THE Second-tier Foreign Exchange Market (SFEM) Is an arrangement for dealing in foreign exchange at market determined rates. The SFEM which is the core policy under the Structural Adjustment Programme (SAP) is expected to last from July, 1986 to June, 1988. The broad objectives of the-SAP are to restructure and diversify production patterns, minimise
the dependence on the oil sector and imports and launch the economy on the path of growth and development.
Since the introduction of SAP and its policy instrument SFEM, many articles have been written on. The duty of policy analyst is to examine the relevance of policies in relation to tin they are set ti achieve.
In macro-economy planning, policy instruments are geared t wards achieving, ii employment of sources (human and material), price stability, balance economic growth and development and a balance of payment position. At the moment, these four macro economic indicators of how well or not an economy is performed, have shown red.
The Nigerian economy has manifested these negative signals for the past six years due to a perceived worldwide economic recession. It is this malfunction of the economy that SAP is set to correct.
The pertinent question is can SAP take us to our desired economic Altered? Although it is being said in several quarters that it is premature to attempt a performance appraisal of SAP, done can safely make a case of the impact of its policy variable, SFEM on the set macro economic goals – full employment, price stability, economic growth and balance of payment position.
Since the introduction of SFEM, the prices of goods and services have risen sharply in response to the economic shock it brought about. Some financial head have that this was expected. It is of economic significance that price expectation sometimes results in price instability in an economy i.e. if economic agents or household expect price rise in the future, they will rush to buy order to beat future trends in price increases.
This speculations behaviour causes demand to rise and subsequently prices. If they expect price to fall, they will not buy now in order to take advantage of a future decrease in prices. This true in the early days of SFEM operation.
In Nigeria industrial goods are more not as a result on price expectation, but because producers pass the burden of high cost of production to the consumers by way of high prices. Manufacturers justify the high cost of industrial producers by telling the consuming public that it costs twice now to produce the same commodity before SFEM. The cost of acquiring capital has trebled same with spare parts raw materials etc. Manufacturing concerns cry out aloud everyday to the ever depreciating naira against other convertible currencies. If prices are pushed up generally as we experience now as a result of SFEM then the macro objective of price stability fails to register through SFEM.
The economic situation is further compounded by the weekly variations in the exchange rates.
This exchange fluctuation has made industrial capacity utilisation planning difficult. The business atmosphere now is that of uncertainty. Businessmen cannot calculate their business risks any longer as the probability of such are indeterminate.
For fortunately, profits are no longer easy to project or estimate based on current ruling exchange. No serious entrepreneur would want to invest his money in an uncertain business environment. What this implies is that no new firms are likely to be established in the country for now. New investment plant that were on the drawing board are either scrapped altogether or shelved perhaps for a more appropriate period. The business attitude as of now is that of wait-and-see-how-things-will-work-out.
This is the wish and of modern governments to pursue the policy of full employment of all factors of producing resent Nigerian government intends to achieve full employment through SAP when the economy would have turned around in response to SFEM treatment. So far, with the SFEM in operation, most firms are still unable to acquire the much needed foreign exchange to keep their factories running. They thus produce below capacity. Some if not most, of the medium size firms that employ a proportion of the Nigerian labour force and either compelled to shut down or reduce their staff strength. It is perhaps only in Nigeria that you have a large production of the labour force out of gain employment.
A good number our youths who are economically active and who suppose to contribute to the growth of our GNP are wasting idling away precious time.
If stands to reason balanced growth and development are desirable in any economy. In Nigeria where there is a high concentration of industries in the cities and urban areas, where the economy is dominated by transnational companies, it is going to be difficult now to achieve balanced economic growth and development. Already, the economy is dual nature. The oil sector and the manufacturing sector are capital intensive and use modern technology and management. While the agricultural sector is rural and use simple tools and implements. Cottage industries that use intermediate technology local technique are non-existent in te rural area. Now that it cost so much to acquire machinery, plant and equipment, new industries are going to be increasingly difficult to set up. It only means that the rural areas will forever remain rural and agricultural while the cities are urban areas will continue to hold fast to its industries and infrastructure. What this dichotomy implies it the economy is a drift from rural areas to urban centre are already over crowded.
It is expected that by 1988 when SFEM would have used its economic wand to turn around for good our economic fortunes that our foreign reserve would have swollen and our balance of payment problems a thing of the past.
Nigeria produces primary commodities for export. These commodities are subject to the vagaries of world market prices. The demand for them are inelastic and as such changes in their prices do not respond proportionately to changes in demand. By depreciating the naira, we stand to earn less foreign exchange as we now earn in dollars. We cannot on the short run increase our export as their supplies cannot be increased overnight. This becomes more obvious when we realise that oil, Nigeria’s major foreign exchange earner is based on OPEC production quota. Petroleum production quotas are allocated to member countries and they sell at a pre-determined price fixed by OPEC. From this perspective, floating the naira (SFEM), would rather decrease our foreign exchange earning rather than improve it.
The current export drive that now places emphasis on the production of export oriented commodities should be approached with caution.
If all our farmers face the production of export commodities, efforts will be diverted from the production of foods items. At the end of the day, we may come into a situation where we have the money but there would be no food on our tables. This could bring in its trail famine and starvation. I hope the Latin American experience in this regard should serve as an eye opener.
What the masses of this country want is food, clothing and shelter which are basic to human existence. These they get when they are gainfully employed, when prices of goods and services are at reasonable and affordable prices, when such goods are readily available at convenient places. Painfully, those dreams have been pushed further away from the common man as a result of the introduction of SFEM. His standard of living has dropped to an all time low, many have no jobs and have turned to street-begging. Many more resigned themselves to fate and look at the economy with disdain.
Perhaps economists would say we have to bear these cost in the short run in order to enjoy greater welfare benefit in the future. What I am not so sure of is how short is the short run. For the thing in the long run, we all would have been dead i.e. stone dead. Who then reaps the rewards our spirit?
