European Union, EU, Counselor, Head of Trade and Economics Section, Filippo Amato in an interview with the News Agency of Nigeria (NAN) on Monday advised the Federal Government to devalue the Naira as part of measures to tackle the economic recession.
Amato said that the country has to make bold decisions to come out of the recession regardless of how unpopular they may be and devaluing the Naira is one of such decisions. He said, “Devaluing the Naira is a measure, which will finally reassure investors and attract new capitals to the country.” He argued that devaluation will reduce imports thereby removing artificial forex restrictions and potential waste of scarce resources such as the fuel subsidy.
The EU official also appealed to the Nigerian government to accept the Economic Partnership Agreement. He explained that the EU launched a European External Investment Plan which is aimed at supporting private sector investments in Africa, including Nigeria. Amato said the EU would implement the plan through a European Fund for Sustainable Development, with EU funds of 3.35 billion Euros until 2020. He further advised Nigeria to consider the opportunities the Economic Partnership Agreement (EPA) would offer to Nigeria and communicate them to all interested stakeholders.
The Economic Partnership Agreement creates free trade zones between member states of the two regions, allowing the entry of a percentage of imports from Europe into West Africa and vice versa, free of tariffs.
The EPA has however been resisted by the Nigerian government who has argued that the EPA would discourage local producers from producing because they would be faced with competing with tariff-free imports from Europe. The federal government has explained that adopting such agreement would be detrimental to the Nigerian economy because Nigerians would keep depending on cheap imports from Europe rather than produce locally.
In June, the Central Bank of Nigeria (CBN) devalued the naira by removing the fixed exchange rate and changing the exchange rate to a market-driven exchange rate. The exchange rate has however dipped extensively since then. Last week, it was reported that the naira had plummeted to 472 in the parallel market while the interbank rate was 312.99. The naira is estimated to still fall to 500 this week and this could be disastrous for the economy.
The call for a further devaluation of the naira is unnecessary because the devaluation effected by the CBN earlier this has not been effective. Rather, the Nigerian government should focus on strategizing how to increase local production in the economy which would increase the substitution of locally made products for foreign products and reduce our dependency on the dollar.