Why Fix Nigeria Now and How? -By Saliu Momodu

Over the last two decades and counting, China has been scathingly accused by the West (the United States in particular) of currency manipulation. The US says China continues to artificially undervalue her currency below a supposed real market rate so as to afford a competitive edge in pricing for Chinese manufactured products over those made in the US.
To put it technically, 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 ordinarily been the case. If true, this strategy seems to have worked and continues to work for the Chinese being that their high economic growth and very large GDP is almost entirely hinged upon an export manufacturing industry.

So if a low exchange rate is cutting it for the Chinese, why are Nigerians perpetually whining over high dollar to naira exchange rates? A simple and true answer to this question has to do with the overwhelming volume of imports in goods and services which we in Nigeria, directly or indirectly, must annually execute dollar payments for. So as our dollar demand spikes, the value of the dollar follows suit in obedience to the economic forces of demand and supply. In the same vein, the gap between the two currency widdens further requiring us to hermorreage more naira in exchange for fewer dollars bills. Little wonder that inflation, as we manage to endure today, is also a belligerent follow up to the sorry scenario. But compared to the US dollar, a lagging currency works for the Chinese thereby begging the question as to what could be the true differences at play. The complete answer lies in the strategy and will or a lack thereof to become outstanding as can be seen upon an analysis of the different scenarios obtainable in both countries. This difference which has little to do with population size, and nothing in connection to 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 their competitiveness across the world. This creates jobs, maintains many more, and buys them time to explore newer frontiers for sustainability and further growth. Yes it 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 dollar in a scheme that fools the dollar in the exchange rate equation. To put it brutishly, the Chinese Central Bank keeps buying up investments in US dollars thereby synthesizing one of the main conditions for a stronger dollar against the Chinese Yuan. This case however is mainly 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 being that the overheads, utilities and general production enterprise is denominated in a “weaker” Yuan currency in the producing country of China.

So how do the Chinese plan to continue this rather risky and unsustainable financial practice? Now commanding the largest foreign reserves in dollars, how are the Chinese hoping to maintain such staggering international economic hack? 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 their intermediate-skilled workers. Of course they also sell finished products from manufacturing and technology to our 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 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 to fast-track her development through amongst other means, aggresive economic models because the invaluable raw materials we currently give away for next to nothing would not be so available in the foreseeable future.

These 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.

Saliu Momodu
saliumomoh123@gmail.com