Falling Naira: Buhari is making same error he made as military head 30 years ago- The Economist

International News magazine, The Economist ,
says President Buhari is making the same mistake
now he made with the falling Naira when he was
Military leader 30 years ago. Find the article
below ...
Give me lucky generals,” Napoleon is
supposed to have said, preferring them to
talented ones. Muhammadu Buhari, a
former general, has not had much luck
when it comes to the oil price. Between
1983 and 1985 he was Nigeria’s military
ruler. Just before he took over, oil prices
began a lengthy collapse; the country’s
export earnings fell by more than half.
The economy went into a deep recession
and Mr Buhari, unable to cope, was
overthrown in a coup. Now he is president
again. (He won a fair election last year
against a woeful opponent; The Economist
endorsed him.) And once again, oil prices
have slumped, from $64 a barrel on the day
he was sworn in to $32 eight months later.
Growth probably fell by half in 2015, from
6.3% to little more than 3% (see article).
Oil accounts for 70% of the government’s
revenues and 95% of export earnings. The
government deficit will widen this year to
about 3.5% of GDP. The currency, the
naira, is under pressure. The central bank
insists on an exchange rate of 197-199
naira to the dollar. On the black market,
dollars sell for 300 naira or more. Instead
of letting the naira depreciate to reflect the
country’s loss of purchasing power, Mr
Buhari’s government is trying to keep it
aloft.
The central bank has restricted the supply
of dollars and banned the import of a long
list of goods, from shovels and rice to
toothpicks. It hopes that this will maintain
reserves and stimulate domestic
production. When the currency is devalued,
all imports become more expensive.
But under Mr Buhari’s system the
restrictions on imports are by government
fiat. Factory bosses complain they cannot
import raw materials such as chemicals
and fret that, if this continues, they may
have to shut down. Many have turned to
the black market to obtain dollars, and are
doubtless smuggling in some of the goods
that have been banned. Nigerians have
heard this tune before. Indeed, Mr Buhari
tried something similar the last time he
was president. Then, as now, he resisted
what he called the “bitter pill” of
devaluation.
When, as a result, foreign currency ran
short, he rationed it and slashed imports by
more than half. When Nigerians turned to
the black market he sealed the country’s
borders. When unemployment surged he
expelled 700,000 migrants. Barking orders
at markets did not work then, and it will
not work now. Mr Buhari is right that
devaluation will lead to inflation—as it has
in other commodity exporters. But Nigeria’s
policy of limiting imports and creating
scarcity will be even more inflationary. A
weaker currency would spur domestic
production more than import bans can and,
in the long run, hurt consumers less.
The country needs foreign capital to finance
its deficits but, under today’s policies, it
will struggle to get any. Foreign investors
assume that any Nigerian asset they buy in
naira now will cost less later, after the
currency has devalued. So they wait. Those
who fail to learn from history... Mr Buhari’s
tenure has in some ways been impressive.
He has restored a semblance of security to
swathes of northern Nigeria that were
overrun by schoolgirl-abducting jihadists.
He has won some early battles against
corruption. Some of his economic policies
are sound, too. He has indicated that he
will stop subsidising fuel and selling it at
below-market prices.
This is brave, since the subsidies are
popular, even though they have been a
disaster (the cheap fuel was often sold
abroad and petrol stations frequently ran
dry). If Mr Buhari can find the courage to
let fuel cost what the market says it should,
why not the currency, too? You can forgive
the general for being unlucky; but not for
failing to learn from past mistakes.