It is always interesting to read foreign ‘experts’ writing about Africa as an exercise in watching them assume they are writing for fools or children. However, in this case Lubin’s work is far more dangerous. This adviser, associated with Chatham House, is seeking under cover of sympathetic advice to deliberately ruin the Nigerian economy, foment division and cause the collapse of Nigeria. This is USAID on steroids.
David Lubin has written a piece titled:
‘Nigeria’s economy needs the naira to stay competitive.’ (Note 1)
He states a description of the Nigerian economy: ‘The value of the naira has collapsed, petrol prices have quadrupled following the withdrawal of motor fuel subsidies, and food prices are more than 80 per cent higher than when the election was held. Poverty, which blights the lives of more than half of the population, has risen. ‘
At one point, the Naira, which some years ago was 200 to 1 GBP, fell to 2,000 to 1 GBP. In terms of Tinubu’s administration, it has fallen from 430 at its outset towards 2000 for 1 GBP.
Lubin describes this devaluation as Nigeria’s best hope for sustainable growth. He then describes the following:
‘The depreciation of the naira has had two hugely positive consequences. One is the improvement in Nigeria’s balance of payments. The current account – the broadest measure of a country’s trade balance – is now firmly in surplus.’
This is a total non-sequitur. The balance of payments can ‘improve’ by massive reduction in imports or a massive increase in exports. The first often implies a material reduction in national wealth whereas the other suggests growing national wealth.
He then writes: ’As a result, the Central Bank of Nigeria (CBN) has added to its foreign exchange reserves, which now exceed $40 billion.’ There is first of all no explanation that the rise in FX reserves is due to devaluation. On the other hand, this may be the guilty secret – the policy of devaluation was directed in order to generate surplus dollars for the one thing dollars are solely required: repayment of dollar debt.
He then writes: ‘The other positive effect is that the naira’s devaluation has given substantial support to the Nigerian budget’. Now devaluing the currency only increases income in relation to foreign exports. But oil revenue is a very small percentage of GDP though it is a larger per centage of federal revenue. If the government expenditure were kept stable the devaluation might not have any positive effect. Devaluation may allow a government to cut social expenditure without appearing to do so by keeping social expenditure stable in nominal terms while the value of the currency falls so that the actual real value of social expenditure falls massively. But in Nigeria the government does not spend massive amounts on social support. Falling currency values reduce demand for foreign currency or foreign currency denominated items and so allow an increase in accumulation of dollars which would be needed to repay dollar debt.
Oil revenue in Nigeria in 2023 was USD 30 billion. GDP of Nigeria was almost USD 600bn in 2010 and has become USD 360 bn. A fall in the exchange rate would mean that the Government receives more local currency for each dollar. Two fundamental errors arise here. The government does not need local currency converted from USD. It can print local currency. Secondly, the government development plans may require significant import of capital items which are usually priced in dollars. In terms of major government development expenditure, requiring the import of capital items, reducing the exchange rate will be at best neutral! But if the government development expenditure exceeds its foreign currency earning, falling exchange rates make all capital investment and repayment of debts much more expensive. It is telling that Lubin never mentions the effect of falling exchange rates on the ability to repay foreign currency denominated debt. This is a major if not prime issue for Nigeria.
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Then we come to the most egregious error. Lubin states that allowing the currency to recoup from its losses ‘would accelerate the disappearance of all the gains in competitiveness that have been won through the currency’s decline.’ This is the deepest nonsense. The term competitiveness is used for when a country’s products enter the world market in a competitive environment. In the world of commodities, it is not possible to be competitive as the price of the product is usually set in USD! One’s own currency value would be of no relevance. For example, Nigeria’s oil is set in USD!
He then states: ‘ A currency that stays competitive is a necessary – although by no means sufficient – condition to encourage more productive capital to enter the country.’ This exchange rate is only relevant for exports and imports. A lower exchange rate raises the price of import components but it only has a positive effect if the investor is producing for exports, which is rarely the case in Nigeria.
He writes:
‘With the naira’s fall, however, Nigeria is arguably now more competitive than at any time in the past 25 years’. This is plain nonsense. Almost all Nigeria’s exports of minerals such as oil, agricultural commodities such as cocoa, are priced in USD.
He writes: ‘it is impossible to establish a basis for growth when capital has an incentive to leave the country’ without recognising that an unstable and declining exchange rate is a massive incentive for financial capital to leave the country!
He states: ‘The CBN’s policy interest rate is now at 27.5 per cent, which is appropriately high’. Almost all economists would conclude that a general interest rate at 27.5 makes manufacturing investment impossible and makes general investments also impossible as few opportunities have such high rates of return to sustain that rate of interest expense.
Not only is Lubin showing economic illiteracy, his recommendations are targeted to bring the country into chaos. He writes: ‘IMF data suggest that Nigeria’s total government revenues are less than 10 per cent of GDP. That is extraordinarily low by international standards – lower even than the 14 per cent average for sub-Saharan Africa. The government is firmly focused on raising revenues, but its importance cannot be overstated, not least since it offers a way of helping bring inflation down without sacrificing the naira’s competitiveness.’
Given that the government is not providing much of the services to the population, raising taxes during a depression is the best way to start a revolution. Remember: most revolutions have been tax revolutions or triggered by taxation. British, American and French were all deeply affected by taxation.
Many would conclude that Lubin and Chatham House are deliberately trying to destroy the Nigerian economy by encouraging raising taxes without increasing government services to the people, by suggesting raising taxes during a depression, by suggesting raising taxes while the ordinary people have a declining income, by suggesting raising taxes while the international organisations are seeking to cut public education expenditure and all other forms of public expenditure. There appears to be a party abroad that wishes to foment violent discord in Nigeria while at the same time wrecking the economy.
Chatham House is playing the same game as USAID – playing for regime change. It is also guided by the same collection of security services.
Why major parts of the Western establishment, and Chatham House is no minor institution, wish to destroy the Nigerian economy, foment division and reduce the country to ruin, I leave to your imagination.
Dapo Ladimeji – 5 March 2025
Notes:
- https://www.chathamhouse.org/2025/03/nigerias-economy-needs-naira-stay-competitive