resources and even labour opportunities for her intermediate-killed workers. Of course they also sell finished products from manufacturing and technology to the Continent but in reality, the balance of trade is so overwhelming in their favour, and their access to raw materials- cheap raw materials, represents an even more significant incentive to hold on to the continent by the jugular.

So Africa in essence is helping China compete favourably with America and the West. But here we are in Africa oscillating in and out of recession, with prohibitive inflation and the highest exchange rates ever recorded. What options therefore have we got especially after now knowing that high exchange rates aren’t necessarily a doom?

Nigeria, and indeed Africa has got to fast-track her development through amongst other means, smart and aggresive economic models. There are serious, even existential reasons to make haste in this regard not least because the invaluable raw materials we currently give away for next to nothing would not be so available in the foreseeable future.

Africa’s resources are finite. Petroleum definitely is fast loosing it’s value signalling a future of uncontrollable social and economic crisis as we approach dangerous thresholds of resource depletion. Already, we witness inexplicable increase and audacity in crime and criminality with kidnapping, terrorism and banditry sprawling across much of Nigeria. In addition, the world is experiencing geometric strides in technological advancement and this for a certainty is fast threatening the relevance of traditional raw materials, their use and the value they command. Time therefore is not on our side. So what are we to do?

Let’s answer that existential question in the second and concluding part of this piece.

By Saliu Momodu
saliumomoh123@gmail.com