The Federal Government’s Economic Recovery and Growth Plan 2017-2020 (ERGP) was designed with the broad objective of restoring growth, investing in social infrastructure and building a globally competitive economy. The second leg of a 2-part summary of Sunday Sun Newspaper’s Onyedika Aghedo’s recent interview with this writer on the feasibility of the ERGP follows hereafter.

Given your projection of failure, what should be the priority of government to make this plan a success?
Government should ensure that the private sector has ample latitude to perform its role as the genuine driver of economic growth. However, businesses cannot perform that role if the tripod of monetary instruments, earlier mentioned, remains at variance with best practice elsewhere. Evidently, inflation at over 17percent is at variance with 2-3percent in successful economies. Similarly, cost of funds at over 20percent, is also at significant variance with 4-5percent best practice. Furthermore, sustenance of weaker Naira rates despite increasing foreign revenue is also an aberration. Unfortunately, Nigerians, habitually take their eyes off the ball of these critical indices.

Available information indicates that government drew the plan in consultation with the private sector. Don’t you think some of the fears you have expressed were taken into consideration?

The reality is that whether they consulted the private sector or not, so long as the product of such consultations still accommodates persistent Naira surplus which eternally stokes an inflationary spiral, the present ERGP would invariably also fail. In practice, it is not the clearly modest sizes of annual budgets that drive successful economies; conversely sustained inclusive economic growth is normally propelled by the infinite elasticity of available credit supply to the private sector. That is the reason why the banks and CBN have to work together to facilitate access to cheaper credit. The banks are, infact, statutorily mandated to create money and expand credit; if banks don’t have enough money to lend, they can borrow from the CBN and still then lend out at a profit to both private and corporate customers. 

However, if the rate at which CBN lends to banks is already as high as the present Monetary Policy Rate of 14percent, the question becomes, why would any bank borrow at 14percent and lend to customers below that rate. Ultimately, banks may lend at well over 20percent; regrettably, with such high cost of funds, however, the real sector cannot grow and job opportunities will contract. So, to galvanise the real sector and increase productive activity, CBN’s Monetary Policy Rate must fall as low as two percent, as is the case in successful economies elsewhere. Instructively, however, the monetary policy rate will never recede as low as 2percent, so long as excess Naira supply remains a perennial burden in Nigeria’s money market. 

Excess Naira liquidity undeniably propels spiraling inflation, while spiraling inflation will make nonsense of even the best laid economic plan. So, if indeed, government consulted, the private sector will confirm that the most critical challenges to sustained growth relate to very high inflation and cost of funds, and a persistently sliding Naira exchange rate. Unfortunately, ERGP remains in denial of these same factors that led to the failure of Vision 2010, Vision 2020 and NEEDS. Sadly, best practice enabling monetary indices have remained elusive in Nigeria’s recent economic history. There is still unfortunately, no plausible strategy in the ERGP for reducing the debilitating level of excess liquidity which sustains higher inflation, and cost of funds, which hinders national productivity and competitiveness with increasing unemployment.

One special feature of the ERGP, is the creation of a special unit to monitor its implementation. A lot of people believe that might ensure the success of the plan…..
(Cuts in) Look, how can you place any hope on the implementation of a project that has failed ab initio? If the critical factors that should guarantee implementation have been ignored, how will the Implementation Team monitor a plan that cannot be implemented? Ideally, the Team should first monitor if the present indices of the monetary tripod—i.e. the rate of inflation, cost of funds and exchange rate, are in consonance with best practice rates that drive successful economies elsewhere. The Implementation Team must first recognize that we will fail to achieve the ERGP objectives if inflation continues to remain above 5 percent, because higher inflation rates will not only reduce consumer demand and the output of goods and services, it will also trigger higher cost of funds that will make businesses less profitable and hamstring inclusive economic growth, while pensioners invariably become indigent. So, in effect, it is CBN’s monetary choices that should be monitored. Unfortunately, this has never been the case.

However, CBN’s autonomy, which is enshrined in the 2007 CBN Act to successfully manage price stability and sustain growth is good in principle, but then, that same independence should have been circumscribed with a surveillance Team that ensures that the CBN consistently keeps inflation at best practice levels around 2percent, so that consumer demand will grow or remain stable as the purchasing power of the Naira improves; CBN’s monetary policy rate should also hover marginally above inflation, so that cost of funds will remain single limit. Invariably, with such exemplary modest and supportive rates of inflation and cost of funds, consumer demand will flourish and the real sector will enthusiastically borrow to grow their businesses, especially when they are not also crowded out of the credit market respectively by Government and CBN’s ‘extreme’ competitive bids to also borrow to fund budget deficits and reduce the persistent and distortional liquidity surfeit. Consequently, the prevailing structure of monetary management, unfortunately condones a pattern of economic recklessness as it remains in denial of those factors that normally drive and sustain economic growth in ‘developed’ economies. 

So, in your opinion the ERGP cannot pull the economy out of recession? 
But that is the truth! Our economy has been severely challenged for several years, and such plans as Vision 2010, 2020, and NEED, all failed to reverse the trend. Factors that should properly define “no-recession” should, infact, be evidently increasing rate of employment, low and stable prices, rising consumer demand and productivity and improved economic and social welfare. When last did the Nigerian economy reflect such favorable indices that support inclusive growth, and when last did you hear that more Nigerians are now exiting the poverty trap? So, if bounteous foreign exchange reserves fed by higher crude oil prices successfully camouflaged most of these anomalies, the evident truth is that, employment opportunities, export competitiveness, industrial capacity utilization and the level of social welfare of our people have clearly remained severely challenged despite relatively increased dollar reserves.

So how soon would the country come out of the present economic mess if the ERGP would make no impact as you have said?
The country can never get out the mess until it accepts the hard reality of the critical significance of the monetary tripod in driving any economy. No one will build industries to produce anything if there is declining demand for that product. Instructively, higher inflation rates will reduce consumer demand; for example, a bakery enterprise with 10 bakery lines, will reduce production to say, two lines and throw people out of job if demand for bread continues to contract. That’s how it goes. So, consumer demand is actually dependent on the level of inflation and the purchasing power of incomes. So, if inflation continues to spiral, it means that consumer demand will also contract and impact negatively on industrial production; furthermore higher cost of funds triggered by inflation will also reduce the level of productive investment; ultimately, the rate of unemployment will spike and poverty will deepen while social welfare and infrastructure will suffer. It is quite straightforward really!