VOODOO ECONOMY: DEVALUATION PROS AND CONS FOR LAYMAN.

Devaluation is a term to describe government monetary policy via the Central Bank of Nigeria to reduce the value of our currency in a fixed exchange rate. Devaluation means reduction in the value of the Naira exchange rate with respect to goods and services or other monetary units of exchange.

The implication is that imports will be more expensive while exporters will have an advantage. All things being equal (Ceteris paribus).  

 

The proponents of devaluation try to convince us by positing that we shall have more benefits from Naira devaluation with the following arguments:

That we will export more because goods and services produce locally shall become cheaper and more competitive to foreign buyers. Therefore, there shall be an exponential increment in domestic production because of increase demand for locally produce goods and services which eventually translates to job creation in the export industrial environment.

The implication on the economic and financial arena is that exponential increment in exports shall create an upward mobility in the current account deficit of Nigeria.

The competitive advantages deriveable from cheaper and more exports on the demand side contingent on our ability to supply shall metaporhose into higher economic growth.

The antagonists of devaluation try to convince us likewise by positing that we shall be disadvantaged with Naira devaluation by given us the following arguments:

Most importantly they assert that devaluation shall lead to inflation because we are an import dependent economy and given the fact that we import most of our industrial raw material goods and services for manufacturing/industrial production, we shall end up with an increase in the prices of those goods and services or industrial raw materials.

 

Note: (DFD) Domestic Final Demand which is the total demand for final goods and services in an economy at a given time can create demand pull inflation as a result of devaluation.

The resultant cummulative effect of devaluation under such condition is that export oriented manufacturing concerns shall be less interested in cost cutting exercises because the motivation to do so must have been dissipated since devaluation has given them competitive advantages. The implication of that on the long term is lower productivity.

The effects of devaluation on the citizenry inclusive foreign investors are manifold, we can peruse them from the level of reduction in purchasing power for the citizenry or debt servicing in foreign currency.

Furthermore, within it's negativity in terms of value reduction to the foreign or local investors who would not want to hold government debt bond because of prevailing uncertainty with Naira devaluation.

I am not an economist and I do not have any position but whatever position you find intellectually sound enough to address the present economic doldrums we have in Nigeria, PLEASE always put at the back of your mind that economics is not an exact science, (CETERIS PARIBUS) it is fundamental to most of economic assertions.

Source material: economicshelp.org/Wikipedia

OTUNBA ADE ILEMOBADE is a philosopher

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