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By: Late Sir Henry Olujimi Boyo (Les Leba), first published in January 2013


Last week’s article, was a republication from the archives titled: “How to Revive Our Failed Economy”. Written in dialogue format, it discussed monetary policy and the important role it plays in the day-to-day workings of the Nigerian economy. It responded to frequently asked questions by readers of this column in relation to inflation, the depreciation of our currency, and interest rates. If you missed it, you can access it using the link below.

(See www.betternaijanow.com for this series and more articles by the Late Sir Henry Boyo)

This week’s republication goes as far back as the year 2013 and has resurfaced due to the fact that Nigeria is still struggling to stay afloat amidst deepening poverty in the face of inflation. The article also discusses CBN’s rather bold stance ‘against’ a stronger naira, despite all the evident benefits attributed to a strong and stable currency. Kindly note the rates and figures mentioned in the article compared to current worsening rates (a glimpse at how far we have fallen). As Sir Henry often said: “Those who have ears, let them hear”. Please read on.

The first anniversary of the 2012 "Occupy Nigeria" fuel subsidy protest was marked recently in Lagos by Pastor Bakare led ‘Save Nigeria Group’ with a lecture titled "Nigeria’s Fiscal and Monetary Crisis: The Way Forward". The occasion afforded the Central Bank of Nigeria (CBN) the opportunity to publicly defend its failure to create an enabling environment for industries and businesses to bloom, in consonance with its core mandate for price stability. Of course, the major indicators of price stability relate to conducive low single-digit interest rates for bank loans and an even lower rate of inflation.

CBN commended its own performance on these indices when compared with other economies in West Africa! Why they chose to benchmark their performance against ducks when indeed they should be aspiring to be eagles remains unclear; however, it is clear that no nation grows with interest and inflation rates at over 20% and 12% respectively, with inexplicable currency depreciation.

In order to compensate for its failure to enthrone an enabling monetary strategy, the CBN reported its involvement in several projects such as the cash-lite policy and various selective bailout packages involving hundreds of billions of naira.

The source of these huge bailout funds including the N1bn donation to a particular university remains a mystery, while the subsector beneficiaries of these funds still remain comatose.

The CBN rejected responsibility for our nation’s poor infrastructural base, as well as blame for the inability to diversify production in our economy. Undoubtedly, however, the agricultural, aviation, textile, transportation and other subsectors would certainly be much stronger if they had access to much cheaper funds. Indeed, Nigeria’s paltry annual capital budget of barely $9bn is a clear indication that our hope for rapid infrastructural enhancement is better placed on private sector funding.

Nonetheless, CBN boasted that only the uninformed would demand a stronger naira rate of exchange! The fallacy of this argument was obviously ignored, as reckless depreciation of the naira from stronger than parity to about N160:$1 has obviously had a negative rather than a positive growth impact on exports and other sectors of our Nigerian economy. The CBN certainly misses the point that demand for oil, our major export, does not depend on the naira exchange rate!

Indeed, CBN’s understanding of its core mandate of price stability seems related primarily to the modulation of excessively high and low cycles in the levels of interest and inflation rates rather than the promotion of enabling rates as in industrialized and successful economies elsewhere!

Sadly, the CBN also failed to justify why Nigeria’s economy has remained the victim of surplus cash for decades, or indeed, why excess cash exists side by side with the failure of the real sector to access adequate and cheap funds! Besides, there was no satisfactory explanation why CBN combats inflation by borrowing back perceived excess cash in the economy from commercial banks at rates above 12%, only to warehouse the loans as idle funds. It is inexplicable that any commodity would become more expensive whenever the market is awash with a surplus of that item!

The apex bank obviously has no regrets that it crowds out the real sector by borrowing at outrageous levels of interest rate while such risk-free sovereign borrowings in successful economies elsewhere generally attract lower single-digit interest rates; rate levels, which CBN insisted were inapplicable in our state of development!!

Incidentally, the directors failed to fault my observation that CBN's inability to achieve its core mandate of price stability is actually the product of its poor management of money supply! It is nonetheless, irrefutable that the ever-present burden of excess liquidity induces heavy government borrowings at high interest rates and also fuels the inflation rate. The abiding cash surplus is regularly pitched against relatively paltry dollar auctions by CBN, and this ultimately also depreciates naira’s exchange rate!

Incidentally, CBN’s alleged ‘unholy trinity' of interest, inflation and exchange rates have a common causative influence; i.e., the ever-present scourge of excess liquidity.

Instructively, massive reduction or total elimination of excess liquidity will actually create a 'holy trinity' of lower single digit interest and inflation rates and also engender a stronger naira, all of which constitute the requisite profile for an enabling economic environment for growth and development.

Furthermore, the poison of excess liquidity is not administered by increased government spending, as often alleged, but by CBN’s capture of the nation's dollar revenue and substitution with naira allocations to the three tiers of government.

The CBN's claim that they are compelled by the constitution to substitute naira allocation for dollar revenue is certainly not substantiated by Section 162 of the constitution, which really does not constrain the three tiers of government from maintaining domiciliary accounts just like any other citizen.