Last week's article titled “ Economic Renewal: Questions & Answers” was a question and answer session aimed at throwing more light and understanding regarding the current faulty framework of managing the Nigerian economy. For those who missed this, we recommend you take the time to review it. The article can be found online on the Daily Independent website or Late Sir Henry Olujimi Boyo’s web portal, www.betternaijanow.com.
Today's article titled “The Reality Of Economic & Monetary Policies” even though it was first published about 7 months after last week’s article, both, still sadly enough bring to reality why not much has changed in the helms of fairs with regards the progress of our great country’s economy. The first quarter of 2021 surprisingly enough had numerous references from a variety of known public figures and established organization, either drawing concerns to the state of the economy or buttressing the numerous facts & publications of Late Sir Henry Boyo. Enjoy today's read as it is a great follow-up to last week’s publication.
First published in January 2007
THE REALITY OF ECONOMIC & MONETARY POLICIES BY: LES LEBA
I welcome back readers of this column from what I trust was a restful holiday season, as we look forward with much hope towards the unfolding events of 2007. This week’s column is the text of a response given to Angbagh Kyegh, a professed regular reader of Rational Perspectives, on 04/12/06. Please read on.
“Dear Mr Kyegh, Thank you very much for your mails of November 7th 2006. I regret that I have not been able to give you an earlier reply. You see, my business falls in the Small & Medium Industrial Enterprises sub-sector and as you seem to appreciate from the narration of your experience with your bankers, it is an uphill task trying to keep our head and our business above water! What with decrepit infrastructure, harassment from all the three tiers of government, who see any enterprise/industrialist as a cash-laden-cow ready for milking? You are right about the interest rate level; it is unhealthy for the banks to charge such high-interest rates above 20%. I almost lost my mind some years ago after I was cajoled and encouraged to take a loan for the order of some of our raw material inputs! I swore never to try such recklessness in future unless sanity prevails and interest rates fall to 5-7%!
“If not hypocrisy, I do not understand how the CBN and our monetary authorities wonder why industries are collapsing while the banks are declaring unexpectedly high profits. Pray, where do the profits come from, if they are not generated from investments in the real sector?
Meanwhile, the real sector is collapsing. The truth is that the CBN and Debt Management Office (DMO) are better partners of the banks than they are of industries and SMEs, as the CBN and DMO are prepared to borrow from the banks at up to 17%! If the banks can get a 17% return from the bonds (risk-free investments) sold by the government, why would they want to lend to SMEs with all their problems and potential difficulties in paying back?
“Meanwhile, the CBN continues to compete unfavourably for the loanable funds by selling treasury bills and bonds that take away money from the banks and then sterilizing such money in CBN vaults. The CBN Governor, in fact, has confirmed that the money borrowed is not used for any development as the purpose is to mop up so-called excess cash from the money market and not to spend it. It is mind-boggling that with all these funds sterilized and idle in the vaults, the CBN and Debt Management Office continue to borrow more and more; e.g. to pay pensions, contractors, etc! One wonders why part of the sterilized idle cash in CBN, DMO vaults were not utilized for these paments.
“The banks are quite happy ‘thank you’ with CBN’s obtuse monetary policy. After all, the 2006 budget has provided over N250bn to pay interest on bonds and bills alone. As you know, much of this N250bn is banks’ profit for buying government bonds and treasury bills.
“So long as these easy, risk-free avenues exist for making money, you cannot expect the banks to look elsewhere. What is worse, the CBN itself is the main villain in creating the excess cash in the system which then subsequently seeks to take out by selling bonds and bills. As you know, if a bank owns N1, it can generally lend out N5 based on that N1. Thus, you can imagine the lending capacity of the banks when almost N300bn is paid into the bank accounts of the three tiers of government every month. Thus, the greater our earnings from oil in dollars, the greater the conversion of the distributable amount to naira before sharing, which creates a deluge of cash and excessive credit capacity in the system. We should therefore always pray that we do not earn more dollars so that we do not have this problem of too much cash each time the distributable pool is shared in quantum naira sums. What a mad arrangement!
“Indeed, it is alarming that the CBN has not contemplated a more sensible way to mop up the excess cash. A mandatory increase of banks’ cash reserve ratio would similarly reduce the credit capacity of the banks at no cost approaching N250bn per annum. Please note that in the budget of 2006 and projections for 2007, no single sub-sector has such a large allocation as N250bn, which the banks now earn for lending back to the government, government’s money!
“If there ever was a signal that something is wrong with our monetary policy framework, it is evident in your allusion to the Abacha era, when even as a pariah nation with only $5bn reserves (4-6 months import cover) our exchange rate remained stable at about N80=$1; compare with our current internationally popular democratic status and foreign reserves at over $40bn (30 months imports cover) and exchange rate of N128.8=$1!! This is simply not the Economics that I learnt at school!!
“I feel your pain about the missed opportunities in the West African Sub Region. I like your analogy of the maze; I think it perfectly depicts our despicable predicament. You may not be aware that currency devaluation is a subtle neocolonialist tool; in fact, it has become a weapon of choice to subjugate our peoples and our economies. Nigeria is also a victim of this neocolonialist weapon, which has effectively replaced muskets and gunboats!
“I will only emphasize in conclusion that we will break the chains of poverty once the CBN stops changing our dollar revenue to naira before sharing. When we adopt dollar certificates for this purpose, we would have taken the first critical step for our emancipation. Only then will interest rates fall to 5-7%; only then will inflation fall to below 5%, only then will the CBN find it unnecessary to maintain a Central Bank control rate MMR of 14%; only then will the naira appreciate so that industrialists, airlines, ship owners can buy new machinery and fleet instead of secondhand, overhauled, refurbished models. Only then will Nigeria’s brain and brain drain cease and only then will our children have a viable future and only then will there be real hope for all people of African descent everywhere in the world.
“Thank you, Sir, for your interest in our column, Rational Perspectives. You may want to evaluate the paper titled: "A LIBERALIZED FOREIGN EXCHANGE MARKET: a proposal for a liberalized foreign exchange market in Nigeria and its economic benefits"; you will find it at www.betternaijanow.com. Otherwise, I will be glad to provide you with a copy of this 36-page document, if you live in Lagos and you indicate a forwarding address. Thank you and God bless.
LES LEBA” SAVE THE NAIRA, SAVE NIGERIANS!