By Prisca Sam-Duru

In an address at the 17th Annual Banking and Finance conference of the Chartered Institute of Bankers of Nigeria, Vice President Kashim Shetima, highlighted that the removal of subsidy on petrol was designed to free up budgetary resources for critical investment.

The vice president who represented President Bola Tinubu at the occasion, also said that the country’s macroeconomic environment is stable.

This was because American business mogul Bill Gates recently said Nigeria’s economy had stagnated. Juxtaposing the statement of the vice president with that of Bill Gates, Nigeria’s economist, Paul Alaje explained that the Vice President was simply saying that they have tried their best to grow the economy from 2.9% to 3.19 noting that Shetima believed that the growth is significant compared to what it was in terms of real GDP.”

Alaje however, disagreed with the VP on his claim that the macroeconomic environment is stable, adding that “The National Bureau of Statistics says otherwise.”

According to Alaje, “The report of the NBS says that our unemployment figure increased as against stabilizing the unemployment number. It also revealed that inflation – food inflation is near 40%, airline inflation is over 33%; the target globally should be between 2 to 3%. So, if we should be looking at 2 to 3%, and, if you want to go with the CBN’s projection, the inflation should be single digit which is 6 to 9% max. And we are having 33%. Can we say that the macroeconomic environment is stable?

“Another factor is the exchange rate. This time last year, the exchange rate was about 700/800. Today, it’s worse off by 100% of what it was. Today, we are looking at 1,660; can we say that the macroeconomic environment is stable?”

He declared that the biggest challenge Nigeria has today is floating the naira, noting that “NNPC has come out to say they are paying shortfall, in fact, it has also said that in a non-subsidy regime, they are even owing suppliers so, you know something is wrong. What both the rich and poor are concerned about is floatation. When you float your currency especially when it is susceptible to devaluation, then you are reducing the economic worth of your people. Many people say the government has no business in business, so Nigerians should not continue to enjoy subsidy; okay, but Nigeria has the right to a stable currency.”

Asked if it is possible to have a stable currency without a productive economy, he said, “The economy has not been that productive over the years but the currency was stable. We have choices to make. Assuming that we are back in 2014 and the exchange rate was 199, will PMS be the price it is today? There won’t be any need for subsidy. Imagine we fast forward to 2019 or even 2017, and the exchange rate was 360, would there be a subsidy today? Our biggest challenge, which many must know, is floatation. Floatation in itself may not be bad but, an economy that buys 80% of finished products from abroad, it’s a bad policy because over 80% of our finished goods are imported. The National Bureau of Statistics said so.

“There are four ways you spend your money when you earn any money, one naira, N1 trillion. You can spend first on local consumption. People should decide how they spend too. You can save the money, you can use part of the money to pay tax, you can spend the money on importation. For Nigeria, close to 60% of all the spending goes to the marginal propensity to import. So in an economy that is highly import-dependent on finished products, it’s a big challenge.”

The economist explained further that “In 2015, it was not as if we were producing but we had a monetary policy maker who said, this is what our exchange rate is. They started talking about crude oil that some amount had not been remitted to CBN through NNPC so that they could boost that amount; that’s the first part. The second part, when you look at the last administration, as bad as it was, it was able to defend the naira to some extent before the recklessness of those in authority set in. My concern is, even if you want to move naira away from the official window of over 400 to 500, we should not leave it to flow. If naira, the average basket of commodities compared among countries, it should be about 1,000 to 1100. Leave naira at that point, say you are removing subsidy, it will relieve the government but it has a cost but many Nigerians will have comfort. So, we now need to choose between going the way of Venezuela or the way of Germany. Should we go the way of Argentina or the way of Japan?

Venezuela, Argentina and Zimbabwe all let their currency flow hoping that the government will make more money but, check all their currencies, they’re the weakest around the world. Look at others that said we need to cut taxes not to increase, and also need to ensure that citizens place their currency against the dollar; this is what happened in Germany, Japan and Russia. These are things we need to do. But most importantly, we need to produce. We need agro processing, especially protecting farms all around the country. But all of this cannot happen if electricity is too costly and unavailable.”