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Rational Perspectives

CBN, stop this nonsense

CBN

IN a recent ‘chat’ with members of the Newspaper Proprietors Association, the CBN Governor, Godwin Emefiele, spoke extensively on efforts to resolve the current challenges to best practice monetary and fiscal management; particularly salient in his narrative, was the alarming revelation that “in 11 years CBN allocated $66bn to BDCs!!”

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Emefiele CBN Governor

The untapped solution to our economic crisis

The above is the title of a 2-part article by Franklin Nnaemeka Ngwu, who holds a Doctorate degree in Law & Economics, Banking and Financial Services Regulation and is also an Assistant Professor of Finance in a UK University. The following summary and excerpts from his article hopefully capture the essentials in the recommendation for an urgent payment reform to resolve our current economic predicament. Please read on:

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inflation

Inflation: The quiet plague

Nigerians know too well, that sinking feeling when all items on the household shopping list cannot be covered by the regular budget. The options are either to cut down or do without some basic items, or alternatively make do with less preferred but cheaper substitutes. The depressive impact of a continuous price spiral on the average family’s welfare is therefore a very familiar theme.

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Indeed, Naira devaluation is probably the most potent weapon against the prosperity of Nigerians. Nigeria’s migration from a potential industrial power house with bustling social affluence, to a subdued and stumbling economy clearly began with the adoption of IMF’s Structural Adjustment Programme during Babangida’s regime: the chorus from International Agencies, at that time, was also that falling oil prices with an unserviced debt burden and the consequent restriction of trade credit to Nigeria, were the products of an allegedly overvalued Naira exchange rate.

This devaluation ‘be like’ 419!

“The IMF and other respectable International financial agencies and local economic experts, have commended the recent devaluation via a floating Naira exchange rate, as an ‘investment’ that would ultimately yield great dividends. We are encouraged to believe that the new forex regime will recharge our economy, sustain inclusive growth with increasing job opportunities, and also reduce our almost total dependence on crude oil, by facilitating the actualization of a diversified economy. It is also suggested that devaluation would create a level playing ground and attract investors to build more refineries and similarly encourage marketers to import fuel.

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nnpc-cartoon

Can banks readily cough up NNPC’s $2.12bn?

The latest directive, dated 23/08/2016, however seems to be a reversal of an earlier approval dated 14/09/2015, from the office of the Account General of the Federation, for CBN to exempt some Agencies from compliance with a Central Treasury Single Account with the CBN. The AGOF’s circular confirmed that the thirteen exempted agencies are “profit oriented government business entities that pay dividends to the federal government of Nigeria”; according to the Accountant General, in another circular, such companies included NNPC, PHCN, Nigeria Railway Corporation and others.

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rates

Should interest rates be legislated?

The promise to diversify Nigeria’s revenue source and reduce the nation’s dependence on dollar income from oil exports was sustained by earlier administrations. Curiously, however, as with previous administrations, there seems to be a convenient denial of the reality that, competitive production output, cannot be sustained in any sector, if critical monetary indices challenge the creation of vibrant economic activities and job creation opportunities.

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Indeed, Naira devaluation is probably the most potent weapon against the prosperity of Nigerians. Nigeria’s migration from a potential industrial power house with bustling social affluence, to a subdued and stumbling economy clearly began with the adoption of IMF’s Structural Adjustment Programme during Babangida’s regime: the chorus from International Agencies, at that time, was also that falling oil prices with an unserviced debt burden and the consequent restriction of trade credit to Nigeria, were the products of an allegedly overvalued Naira exchange rate.

The inevitable choice between N10,000 note and redenomination

Households across the Nation have become severely traumatized by the escalating prices of goods and services, particularly in the last six months or so. The uneasy feeling that one’s pocket has been picked has probably become common after every visit to the market, while the smallest available plastic sachet may be all that is needed to pack your N10,000 purchase(s) from the ubiquitous corner street medicine stores in our cities.

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NNPC

Fuel Price: The bone in NNPC’s Throat

The nagging question for any close observer of the market is whether or not diesel can sell above petrol and kerosene prices in a deregulated market space? If it cannot be so, how then does NNPC account for the present huge price differentials for both products, when diesel sells for over N200/litre? The following is a summary of an article published in May 2016, titled “Why Petrol will exceed N200/litre this year…unless”; nevertheless, with NNPC’s seeming helplessness and confusion with petrol and kerosene prices, “Fuel price: the bone in NNPC’s throat” seems a more appropriate title. Please read on:

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buhari-Naira

An economy on the brink

A close study of our recent economic history would suggest that the present policies adopted by government, particularly with regard to Naira devaluation, and fuel price increase, are not different from the same strategies that triggered the oppressive serial abuse of the Naira exchange rate in the era of former President Babangida and sustained Nigeria’s steady slide in the rankings of the World’s poorest nations. Invariably, therefore, the ill advised rehash of those same options to resolve our present economic logjam will unwittingly deepen our poverty.

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Emefiele CBN Governor

Economy: Kaleidoscope of recent media reports

“I was reading a story recently that there was SME intervention fund in CBN that was grossly underutilized. Why should that be when we have a lot of SMEs looking for funds to develop products? If we want to assist the SME, we must make sure that interest rate on their loans is not more than 5%. That is why Lagos State has used the benchmark of 3% interest rate for the SMEs …”

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naira money

Nigeria’s debt creation office

In a recent document titled “Nigeria’s Debt Management Strategy 2016-19″, the Debt Management Office (DMO) expressed concern on the high risk collateral of servicing and refinancing the nation’s N8.54tn domestic debt which reportedly excludes over N2.4tn outstanding obligations on CBN’s sales of Treasury Bills. The DMO is clearly worried that refinancing of about 30% (N2.56tn) of the domestic debt, which will fall due, in the next 12 months, poses a threat to the economy because maturing debts will have to be refinanced at market rates which could be oppressively higher than the almost 11% average of existing debt.” Furthermore, the projected N984bn domestic loan in the 2016 budget, would raise this already disturbing domestic debt level by over 10% to propel debt service charges, dangerously beyond the current 35kobo from every one Naira of internally generated revenue by government.

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Indeed, Naira devaluation is probably the most potent weapon against the prosperity of Nigerians. Nigeria’s migration from a potential industrial power house with bustling social affluence, to a subdued and stumbling economy clearly began with the adoption of IMF’s Structural Adjustment Programme during Babangida’s regime: the chorus from International Agencies, at that time, was also that falling oil prices with an unserviced debt burden and the consequent restriction of trade credit to Nigeria, were the products of an allegedly overvalued Naira exchange rate.

This devaluation ‘be like’ 419

The ‘419’ scam is well known in Nigeria for boasting empty promises of stupendous returns which induce victims to willingly part with their valued possessions. The perpetrators of this fraud, ply their trade nationwide with targets which cut across the social spectrum and include otherwise, successful businessmen and highly educated professionals, who are usually gullible and driven by the unreasonable expectation of clearly unrealistic returns on their ‘investments’. Ultimately, the bubble would burst and much pain and sorrow would follow.

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The N10m exhibit displayed by the EFCC.

Economy: The floodgates have been breached

The CBN’s decision to float the Naira in response to dollar demand and supply, in such austere times, will probably be primarily remembered as another policy shift that breached the gates and unleashed devastating floods that swept away any flickering hope of economic diversification or credible inclusive growth. The serial devaluations dictated by the 1985 Structural Adjustment Programme (SAP) was another such event that disenabled our economy, traumatised our people and challenged our traditional value system in many ways.

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