The financing of the Nigerian civil war and its implications for the future economy of the nation

CONTINUED FROM LAST WEEK

IN short, we did all that appeared to us to be desirable and advisable to conserve our foreign exchange reserve, by forbidding its use on unnecessaries, or without our specific authorisation. This, it must be admitted, was at best a negative approach to our foreign exchange problem. The positive approach, to which we also paid a great deal of attention, was to earn more foreign exchange by the exportation of goods from Nigeria. But with the control, disorganisation, or disturbance by the rebels of the oil-producing areas in the Eastern States, and with the non-production of agricultural export produce by farmers in these States, it was not easy to earn as much as we could from exports. Besides, though we still had the export products in the rest of the country at our disposal, the dislocation of railway transportation constituted a serious obstacle to the movement of goods from the northern parts of the country to the ports. In this connection, the incessant wrangling between the Agencies concerned with the evacuation, sale, and port-handling of our produce only helped to complicate our problems. It became necessary, therefore, to appoint a high-powered Produce Evacuation Commissioner. This Commissioner and his assistant did their work with commendable industry and efficiency, and, as a direct result of their efforts, our foreign exchange earnings increased.

Another obstacle, however, reared its head, but it was swiftly nipped in the bud. For many years past, Marketing Board operations throughout the country were financed by a consortium of banks.

But in 1968, for reasons which we do not need to go into here now, they refused to provide cash advances for the Northern Marketing Board and for the newly established South-Eastern State Marketing Board. In the result, these two Marketing Boards were unable to operate and make purchases. Producers in the North were distressed, those in the South-Eastern States were wondering what sort of Nigeria they had been liberated into, and the country was losing foreign exchange. In the circumstances, we were obliged to amend the Central Bank Act to authorise the Central Bank to make direct advances to the Marketing Boards for produce purchases. In the result, the cessation or slowing-down in the purchases of export crops in the Northern and South-Eastern States, which had been threatened, was promptly eliminated, and a further increase in foreign exchange earnings, due to the exportation of produce from the newly liberated South-Eastern State, accrued.

The devaluation of the Sterling in 1967 made a substantial inroad into our foreign exchange reserve. But it could have brought real disaster upon us, if we had followed suit and devalued the £N. And we might have been stampeded into following suit, if we had not done a detailed and rigorous exercise in anticipation. The campaign, at the time, you will remember, was just too much. The Financial Times in its issue of our painful experience, we sought to secure from the list of countries which, according to it, were certain to devalue. And if memory serves, of all the countries, listed on its front page, it was Nigeria alone which falsified that paper’s forecast.

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I will tell, briefly, the story of how it happened. You will recall that, from the middle of 1967 or earlier, there were persistent speculations that the Sterling might be devalued. There were equally persistent denials by the British Chancellor of the Exchequer that there was going to be any devaluation. In view of these persistent speculations, and of the equally persistent official denials, it occurred to me that anything might happen, and we might wake up one morning – as was indeed the case – only to hear that the £S had been devalued. Accordingly, I directed that the research Section of the Central Bank, in collaboration with the officials of my Ministry, should put up to me a detailed memorandum on the implications for the Nigerian economy, if the Sterling were to be devalued. By 16th August, 1967, ‘the memorandum was ready. After a careful study of the paper, and an extensive discussion of it with those concerned, I came to the tentative conclusion, as far back as September, 1967, that if Britain devalued the Sterling, we would not necessarily need to devalue our own currency. Consequently, when Britain actually devalued its currency, unilaterally and without consultation with the members of the Sterling Group, on 18th November, 1967, I already had clear in my mind what the implications of this action would be for the Nigerian economy, and also what the effects of devaluation or non-devaluation of the FN to the country’s economy would also be. Nonetheless, I quickly arranged a meeting with my officials and the Governor of the Central Bank to argue the matter all over again. Powerful arguments were marshalled for and against the devaluation of the £N. But, in the end, we decided not to devalue; and whatever might have been the theoretical arguments to the contrary, subsequent events have shown that we were wise not to have devalued in slavish sympathy with Sterling devaluation.

CONTINUES NEXT WEEK