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
http://www.vanguardngr.com/2014/08/economic-contradictions-mute-victims/