Abuja – Mrs Sarah Anyanwu, a Professor of Economics on Monday advised the Federal Government to adopt proactive measures to address the country’s economic crisis.
Anyanwu, Head of Economics Department, University of Abuja told the News Agency of Nigeria (NAN) in Abuja that the first measure the government should adopt was to diversify the economy.
She said the government should encourage domestic production and consumption of goods and services: formulate good policies on investment, ensure access to funds, interest rate and taxes.
“Promotion of local content, innovation and standards of produced goods and services are imperative in reviving the economy.
“Investment in over-head capital, in terms of infrastructure is key to domestic production through improvement in transportation.
“Other measures are ‘investment in power, storage and processing of agricultural produce, curbing of corruption, reducing cost of governance, encouraging entrepreneurship and Small Medium Enterprises ,’’ the don said.
Meanwhile, Anyanwu said that the new Forex policy would likely help to reduce the price of dollar to naira in the immediate short run.
“In essence, it eliminates the high prices in the parallel market where majority of Nigerians access Forex, thus, with the new regime allowing market forces to determine its prices.
“I’m happy the Central Bank of Nigeria (CBN) Governor said non-oil exporters could be part of the new arrangement.
“I also expect that the government would use this opportunity to thoroughly identify all goods that have perfect substitutes in Nigeria and restrict importation. At the same time beef up their production,’’ she said.
Anyanwu, however, explained that the new policy was different from devaluation, noting that the policy intended to provide a flexible exchange rate regime.
“Devaluation is when the government of a country officially fixed its domestic currency in terms of foreign exchange under the fixed exchange rate regime for some economic gains.
“This is a policy measure usually done to increase the price of imports in relation to the prices of domestic goods.
“Therefore, if the demand for imports is price-elastic, the demand for imported goods decreases and the demand for domestic substitutes increase.
“Say for instance, the government depreciates Naira further using a fixed price to dollar. That is devaluation,’’ she said.
In addition, the don said that the Federal Government should adopt proactive measures that would strengthen the Naira against foreign currencies.
She quoted the CBN governor as saying “the country witnessed a significant decline in its foreign exchange reserves from about 42.8 billion dollars in January 2014 to about 26.7 billion dollars as at June 10, 2016’’.
“In terms of inflows, the bank’s foreign exchange earnings have fallen from about 3.2 billion dollars monthly to current levels of below a billion dollars per month.
“The deficit in Balance of Payments (BOP) means that the foreign exchange reserve is lower than what is required to keep the exchange rate stable at equilibrium.
“This may further lead to depreciation of the home currency and appreciation of the foreign currency in the domestic market.
“Depreciation of the home currency will make exports relatively cheaper and imports costlier.
“Devaluation, however, is a deliberate government attempt under the fixed exchange rate regime to reduce the value of its currency relative to other currencies in the foreign exchange market due to a weak economy.
“Currency devaluation has the capacity to reduce the price of a country’s domestic output,’’ Anyanwu said.
The don said that this had the potential to benefit the economy by helping to increase its exports volume, whereas import volumes become stifled as the prices of foreign produced goods and services increase.
She said that devaluating the Naira may not bring the needed results in Nigeria, because the price of oil had fallen which is the major source of our foreign earnings and we do less with non-oil exports.
“Again, until we diversify our economy to encourage massive economic production in extraction, and manufacturing, devaluation may not be sufficiently beneficial to us.
“Devaluating the Naira would further increase our problems, increase inflation and price instability because we rely mostly on imports (both raw materials, semi-finished and finished goods).
“A country that is ready to devaluate must be willing to consciously and deliberately embrace output, and consumption of local brand by its people,’’ the don said. (NAN)