Muhammad Talha Siddiqui is an entrepreneur with vast experience in business and global economy. In this interview with DAVID ADUGE-ANI, he highlighted some of the President Muhammadu Buhari's administration's policies to bolster the country's economy and other sundry issues
Some financial institutions have recommended that Nigerian government should allow the free floating of its currency. What is your take on this?
Free floating of a currency means the government of a country allows the value of her currency be determined purely by forces of demand and supply, without directly injecting nor contracting supply of foreign exchange into her FX market. This is an unrealistic phenomenon indirectly pushed by those calling for currency devaluation.
Exchange rates are subject to demand and supply forces, and every country decides its desired peg, and then regulates expansion and contraction of FX into domestic markets to maintain that desired exchange rate and devaluation occurs when foreign exchange demands exceed what can be conveniently supplemented from reserves.
In reality, no country maintains free floating exchange rate policy. China has an annual trade export to US of approximately $650,000,000,000 with trade surplus of $370,000,000,000 per annum, yet the Yuan (RMB) has maintained an average peg of 7RMB / 1$ for several years.
Similarly Mexico has maintained an average trade surplus of $70,000,000,000 per annum yet its currency maintains a peg of approx.19peso /1USD. Ideally, countries with repeated trade surplus should strengthen to infinity, but they are pegged by respective governments as deemed appropriate. Thus what is unique if the Nigerian government attempts to maintain an exchange peg of N360/$1 as it is deemed most appropriate.
The phrase 'free floating of the naira' is conveniently used to gain a form of moral high grounds by those interested in further devaluation of naira. Whereas repetitive devaluation of naira in the past the three decades has not brought about the promised impetus of stimulating exports, for the simple reason that the basics are lacking such as electricity, security, and access to credit. In these conditions currency devaluation will only serve as a mandatory discount on whatever Nigerians own and further destroy the economy.
But why is China being accused of currency manipulation, because it lowered her currency. China is not devaluing currency to gain trade advantages; rather their economy is undergoing severe stress, witnessing huge capital flight, and depleting foreign reserves. China is the biggest importer of crude oil paid in dollars. Will they really like to pay more Yuan by devaluing in its value? The Chinese debt to GDP is at 300, with over $40 trillion debt level, signaling severe stress.
At the moment, Nigerians are suffering and blaming the government. What is your take?
People love blame games, especially when it resonates with tribal biases, ignoring the fact that Nigerian economy is heavily reliant on oil exports, and prices are not determined by Nigerian government. Remember in 2014/2015, crude prices fell from above $100 to below $30 and later averaged at $50.
This led to acute shortage of foreign exchange and subsequent devaluation of the naira from N168/$1 to N360/$1, eroding that portion of purchasing power without corresponding increase in wages. This is a supply and demand issue of FX and not policy failure. Though, part of the blame is on Nigerian public that prefers imported product instead of local stuff, because despite large quantity of fruits, yet Nigerians prefer foreign juice. Same applies to tomatoes, and palm oil to mention just a few.
What is your assessment of the diversification drive of government?
Mr. President has done the needful by banning importation of items that can be produced locally. There is improvement in rice production and other agricultural items. However, the long term success of these initiatives will depend on developing profitable private sector business modules independent of government subsidies and finances.
World economies are slowing down, what's your take?
The world economy is heavily interrelated. If the USA economy goes into recession, their demand for Chinese products reduces, which in turn lowers Chinese demand for raw materials, including oil from Africa. Remember, the 2009 economic recession in USA affected the whole world. It was blamed on high debt levels, but today the total US unfunded liabilities is above $122trillion as against $20 trillion in 2009. Already major economies are signaling slowly down.
India has been the fastest growing economy for 5 years now. They have five quarters of GDP decline, 4% decline in currency, 30% decline in car sales, 500,000 housing units not delivered after being paid for, six interests rate cuts.
According to Levy Economics Institute of Bard College, $29trillion has been injected by US Central Bank as stimulus bail outs to GM and other 'too big to fail' corporations. Most European countries have gone into negative interest rates, signalling acute desperation for creating artificial liquidity stimulus to prop up their economies. What we are witnessing is unprecedented in history, neither has there been a theory called negative interest rate for bonds in economics text books. The bigger issue is how we protect ourselves from the impact of the global economic slowdown when our economy is reliant on wild swinging oil prices, and diversification remains a farce given the electricity short fall.
I don't see a quick fix solution, but we can hedge our losses by keeping reserves in safe assets like gold, and silver instead of vulnerable currencies.
The United States of America is in trade wars with China and has imposed huge tariffs, can this lead to slowing the world economy?
A full-blown trade war will not occur. President Trump's imposed tariffs, and threats of escalating them, are characteristic of his 'Art of the Deal' negotiation strategy." The U.S. economy, the largest in the world, is also the strongest. And considering the size of the overall US trade deficit, which hit a record $621 billion in 2018, China and other nations will negotiate with the US to even the grossly imbalanced trading field rather than destroy their profit streams.
Further, the media noise that US tariffs are responsible for China's slowing economy is unsubstantiated since the current US tariffs cut only an estimated 0.8 percent from China's Gross Domestic Product last year.
The trade war hullabaloo is more about 2020 US presidential election campaign where the economy emerges as a core issue. President Trump's approval rating has hit a new high and reassures his re-election just as the U.S. Federal Reserve hits pause button on interest rate hikes for 2019, triggering equity market spike.
What are the benefits of Yuan Swap deal entered into between Nigeria and China few years ago?
The China Yuan Swap deal with Nigeria has no major impact, except reducing transactional charges by directly accessing Yuan. It doesn't improve the trade deficits, as purchasing the Yuan directly without routing in USD still constitutes out flow of foreign exchange.
However, if major economies unite on such policy it could bring down demand and value of USD. Mind you the Nigerian GDP is just about $370,000,000,000 while US Dollar based trade is above $200,000,000,000,000. The policy doesn't have deflationary impact on our Chinese imports as The Yuan continues a peg of RMB7: $1
What is your take on Crypto currencies like Bitcoin. Should Nigeria create a national crypto currency?
I do not advise anyone to blindly invest into crypto currencies like Bitcoin, ethuream etc. It is risky, but like all other businesses, risk is relative to knowledge of the subject matter. Humans have used different mediums to exchange value; cowries, copper, silver coins, gold coins, gold back paper receipts, government backed fiat paper, and digits on screens, have all served as money at one time or another, now we are transcending into crypto-currencies.
More interesting is the under lining technology behind crypto currencies called 'Blockchain': a decentralized online database system that stores data in distributed ledgers distributed across many nodes, an efficient means of peer to peer transfer of value.
This technology can be explored towards supplementing electricity deficiency, whereby excess solar energy generated by households can be inserted into the national grid using 'Net Metering Technology' for distribution; in exchange for crypto coins generated as tokens using block chain, thereby turning every household solar investment into income generating asset. Countries are developing national crypto currencies providing a unique opportunity of settling trade payments away from conventional systems.