Why the media needs to understand naira devaluation

Not many reporters understand the positive economic impact of the recent Naira devaluation.

Though there is every tendency to look at government policies from depressing leanings,but on the scale, it appears the Naira devaluation has some upbeat sides than the downbeat.

But in the media, even when more analysts spoke in favour of the policy, some headlines still portray the Naira devaluation as totally dreadful or a policy that will “put Nigeria’s economy in quagmire.”

This is understandable as misinterpretation of the policy will equally create mis-reporting of the government action.

Though the Naira devaluation has some inflationary elements as Nigeria is import dependent, the value of the policy is overwhelming and it is only when reporters understand this that they will be able to communicate it properly. Unfortunately, it appears government does not bother about the understanding of its policy direction by the media and the communication of it.

The Nigerian currency has been selling off versus the dollar since the retreat in oil prices began in mid – June 2014.

Nigeria gets 70 percent of its Federal budget and up to 95 percent of foreign exchange earnings from crude oil sales. Unfortunately, Crude oil prices slid almost 50 percent last year, the most since the 2008 financial crisis, as the Organisation of Petroleum Exporting Countries (OPEC) resisted cuts to output amid the U.S. shale boom.

This forced the CBN Governor Emefiele to devalue the currency by eight percent in November and widen its target trading band to N160-176 against the dollar, although the new level has been breached on the interbank FX market trading at over N183, given dwindling  oil revenues and declining reserves.

Experts say if government did not take the decision, it will lead to accelerated depletion of nation’s external reserves and its consequent implications.

It is expected that the decision informed by continued strong demand for forex will alter arrangement and cause preference for local goods and when this happens, there will be increase in activity of local brands which will in turn generate employment.

The devaluation was also a measure also to check the pressure on the foreign reserves as strong continued demand for forex for importation would cause slip in the foreign currency savings.

Nigeria’s gross Foreign Exchange (FX) reserves stood at $34.4bn as at 12 January 2015 and is down nearly 20 percent from a year ago.

The CBN has burnt through reserves as it struggles to defend the Naira currency.

In a report, Emeka Madubuike, the chairman, Association of Stockbroking Houses of Nigeria, agreed that the policy would make imported goods more expensive. He also “pointed out that it would result in a boost for foreign direct investment (FDI), even though inflation will surge, as more money will be chasing few goods.”

In another report, Wale Abe, the chief executive of the Financial Market Dealers Association of Nigeria, said “With a more expensive foreign exchange, unless you have the means, you will not be able to afford imported goods and services because the cost will be higher.

“We will have to stop medical tourism, we will no longer be able to go on holidays abroad, and we won’t be able to afford foreign goods. This is the time to tighten our belt and look inward.”

Defending the devaluation, Ngozi Okonjo-Iweala, the coordinating minister for the economy and minister of finance, said it was an attempt to absorb the shock from continued fall of crude oil prices.

“We are managing the situation to keep the economy on a stable sustainable course and we will not listen to those who want us to throw up our hands in despair and give up,” she said.

Against  those who misunderstand the intention of the policy especially the effect on the common man, she said: “The common man is a priority in our strategy for the fall in oil price. His interests are a priority. That’s why even in implementing cuts in capital budget for 2015, the areas that are of most benefit to the common man, critical infrastructural projects like the Lagos-Ibadan expressway, the second Niger Bridge, rail and power projects etc which will create jobs and enhance the comfort of our people will go on.”

There is no time the centrality of the media is significant than now when Nigerians have become more conscious of governance and policies that will shape their livelihood. Therefore the understanding of government policies and their direction by the media has also become important.

Daniel Obi