The last few months have witnessed a number of policy shifts that cannot but be of immense benefits to the Nigerian economy. Unfortunately, the policy shifts are in the short run injurious to well-being but inevitable, as we have no option but to adopt them, having mismanaged the opportunity to use prolonged oil boom receipts for development of production sectors of the economy. The two radical but painful economic policies are deregulation of petroleum pump price and deregulation of the exchange rate market. It is clear that both actions must of necessity result in painful outcomes, particularly inflation that we are grappling with today. But the government also plans fiscal stimulus, which is providing intervention funds for stimulating growth in the real sector with a view to boosting employment generation. The third item of relevance is the approval of a medium term expenditure (planning) framework.
The removal of subsidy on petrol and the resultant over 50 per cent increase in the pump price of petrol with concomitant increase in the pump price of diesel and kerosene naturally appear in the high cost of production, including transport and consequently in the price of local goods and services. The massive naira depreciation also implies high costs of production since large proportion of inputs used in the industries are imported. All these cost prices reinforce each other to affect the selling price of goods produced. The fact that the international price of crude oil, the mainstay of the economy, had fallen and the volume of crude oil for sale has declined significantly due to the activities of the so-called “Niger Delta Avengers” cannot but cause shortage or scarcity of foreign currency, is stating the obvious. Unfortunately, those who have stacked stolen money in underground vaults and overhead tanks are the first to buy up the foreign currency at any price whenever the Central Bank of Nigeria intervenes. This has worsened the funding situation for importers of raw materials for industrial production.
All the suggestions that the CBN should change or swap the colour of the high denominations of the naira to neutralise the speculative activities of these looters have remained unheeded. Now that the CBN has even reopened the Bureau de Change window for foreign exchange allocation, we should expect further worsening of the naira depreciation. I agree with Henry Boyo that the situation that warranted the ban of allocation of forex to the BDC has not changed and the need to lift the ban did not arise. There could be some games being played here at the expense of sound economic management. The naira value against foreign currency will improve in a sustainable manner only when the country starts producing large proportion of what we import and consume, which is in the medium to long term. A major way of preventing naira slide in the short term is to stop speculative attack on the currency and changing the colour of the highest naira denominations is a sure way, unless the CBN has evidence to show that demand from the manufacturing sector is the main driving force of the rapid and massive depreciation.
When we add the recent hike in Monetary Policy Rate, – a signal to banks to increase their rate of lending – to the monetary policy equation, then you know that producers are in big trouble and consumers are in the soup! Fortunately, the consumers can resist high prices by shifting their demands to cheaper, affordable local alternatives or readjust their consumption pattern which leaves producers with large amount of unsold goods and cutting down of production. This inadvertently results in cut in demand for labour or increase in unemployment as being witnessed presently.
The high cost of borrowing from banks should have ordinarily made producers to seek funds from the capital market where funds are cheaper but Nigerian investors seek quick returns on their investments and they are not risk takers. So, they do not like to invest in the capital market unless the market exhibits quick profitable returns. In fact, Nigerian investors have run away from the market since the last crash in 2007/2008, otherwise those who stole oil money would have kept the capital market awash with the looted funds instead of putting the same in tanks and deposit money banks. This implies that producers cannot get sufficient funds from the capital market for business activities and expansion even if the economy is to be jumpstarted as required.
My main concern is that while the fiscal policy is moving towards injecting funds to reflate the economy, the monetary policy is about withdrawing money from the same economy! The two bodies concerned should discuss and work to support each other. The funds that the CBN should withdraw from the economy are the hidden money locked up in private vaults and tanks underground or in ceilings as alluded to above. There is a suspect that there exist illicit funds with various or coded names in some of the banks, yet to be declared, as the banks could be accused of not reporting such to the EFCC in time. The CBN should find a way of neutralising such funds from being used for speculative attack on naira in the foreign exchange market. However, it should be the duty of the CBN to encourage lending for genuine businesses at cheaper rate by reducing the monetary policy rate and consequently, the lending rate. In conformity with the fiscal policy stance, the CBN may want to engage in monetary easing policy after dealing with the illicit funds.
Let us take a little digression. Those who are blaming the present government for the current hardships are either ignorant of the facts or mischievous in their assessment. This is because at a point, the immediate past government not only plundered the reserves but did also not remit total revenues into the federation account and reserves. Why did the erstwhile Governor of the CBN, Lamido Sanusi, accuse the government of missing $20bn and what happened to him? How did Diezani Alison-Madueke get enough funds to distribute to finance election? Was the money that the former National Security Adviser, Sambo Dasuki, distribute not supposed to be in an account and distributed through the CBN? So many questions without answers. What is important however, is that the present government has to move faster to change the direction of the economy for good. All bureaucratic bottlenecks must be reduced to clear the way for reflating the economy at a faster pace.
The revelations on corruption we have witnessed in the last one year are instructive of the extent to which three groups of Nigerians, namely the politicians, the military and bureaucrats, have dealt unjustly with the Nigerian nation. They have, in the course of pursing personal aggrandisement, subjected the whole population to ridicule within the comity of nations. Most of the people mentioned in the corruption armada or standing trials presently are within the ages of 40 years and below 70 years. They belong to the group of Nigerians who enjoyed subsidy most in the economic history of Nigeria. Either at the primary, secondary or tertiary education, they might have enjoyed one or more of the following: free books, free tuition, subsidised food and accommodation, free health services, subsidised electricity and petroleum products. They are the same groups who have removed all these subsidies from the table of the younger generations through advanced kleptocratic practices.
To be concluded
Tella is a Professor of Economics at the Olabisi Onabanjo University, Ago Iwoye
***Niyi Akinnaso returns next week