Industrialist and economist who is passionate about Nigeria adopting economic best practices speaks about what the country fails to do, lamenting that it has been driving the economy in reverse gear

Q: There is hardship in Nigeria, and it affects everybody. Where did it all start

It started from the time the media also became complicit in the culture of reporting government policies which are destructive to the economy with a very bland narrative, despite the fact that as Nigerians, they also suffered the injuries caused by such distortional government policies. In this event, Nigerians have become entrapped by propaganda that ultimately diverts public attention from the actual realities of the adverse impact of government economic policies.

Lately the Finance minister, Adeosun, for example publicly pressurized the Central Bank to bring down interest rates; it is regrettable that the media generally failed to interrogate the true cause of the obvious chasm between the Finance Minister and the Managers of our Monetary Policy.

Many people have been telling the Buhari administration, please stop the blame game, we know you inherited problems from the last administration, please solve the problems you have at hand. I want you to assess how far the economy has fared under the Buhari government and what is he doing that he shouldn’t have done?

The reality that people are suffering is self evident. Although, the blame for the down turn has always been put on low oil prices, and the Niger Delta militants and corruption, but from a historical perspective, you will find that our condition should not be quickly blamed on only these factors.

If you are saying that low oil price and output are responsible for our present economic predicament, then you are also implying that if only we could earn more income, i.e., if price and output of crude oil improve, our economic predicament will be dispelled and Nigerians will be better off when this happens, this is the popular assumption; but if you cast your mind back, when crude oil prices exceeded $120 and output was reasonably consistent above 2 million barrels a day, our dollar reserves expectedly exploded beyond $60bn. The question is, did people’s welfare improve with the bountiful reserves? Did the employment rate in the country increase, did industrial production significantly expand, and did inflation fall to best practice of 2 or 3 per cent? If the answers to all the above questions are No, then you must admit that rising price and increasing crude oil output may not also reverse our current parlous state as presently assumed.

The truth is that we have been operating counterproductive monetary and fiscal strategies all along; we have been driving the economy in reverse gear, with unyielding high rates of inflation above 10 per cent, with high rate of unemployment, low rate of industrial capacity utilization, and a weaker naira. The truth is that the present fall in crude oil price and output only fired the accelerator while the economy remained in reverse gear! That is the reality.

So in order to correct our trajectory, we must shift the gear lever to “drive” so we can move forward and not backwards. What am trying to say is that the forces that support growth and development everywhere are driven by certain indices and if those indices remain inappropriate, the economy will clearly underperform; that is why you find countries that don’t have any resources still performing better than us, despite our bountiful mineral and human resources.

In modern day economies, economic management has become refined to distill certain indices which drive or retard industrial and economic activity; for this reason, Central Banks everywhere are statutorily mandated to manage these indices to achieve meaningful economic goals. For example, we have oil, we have groundnut etc, but we can’t seem to move forward, because inflation rate has never receded to international best practice levels below 3%; investors have to pay over 20% to borrow, while the Naira rate ironically failed to appreciate even when we had best ever dollar reserves.

The first critical index is inflation; unbridled inflation can destroy any economy; I have heard so called experts, intellectuals, and professors who are advocating that CBN should not worry too much about the scourge of inflation, but should concentrate on growth inducing policies by pumping more money into the economy; by making such statements these people expose their ignorance on how a modern day economic system works; the truth of course is that, we can never have meaningful growth when inflation is trending towards 20 per cent.

The right management of inflation is the beginning of economic wisdom; inflation is invariably the starting point; if for example, inflation is at 20 per cent, it means that every year your income must increase by 20 per cent; if not, it means you must cut down on your life style; pensioners will invariably, sadly, lose the total purchasing value of their static incomes in 5 years, with such inflation rate.

Furthermore, if inflation continues to rise, the consumer demand will contract and ultimately negatively impact on domestic production. Why would factory produce more, when there is no consumer demand in the first place.

Secondly, if cost of funds remains high, there is little motivation to invest as it will become difficult to repay your loan and ultimately non performing debts will also increase and may destabilize the banking sector and the economy. From the preceding narrative, you will see that the operation of an economy is an articulated process, inflation affects consumer demand and cost of funds and a combination of both factors adversely affect investment, employment and inclusive economic growth.


Thirdly, the regular auctions of rations of dollars by CBN in a market with too much naira has inadvertently battered and sealed the fate of the Naira exchange rate. Clearly, if the statutory custodian of the Naira is busy auctioning the dollar against the naira, what do they expect? The process of auctioning dollars in a market that is suffocated with naira is clearly a deliberate attempt to weaken the Naira exchange rate. So with inappropriately high inflation and interest rates and an ever sliding Naira, the economy will invariably remain in reverse gear. There is no successful economy that sustains inflation and cost of funds as high as 20%! So, if you ignore or deny the relevance of sustaining these indices at best practice levels, you are only postponing the evil day, and this early realization in 2004 guided the choice of the slogan, ‘SAVE THE NAIRA, SAVE NIGERIANS!’ as the byline for my articles, in the Vanguard Newspapers till date.

Historically, you will find that poverty, industrial collapse, brain drain, youth migration from Nigeria began and gathered momentum as the naira depreciated in value since 1985. The naira at a stage exchanged for N1 to $2, even when crude oil price was $12 per barrel, but this clearly did not induce the kind of calamities we have now.

What do you advise the government to do right in this regard?

Very simple. You see once you have defined the problem, the solution is in progress. Quite clearly, inflation must be kept at between 1-3%, if not, pensioners can’t confidently look forward to life in retirement. It is necessary to interrogate the cause of inflation, you know the factor that drives inflation is too much money, but as a curious professional member of the Media, you should also ask if there is scarcity of loanable funds to SMES, why is it that every week, the CBN keeps mopping up excess money from the system? You must proceed to interrogate the unyielding cause of so much money in the system, because if you can eliminate the cause(s), the price level will stabilize at industrially supportive levels; interest rate will fall, Naira exchange rate will also be stronger.

Why is it that for years there is no money to pay salaries, there is no money for infrastructure, and there is no money to pay our debts and yet CBN continuously mops up excess money that is simply sterilized from use. The troubling question therefore is where all that money leaks from to persistently compel CBN’s need to pay interest to sterilise the reportedly burdensome excess Naira supply. It is evident that the CBN does not distribute the dollars earned from crude export, instead the CBN recreates what it construes as naira equivalent at its own unilaterally determined exchange rate before Naira allocations to the 3 tiers of government. When distributable dollar revenue is substituted with Naira allocations to the three tiers of government, what do you think will happen, the bloated Naira sums expand the liquidity base to sustain an inflationary spiral, and instigate further CBN mop up of excess liquidity.

When CBN constantly mops up money, and it makes it difficult for banks to collect money and make it also difficult for the real sector to borrow money, will it not affect the real sector?

That is what is happening. That’s why the minister of finance says CBN should bring down interest rate, while CBN insists that lower interest rates will fuel spending and drive inflation beyond tolerable or supportive limits. In any case, the CBN must explain why it readily adopts the more expensive and debt inducing option of selling Treasury Bills to mop up surplus liquidity, when less cumbersome results could be achieved with much higher mandatory Cash Reserve Requirement.

How best can the power situation be handled? Are you satisfied with the way…

You see, leave out the issues of privatization and all the rest, you see, as a journalist, you are probably aware that almost all the power firms are hugely indebted to the banks, so it is fair to say that the major problem of power companies is probably inadequate access to cheaper funds. Inflation, cost of funds and exchange rate, huge cash injections into the system is counterproductive as intervention funds, because the actual problem is not that of no money but that of too much money and a threat of inflation. As earlier explained, however, cost of funds cannot be sensibly reduced, if inflation rates remain in double digits, while inflation will also remain unhinged so long as Naira liquidity surplus remains systemic.

Now you have explained what the government ought to do that was not done, what can individuals do to survive hard times?

Simply, cut your coat according to your cloth and don’t buy things that are not essential to the welfare of you and your family.

Are you satisfied with the level of diversification efforts going on?

Diversification will not evolve just because you express the wish; all governments before now promised diversification but since these administrations remained in denial of the need to sustain supportive monetary indices, their promises inevitably have become mere propaganda. We cannot diversify anything without inflation coming to best practice levels, without access to low cost of funds; cost of funds is responsible for power, cost of power is critical component of industrial cost of production. So on what platform are you going to diversify; if government pumps money into the system to diversify, this will further drive inflation.

As I have explained to you six trillion is all your government has been given approval to spend in 2016, this is barely $18bn, which is peanuts compared to the projected $1Trillion economy. The banks are supposed to fill in the funding gap, but the banks instead of filling the gaps directly to the real sector, what are they doing, the CBN’s response to the banks is, “forget about the real sector, we will borrow all the money from you and pay you handsomely, because we are going to conserve the money to avert spending”. So who is killing who?