Our parlous economic state has been attributed
by some observers to our heavy dependence on
increasing oil revenue and our inability to
stimulate the performance of our industrial and
agricultural subsectors, particularly the small and
medium enterprises and thereby, also diversify the productive sectors of our economy. This column has however consistently explained
that the unyielding presence of surplus Naira
deliberately instigated by our Central Bank is,
ironically, actually the major obstacle to inclusive
economic growth and diversification. In other
words, economic Eldorado will eternally remain a mirage, unless we can successfully combat the
decades old burden of a systemic Naira flood and
buoyant dollar reserves inspite of widespread
poverty nationwide. Nonetheless, CBN’s unilateral substitution of Naira
allocations for dollar derived revenue has been
clearly identified in this column as the real cause
of the disenabling excess liquidity; regrettably,
however, the oligarchs who derive immense
wealth from government’s impulsive borrowings of trillions of Naira with Treasury bills, fuel
subsidy payments of over $12bn annually, and
the ready access to humongous slush funds
which facilitate corruption, understandably, do
not want CBN to stop inducing the unyielding
socially oppressive spectre of excess liquidity. However, some readers of this column wonder
how distributable dollar denominated revenue
can be infused into the system without inducing
the destabilising poison of excess Naira in the
economy. Hereafter, the following explanation
will juxtapose the related consequences of CBN’s substitution of Naira allocations for dollar
revenue under the Current Payments Model (CPM)
against the Advocated Payments Model (APM) of
adopting dollar certificates for the distribution,
for example, of $1bn export revenue, to the three
tiers of government in eight sequential scenes! Thus, Scene-1, CPM: CBN unilaterally determines
naira exchange rate and unconstitutionally
captures the distributable $1bn revenue and
prints/creates (read as monetizes) N160bn as
statutory allocations, which are domiciled in
commercial bank accounts of beneficiaries! Scene-1, APM: The $1bn is not substituted with
N160bn; instead, beneficiaries receive dollar
certificates for their respective portions of
allocation, while the $1bn remains domiciled with
the CBN, while naira exchange rate is ultimately
determined by open market demand and supply. Scene-2, CPM: The banks enjoy almost ten-fold
leverage on the fresh naira inflow, with an
enhanced credit capacity, which suffocates the
money market with excess spending power ,
and fuels inflation!
Scene-2, APM: With strictly dollar allocations, no fresh Naira is created; the naira supply in the
system remains unchanged, and cannot therefore
instigate the usual disenabling systemic spectre
of surplus naira. Scene-3, CPM: In response to the threat of rising
inflation, the CBN ‘altruistically’ steps in with
treasury bills to borrow money it does not need
at over 10 percent from the banks, so as to
reduce money supply and curb inflation. Despite
the oppressive cost, the borrowed funds are simply kept idle!
Scene-3, APM: In the absence of the usual naira
surplus, CBN does not have to borrow money it
does not need at over 10%; consequently, our
increasingly oppressive debt burden would
cease! Banks would have no choice but to chase the real sector for business! Scene-4, CPM: In order to further prevent liberal
access to cheap excess funds in the market, CBN
raises its Monetary Policy Control Rate (MPR) and
this propels banks to increase their own lending
rates; the resulting crushing cost of funds would
therefore restrain customers’ motivation to borrow; interest rates, may rise above 20
percent, and reduce the prospects of industrial
growth and the creation of increasing job
opportunities with irrepressible inflation and
contracting consumer demand prevailing
nationwide. Scene-4, APM: In the absence of the usual excess
naira supply, the threat of inflation and
government’s costly impulsive borrowing with
Treasury bills will be minimised; CBN would
therefore readily reduce its Monetary Policy
(control) Rate (MPR) drastically; commercial banks will similarly drop their interest rates across the
board to single digit, so that businesses can
access cheaper funds to finance new businesses
as well as grow existing industries with
increasing employment opportunities. Scene-5, CPM: Ministries and State Governments,
who require imports, are constrained to buy
back dollars from banks who have become the
prime beneficiaries of CBN dollar auctions.
Ultimately, naira exchange rate comes under
pressure as increasingly surplus naira in the market chase the rationed dollars auctioned
weekly by CBN! The market dynamics of demand
and supply consequently become unfavourably
skewed against the naira, particularly more so,
whenever CBN’s total monthly forex auction falls
below the $1bn earlier unconstitutionally captured in Scene-1 above! Scene-5, APM: The three tiers of government
remain the owners of dollar values domiciled
with CBN; however, these government agencies
can exchange for naira, all or portions of their
dollar certificates from time to time, directly
through commercial banks. Thus, the usual naira surge when CBN prints/creates fresh naira
balances for allocations of dollar revenue will
cease; inevitably, the naira will become stronger
against the dollar in the forex market! Scene-6, CPM: The less dollars sold by CBN, the
larger are CBN’s reserves, but the weaker also
will be the naira, as less dollars will invariably
become pitched against excess naira supply in
the market. The gap between official and black
market naira rates consequently widens. Scene-6, APM: The usual CBN bi-weekly dollar
auctions will also cease as constitutional
beneficiaries directly trade their dollar certificates
for existing naira balances with banks; (since
dollar certificates are not legal tender in Nigeria).
The dollar values will, however, remain domiciled with the CBN, irrespective of ultimate buyer! Scene-7, CPM: In order to reduce the gap between
the black market and the official rates of
exchange, CBN commits the unforced error of
freely allocating dollars to Bureau de Change,
who in turn fund the requirements of treasury
looters and smugglers of contrabands, not minding the adverse impacts of such misguided
dollar supply on the economy. Indeed, such
monetary policy management must be far from
international best practice!
Scene-7, APM: In the absence of the usual liberal
spectre of surplus naira, banks become wary of over committing their naira balances to just
foreign exchange purchases. The black market
for the dollar will rapidly contract, while the
motivation for smuggling and money laundering
will similarly be curtailed. Scene-8, CPM: Despite a gasping manufacturing
sector and deepening poverty nationwide, the
banks and other speculative foreign investors
celebrate another bumper year!!
Scene-8, APM: The absence of systemic excess
naira will promote single digit and lower inflation rates with positive knock-on impact for
increasing consumer demand, industrial
consolidation, increasing job opportunities and
economic diversification. A stronger naira will
drive down fuel prices and ultimately eliminate
subsidies!
SAVE THE NAIRA, SAVE NIGERIANS!!
http://www.vanguardngr.com/2014/08/realistic-path-economic-prosperity/

The govt has greatly neglected the local content in the various sectors. Heavy reliance on crude oil is one many causes of corruption which is unarguably bad for the country's economy.