ECONOMIC RENEWAL: QUESTIONS AND ANSWERS

By: Late Sir Henry Olujimi Boyo (Les Leba), first published in July 2006


Although this week’s article titled “Economic Renewal: Questions and Answers” goes back as far as fifteen years ago, in light of unchanging economic circumstances it remains highly relevant.The style of this article takes a different approach as it answers direct questions posed by a keen reader of the Rational Perspectives column.This approach provides insight to similar questions that other readers might have, giving an opportunity to pick the Late Sir Henry’s brain on the state of the Nigerian economy.

On the 19th of April 2021, an article by the Punch Editorial Board titled “Taming Inflation and Averting Hyperinflation” was published. The article echoed various concerns that the Late Sir Henry basically preached about in his own publications and television interviews. The Punch article discussed the rising rate of inflation which it pointed out “reached a four-year high of 18.17% in March this year”. This consistent rise in inflation amidst the COVID crisis is contributing to higher costs of consumer goods, unemployment, etc., not to mention the very real possibility of hyperinflation on the horizon.

As we read today’s article, let us once again keep in mind that it was first published in the year 2006, yet it mirrors very current issues as highlighted in last week’s article by the Punch. Kindly read on.

(More of Late Sir Henry’s articles can be found at www.betternaijanow.com)

In this week’s article, I will try to answer some questions posed by a professed regular reader of Rational Perspectives.  In order to provide a coherent balance and facilitate comprehension of the text, Mr Angbagh K.’s letter will be broken up and interspersed by my responses or observations.  Kindly read on.

MR. K.: I have followed your pieces on the Nigerian economy and its management, and I could not help but agree with you to the extent that I found myself asking the question, is anyone reading this? I have to say you make sense with your writing and in the simplest economic sense too.

LES LEBA: You are right; if our monetary authorities read this column, they certainly have not shown that they have learnt much from it, as they continue to pursue a monetary and economic framework that favours an elite few at the expense of the rest of us.  For example, they persistently unleash a perennial burden of excess liquidity (too much paper money) on the economy every month and the CBN lends at 14%, while they are prepared to borrow with their bond issues and pay an interest of about 17% at a time when we have so much money and don’t need to borrow!  Such foolishness can only lead to bankruptcy!

MR. K.: First, I think the focus of this government should be directed towards stabilizing the economy so that increases of any sort are stemmed. Your suggestion that the naira is anchored to the Dollar gripped me except I was weary of pitfalls I may not be aware of, so I wanted to know from you what the financial, psychological and or, diplomatic effects tying the Naira to the Dollar will have on Nigeria and Nigerians.

LES LEBA: As it is, the government cannot stabilize the economy when it is responsible for flooding the money market with over N250bn every month when it injects the monthly revenue allocation into the system.  Meanwhile, we have maintained in this column that the scourge of excess liquidity can be dispelled with the substitution of dollar certificates.  Please be assured, Mr K., that there are absolutely no adverse financial, psychological or diplomatic consequences if this approach is adopted.  Indeed, this framework will bring about a stronger naira (N60=$1 within six months is feasible).  This would mean each naira earned would buy almost double the value of its current worth.  Foodstuff would fall in price, and Nigerian youths will not be educated and trained locally by dint of the sacrifice of family and state and then beg, steal or borrow to jump ship and seek menial employment abroad.  They can instead put their knowledge and training to develop their fatherland.  Petrol prices will fall below N30 per litre; industries will get their machinery and raw materials at cheaper costs and expand production and employment capacity accordingly in an enabling environment of single-digit commercial lending rates.

MR. K.: Secondly, in two of your pieces, you argued the demerits of DAS and WDAS, again you made perfect sense. You showed that the system as operated presently contrives to keep the value of the dollar high, what with the CBN converting Dollar certificates at lower rates only for state Governments to buy the same Dollars at a higher price after receiving a reduced naira equivalent. I see that it takes only a little imagination to see how the rush for forex by state and local governments just keeps the value of the dollar high, despite our huge foreign reserve.

LES LEBA: You are right; the system you described above is certainly unjustifiable because it implies a silent tax burden by the federal government for each dollar sold.  It beats my imagination why the state governments do not see how much revenue is denied them by the unilateral conversion of dollar revenue into naira every month before the huge naira sum is disbursed to the three tiers of government.  The monthly conversion of dollar revenue is the nucleus of our economic problems!

MR. K.: Then again, if the CBN were to stop converting Dollar certificates and start handing over the same to state government as you suggested, would this not create a problem of ascertaining exactly how much states received as subvention from the Federal government since some states might just use the opportunity to claim they converted their money in the black market because if I am right, there are no rules preventing anyone from going to the black market! 

LES LEBA: This should not be a problem at all.  A state or nation can receive revenue in different currencies; this does not pose a challenge in conversion, since there is always a prevailing official market rate, and there is no reason why any beneficiary of dollar certificate should exchange at the black market because the dollar certificate can ONLY be negotiated for naira with registered commercial banks, who will ultimately receive the  credit value with the CBN, who in turn will disburse the dollars as per the instruction of the commercial bank who purchased  the dollar certificate from any of the tiers of government.  The dollars so purchased can only be used for transactions that are approved according to government monetary and economic policies.  The current system where millions of dollars are disbursed to overseas correspondent banks even before completion of a transaction is a great drain and inefficient management of our foreign reserves, but it serves the purpose of our banks!

MR. K.: And under such an arrangement there will be issues arising between the Federal government and the states with particular regards to how much federal government will claim they paid out and how much state governments will claim they received after converting their currencies, basically because the conversion rates used will be different, here again, I am in agreement with you on the need for a harmonized exchange rate.

LES LEBA: You will observe from my earlier explanation that this is an impossibility with the dollar certificate system.  Indeed, the current system of huge naira disbursements condones treasury looting and provides a ready source of funding both the black and the official markets for foreign exchange with debilitating effects on the local currency, the naira, as there will always be much more naira searching for the intermittent releases of dollars to the market by the CBN.

MR. K.: Here again is another problem I had with your suggestion, we all know that those who have found themselves in leadership in our country are those who know next to nothing about upholding their dignity, they have no compunctions with taking from public coffers to satisfy their personal desires, as it is, what stops state governors and local government chairmen from making away with Dollar certificates given them in behalf of their states or local governments if your suggestion for the federal government to hand over Dollar certificates

LES LEBA: I trust my explanations have dispelled the above fears.  Once more, thank you for your mail.

Save the Naira, Save Nigerians!