The National Association of Chamber of Commerce, Industries, and Manufacturers’ call for the Central Bank of Nigeria to reduce interest rate from the floor of 14 per cent in order to attract Foreign Direct Investment into the Nigerian economy will be impossible to achieve.
NACCIMA President Alaba Lawson says, “The private sector is advocating a review of the (interest rate) policy to encourage the (local private) sector and (attract) more (foreign) investments.” The CBN’s 14 per cent interest rate floor is too high and cannot attract private sector investment.
Lawson quotes Nigerian Bureau of Statisticsthat the non-oil component of Nigeria’s Gross Domestic Product contracted from 92.65 per cent in the fourth quarter of 2017, to 90.4 per cent in the first quarter of 2018.
The NBS admits that the economy’s 1.95 per cent growth in the first quarter of 2018 happened only because of increase in production and price of crude oil at the international market. In other words, the pacification of restive Niger Delta militants, and not government’s macroeconomic policies improved the economy.
The government that hitherto beat its chest for increasing the foreign reserves beyond the level to which President Goodluck Jonathan’s Administration hemorrhaged the reserves, is not quite celebrating that much these days. The foreign reserve is progressively dropping.
The uninspiring macroeconomic policies of the Federal Government and the monetarist policies of the CBN are not up to par. The hapless CBN’s recent warning that commercial banks should not sell the dollar beyond N360 is empty gas, the whimper of a police officer that cannot execute a warrant of arrest.
The CBN forgot that most consumer goods in Nigeria – rice, fish, chicken, vegetable oil, shoes, clothes, petroleum products and building materials – are imported, and the consequent increased demand for the dollar naturally ups its exchange rate to the Naira.
Profligate Nigeria, one of the world’s largest producers of crude oil, is the largest importer of petroleum products in the world. Its economy’s near dependency on imported goods comes with an imported inflationary element.
Adam Smith observes, “If the legal rate of interest in Great Britain (substitute with Nigeria)… was fixed so high as eight or 10 per cent, the greater part of the money which was to be lent would be lent to prodigals… who alone would be willing to give this high interest rate.”
The failure of Nigeria’s macroeconomic policies to “ginger” a productive economy will continue to cause revenue from crude oil trade to be spirited abroad to pay for imported goods. As long as this situation obtains, it will be difficult for the economy to build a large cache of cash and be able to control its interest rate.
Financial experts suggest that rather than split hairs over high interest rates, government should concentrate on removing bottlenecks to better business performance, like high cost of energy (factories pay through the nose for electricity and diesel or black oil), epileptic electricity supply, and inadequate transport network.
They also add that even if the interest rate was reduced by fiat, the huge financial spending that will come with the electioneering and logistics of 2019 general elections would return the rate to an uptick.
At a public hearing on whether the Federal Government should concession Ajaokuta Steel Company to private operators, Minister of State for Solid Minerals, Abubakar Bwari, admits that the dearth of funds is preventing the completion of the plant that is reportedly 98 per cent done. “The Government is even borrowing money to run services,” he confessed.
Although national revenue has improved with the pacification of the Niger Delta militants, the House of Representatives, which disagrees with Bwari must remember that as recently as 2016, the Federal Government admitted to borrowing N165bn monthly just to pay salaries.
END
Be the first to comment