By Akintola Omigbodun

The Nigerian economy is in recession. Looking back, there was a recession starting in 1981 which was also influenced by a significant drop in crude oil prices in 1986. The Federal Government, FGN, introduced economic policies described as a Structural Adjustment Programme, SAP, and a Second-Tier Foreign Exchange Market, SFEM. From that time, the value of the naira against the United States dollar has moved from N3 to N200 to the dollar. Whoever emerges as President from the forthcoming national elections would have to take measures that would improve our economy.

The starting point should be the banks and the leverage they have been given with respect to public funds. There was a time when the Central Bank of Nigeria, CBN, held the accounts of government ministries, departments and agencies. If someone did some work for government, his/her payment would be made with a cheque drawn on an account at the CBN. With the increase in the number of banks, government accounts were moved out of the CBN to the banks.

The result is that when monthly allocations to the 3 tiers of government are made from the Federation Account, payments of allocations are made from the CBN into the accounts of the various governments in the banks. Subsequently, the CBN borrows some of these amounts from the banks with substantial interest payments.

It is obvious that if the various governments keep their allocations in accounts at the CBN, the interest payments being made by the CBN to the banks would cease. Whenever the matter is raised that government accounts should be domiciled with the CBN, the answer is that some banks would fail if this is carried out.

The important business of banks is to grant loans that would be paid back with profits to the banks. However, the banks continue to grant substantial loans which appear problematic from the start. For example, the banks granted loans to various companies for their acquisition of controlling interests in the privatized electricity distribution and generating companies. The general public has been aware that from 2001/2002 onwards actual power delivered on the national grid has not been significantly above 4000MW.

However, the banks in granting loans were willing to accept projections that there would be at least 6000MW on the national grid whilst the grid continues to hover around the 4000MW mark. The financial performance of the privatized power sector companies has fallen short of the projections made when the companies were being privatized. The CBN has had to intervene by granting loans to the privatized power sector companies for their working capital requirements. The other downside is that customers of the electricity distribution companies who do not have meters are being made to pay arbitrarily high charges for power supply.

The CBN in one of its publications has stated that banks should as creators of money help to reflate the economy in a period of recession. Can the banks do anything for the economy if the banks continue to grant the substantial part of their loans to loss-making ventures?

The 2015 national budget has been under consideration by the National Assembly. The indications are that the amounts provided for capital projects would be substantially reduced.

For example, the Federal Ministry of Works expects to be allocated a sum of about N11billion for road construction projects compared with the sum of about N54billion received in 2014. The FGN must raise all revenue legitimately due and the Nigerian populace must be rescued from the significant economic disadvantage inherent in how public funds are currently kept in the banks.

TO BE CONTINUED