WHAT THEY COULD NOT TELL BABA! 23012006

The President, on Tuesday, held a stakeholders meeting with business leaders and CEOs of the newly capitalized commercial banks to gear them towards achieving a 10% growth in the economy in the next 12 months.    

It is not clear why Mr. President left this initiative and upbeat motivation until his final year in office.  What is clear, however, is that Mr. President would wish to leave the economy on a high note!  Last Tuesday’s stakeholders meeting also attracted, amongst others, the ANPP and PDP Chief Executives as well as a dozen or so State Governors and Federal Ministers and heads of parastals.

 

In every instance, speakers at the forum precluded their presentations with effusive gratitude to Mr. President, inspite of the President’s admonition to cut out the frills!  No one wanted to be labelled as anti-Obasanjo like the Deputy Governor of Lagos State, who attempted to point out obstacles that would hinder the achievement of a 10% growth rate in 2006.  Mr. President demonstrated his underlying physical fitness and commitment to the object of the meeting, as he personally took command and remained standing at the podium from where he threw his punches and acknowledged obeisance for upwards of three hours!  It was rather enthralling and revealing to watch the body language of Baba on the one side and the host of politicians and political appointees on the other, as they jostled for Baba’s attention, commendation and approval.  The high level of awe, which the oracle commanded was very palpable!

The zeal of a handful of private independent speakers, who attempted to guide deliberations with some relevant commercial and industrial experiences were quickly rebuffed (in one case, very angrily) by the main man, who had obviously clearly defined his expectations and did not look like letting any one upset his delicately apportioned applecart, even if that person was the representative of the Senate, who humbly and almost frightfully passed  on a message that the Senate holds that the 25 newly reconsolidated banks existed in a lacuna as the Senate had not yet approved the process of their creation!

Mr. President’s response to this, many would say, was typical; if the CBN Governor was found not to have followed due constitutional process in the consolidation exercise, the CBN Governor would make an apology to the Senate in due course.  However, if the CBN Governor had been wrongly accused, then of course, the Senate or its representative should be ready to make an apology to Prof. Soludo!   Matter finish!   Next question please!  Indeed, with a combatant with Baba’s heavy weight punch in the ring, it required a fool with plenty of courage to step up as a challenger!

Mr. President’s commitment to transform cassava cultivation and processing to major export processing activity was unmistakable, and Mr. President deserves commendation for his efforts so far.  It is clear that there are serious defects in the game plan for achieving annual foreign exchange earnings of over $15bn from cassava, but it is heartwarming that inspite of infrastructural and financial limitations, the cassava export boat has undoubtedly put out to sail, going by the testimonies of stakeholders in this agricultural sub sector, and this enterprise may indeed remain one of President Obasanjo’s enduring positive economic legacies after 2007. 

The increase in our strategic grain reserve to about 500,000 tons is also commendable, but there are genuine concerns that the increasing food prices for an already financially challenged populace may have derived from government’s strategic stock accumulation and the increasing export of cassava based products!  In this event, the government will have to resolve the dilemma of releasing huge stocks of grains into the domestic market to reduce consumer prices and at the same time sustaining the enthusiasm of the increasing investors in the agricultural sector, particularly with its vast employment generating capacity.

Mr. President demonstrated his  commitment to agriculture and non-oil industries, particularly in the SME sub sector by his  ‘fist stamping’  of his own directive to the 24 banks that oil related businesses should be encouraged to seek offshore credit, which according to Mr. President, is even cheaper than the cost of local borrowings!  The question, of course, that remains unanswered is the paradox why the weaker, small and medium enterprises have to pay over 25% interest for funds locally, when their counterparts in focused economies pay between 6 – 9%!  

Clearly, until the CBN brings down its Minimum Rediscount Rate (MRR) (the rate at which banks borrow as a last resort from the CBN) to single digit, it is unlikely that a conducive commercial lending rate will prevail in the near future for SMEs!

Mr. President was quick to dangle the carrot of warehousing and doing business with a deposit of $500m from the nation’s reserves to any Nigerian bank with a $1bn capital base.  Although Mr. President assured Nigerians that he recognized the gravity of ensuring safe husbanding for the nation’s money, some observers have wondered why the same banks from which the CBN is withdrawing government funds locally have simultaneously been considered as safe havens for a part of Nigeria’s foreign reserves, especially when the government is not a shareholder in any bank!  Indeed, the scam of round tripping of officially purchased dollars is generally regarded as the foundation stone of the growth of most local banks.  There is no gainsaying what would happen when $500m is given to some of these banks on a platter gold, their $1bn capital base not withstanding. We may be inadvertently opening up a wide window for further devaluation of the naira, and destabilization of the economy.

Mr. President left no one in doubt of his closeness with and approval for the arrowheads of his economic policies!  They would manage to convince Baba that this is trite speculation!  We, nonetheless, recall that the President’s economic team during the SAP years also enjoyed the same confidence of their benefactor particularly with their illustrious international antecedents!  It was interesting to listen to Baba’s graphic illustration of the phenomenon of inflation as a bowl of water with a defined capacity, thus, there is a limit to the amount of money which can be injected into the economy at any one time; once this limit is breached, any additional injection will fuel inflation and as with the bowl, additional water will be a waste and could even cause a mess!   Excellent economics, but Mr. President’s economic mentors appear to have forgotten to add that in reality, the limits of absorptive capacity cannot be breached in a climate of serious unemployment, low industrial capacity utilization and poor infrastructure, as we currently have in Nigeria!  

In other words, the water cannot spill over until the bowl is full!  The illusion of too much money in the Nigerian economy is caused by what the CBN Governor himself describes as the monetization of the monthly distributable foreign exchange component of the federation pool.  Prof Soludo confessed that a sustainable 10% growth rate would present a serious challenge in view of the increasing pressure to ‘monetize’ (read as changing into naira) the increasing dollar revenue we earn from higher crude oil prices and the attendant scourge of ‘excess liquidity’ (read as too much naira), high interest rates and a downward pressure on the value of the naira; Mr. President cannot  not be aware that our current monetary framework ensures that the more dollars  we earn, the greater the pressure on our naira and the greater the challenges of monetary policy.  Enlightened cynics would be right to expect more salutary benefits from increased export earnings and it is certain Baba’s economic friends did not tell him that  the adoption of dollar certificates for paying the dollar component of the federation pool would banish our economic predicament and put our economy on a speedy road to recovery.