By Henry Boyo
A popular indigenous artiste cautioned in one of his lyrics that you cannot sow cocoyam and hope to harvest rice. Notwithstanding the above wise counsel, Nigerians inexplicably hope and believe that in spite of over 70% of our population, reportedly, currently living on less than $2/day, our country could still blossom to become one of the top 20 economies six years from now.
Clearly, this ambitious expectation is the product of a well choralled propaganda championed by government and its Economic Management Team to sustain hope and distract Nigerians from recognizing the obvious economic contradictions which block our path to economic prosperity. This week, we will examine some of these economic contradictions which must first be resolved before we can realistically expect strident, inclusive economic growth and also witness enhanced social welfare. To begin with, we shall consider the evident contradiction of deepening poverty, despite increasing output and revenue.
Ordinarily, rising real income would normally be expected to improve the economic welfare of any person or community. Surprisingly, however, despite consistently rising income, Nigeria began to be listed amongst the world’s poorest nations at a time our foreign reserves base regularly exceeded $30bn after the return to civil rule in 1999.
Surprisingly, the social and economic welfare of our people was not positively impacted even when external reserves exceeded $50bn while systemic surplus Naira, unexpectedly also remained a burden three years ago. How do we explain the unusual mix of unyielding surplus Naira and increasingly bountiful dollar reserves existing simultaneously with deepening poverty and increasing rate of unemployment. The question is, why have we become poorer with increasing income?
Similarly, Nigerians also fail to see the inherent contradiction of an increasing national debt burden existing side-by-side with surplus Naira and equally bountiful dollar reserves. Surely, no rational person borrows what it has in excess at any cost whatsoever. Nonetheless, such brazen contradiction is clearly amplified in the process of accumulating both our domestic and external debts.
On the domestic front, for example, we have gleefully sustained a culture where government places hundreds of billions of Naira for zero percent yield with the banks only to return shortly thereafter, to borrow back the same funds with oppressive double-digit interest rates; it is also inexplicable that regardless of the attendant oppressive high cost, these loans are simply sequestered and kept idle. Similarly, on the external front, government sits on bountiful reserves of over $40bn which earns little or no yield, while the same government ironically indulges in seeking external loans which conversely carry unusually high interest rates for what are actually risk free sovereign debts.
Curiously, despite over N500bn annual debt service charges, the Debt Management Office lately assured us not to worry about the size of the bloated current debt of over $65bn, when conversely, our debt burden of barely $35bn in 2004 was adjudged excessive and unsustainable! Regrettably, no satisfactory explanation has been offered for this peculiar volte-face.
The contradiction of unyielding Naira surplus existing side-by-side in the market with scarcity of cheap funds to grow the real sector, also appears lost in the consciousness of our people. Worse still, why would CBN, whose prime mandate is to grow the economy, also consciously discourage liberal access to cheap funds to SMEs who invariably constitute the backbone for industrial growth and job creation, by deliberately instigating high Monetary Policy Rates to frustrate and discourage bank lending to the real sector.
Similarly, we do not interrogate why CBN appears to cut its own nose to spite its face by instigating a high Monetary Policy Rate of up to 12%, knowing fully well that such a high benchmark inevitably also pumps up the cost of servicing not only CBN loans, but also the increasingly precarious debts of governments and its agencies at all levels.
Besides, why would any rational person pay any interest whatsoever to borrow money it does not need?
Evidently, CBN repeatedly commits such faux pas every month whenever it borrows hundreds of billions of Naira with double-digit interest rate from banks only to store away these expensive loans thereafter from any redemptive economic application. Why would anyone condone such reckless anti-social monetary strategy at a time when government itself seeks additional loans to fund annual budgets and remediate our severe deficits in the quantity and quality of infrastructures in the education, health, power and transport subsectors?
In other words, how come obviously “burdensome” surplus Naira and bountiful reserves exist side-by-side with such socially depressing deprivations?
Evidence of blatant contradictions in government’s economic strategies are also apparent in the foreign exchange market where, inspite of increasingly buoyant reserves, the Naira exchange rate has lost over 50 percent of its value in the last 16 years. For example, in 1996 when the Naira exchanged for N80 = $1.0, our total reserves of $4bn was reported to be adequate cover for only 4 months imports. Surprisingly, however, when our reserves base of over $50bn was reported to be adequate for at least 12 months imports payment in 2010, our exchange rate fell to almost N160 = $1.0. Surely, an extended imports cover should induce an exchange rate that is stronger than N80 = $1.0, and not the other way round!
Similarly, we must wonder why CBN is apparently averse to dollar denominated allocations to government and its agencies, when the same CBN consciously and regularly allocates billions of dollars every month to Bureau De Change, inspite of the clear recognition that the nefarious activities of treasury looters, money launderers, and smugglers are facilitated from CBN’s regular deliberate dollar allocations to BDCs. There is no gain saying the adverse impact such predatory strategy has on our industries and ultimately on our economic and social welfare.
It is similarly unbelievable that inspite of the possibility of lower fuel prices and the potential of earning a reasonable sales tax on every litre of fuel, government’s monetary strategy still consciously accommodates a bill of over $12bn to subsidize fuel prices annually. Undeniably, a stronger exchange rate of N80= $1.0 will immediately reduce fuel prices to below N80, thus wiping off any further payment of fuel subsidy, while enabling government to earn at least N17/liter tax instead, from the daily sale of 35m litres of fuel.
Consequently, in view of these disenabling contradictions in our economic framework, is it realistic or foolhardy to seriously expect a positive transformation that would catapult Nigeria to one of top twenty economies in year 2020? Well, maybe I should let you be the judge.
Save the Naira, Save Nigerians