The recent post, which came into view to be backing devaluation of Naira, and fuel subsidy removal in Thisday newspaper, which was advocated by the former CBN governor Sanusi Lamido Sanusi, had become a topic of discussion at the millions hearts of Nigerians.
The questions are; what is devaluation of Naira, fuel subsidy removal? When are they applied? And how are the affecting the economy?
Devaluation, in economics is the official act of reducing the rate at which one currency is exchanged for another in international currency market. In other word devaluation is a situation in which govt. with intent, reduces the value of its currency, so as to achieve some specific target. Devaluation is one of the import ant weapons used by the govt. in stabilizing the economy. Though when currency of a country loses it value that signifies something is wrong somewhere. In fact devaluation of currency is not a means per se, but a means to an end. In other word devaluation is like a derive demand; it is required not because of its own sake, rather the desired result it helps to produce.
Taking into account, the present situation that we are in now, I mean by looking our economic position i.e. high level of unemployment, low standard of living, excessive reliance on imported goods etc. by considering the above mention issues especially, the heavy reliance on import which mastermind must of our current problems. As a result, we neglect our home made goods. This makes our local industries to collapse. Take for instance, our defense industry in Kaduna it was established the same year with that of Brazil. But now Brazil produces all sorts of weapons but ours only producing furniture .Besides, we can’t even refine our own oil. Why because our refineries are not properly working. What we normally do after exploration, is to take the crude oil outside the country for refining, which is very unfortunate.
In view of the current state of our economy, we need to devalue our currency so as to both discourage import and encourage export. In what ways does devaluation of currency discourages import and encourages export? When govt. devalues its currency, import becomes dearer and export becomes cheaper. Thus, people will not be encouraged to import further, because they had to take a huge amount of money to import a fewer goods. This will prevail upon the consumption of local goods, which will trigger economic activities by motivating our local industries to be more productive and constructive.
On the contrary, export becomes cheaper when currency is devalued. This is because value of the currency will reduce in international currency market. This will therefore, attract many countries to patronize output of the country. This will in turn burst economic activities by cheering local industries to respond by employing more workers, in order to produce more goods and services. Note; when more workers are employed it raises their income, increase total spending, increase saving, and above all standard of living will increase.
In the second place, fuel subsidy. Subsidy simply refers to money given by govt. in other word subsidy refers to grant or gift of money to private company or an organization so as to reduce it cost of production. Fuel subsidy refers to amount of money sacrificed by the govt. in order to reduce the cost of oil in the country. When govt. subsidies fuel, things become easier to people, as oil now becomes an essential part of every man’s act ivies. Take for instance; the cost of goods sold in market will be low when fuel is subsidized than when it is not. Moreover, transportation cost will be minimal etc. Therefore, fuel subsidy increases the wellbeing of the society. Though, as earlier mention fuel subsidy refers to sacrifice of money. Yes a great sacrifice! This is because when govt. subsidies fuel, it forgone it other spending, that it would have done with the money, like the building of schools, roads, constructions of bridge and the like.
Why it that whenever, govt. calls for subsidy removal people begins to yell, after having known that, the money will be spent on other social amenities? Is it because people lose confidence in govt.? I think the reason behind it is that, govt. is no more to be trusted, by considering the past actions of the previous administrations. Doesn’t matter what the case maybe, subsidy removal has both positive and negative implications. In nutshell, subsidy removal enables govt. to increase both its recurrent and capital expenditure for the betterment of the people. On the other hand, subsidy removal depresses people’s welfare especially, when there is an idle resource in the economy.
In view of our present state of the economy, we ought to devalue our currency, in order to encourage export and discourage import. By so doing, it will motivate our local industries to be more productive and constructive, which will trigger economic activities in the country. Contrarily, looking at the current state of our economy. That is to say, high level of unemployment, low standard of living and co. govt. doesn’t have to remove fuel subsidy.
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Abdurrahman Jidda aka (dnice)
Ahmadu Bello University, Zaria.
Dept. of Economics
300 Levels
