The men and women of the Central Bank of Nigeria (CBN) rose from a meeting of its Monetary Policy Committee (MPC) last week with a 200 basis point reduction in the Monetary Policy Rate (MPR). The MPR is the benchmark interest rate that determines the direction of all other interest rates in the economy. The poor souls in the CBN must be having a hard time dealing with our collective failure. This rate cut is one more action whose efficacy is so doubtful and uncertain, even to the members of the MPC, but which must be taken, perhaps, for some non-economic reasons.
The objective of every economic stimulus, of which a reduction in the benchmark interest rate is a vital component, is to stimulate aggregate demand and boost economic activity. Usually central banks do this when they observe that liquidity is low and economic agents are in need of funds. Central banks are known to have a reservoir of deep economic information on their countries. As bankers to both the government and the banks, they are in the best position to feel the pulse of the economy. So it would be uncharitable to contemplate that a central bank is unaware of the situation on the economic grounds of any country; certainly not the Central Bank of Nigeria – one of the best in Africa.
Although they mean well for the country and its forever-in-a-conundrum economy, the CBN seems to be struggling too much with this economy and in the process may be compounding its own challenges. I would be pleasantly surprised to know that the Central Bank has conclusively determined that a fall in interest rates is what we need now and that it will significantly stimulate aggregate demand in the Nigerian economy of today.
Sometimes central banks expose themselves to the suspicion of acting more in the domain of politics than economics. At such points, it becomes easy to accuse them of playing politics with the economy. We have no intension of making that allegation just yet. However, the recent reduction in the MPR appears to me an act more in the political realm than the domain of economics. I believe the CBN is aware that what the economy lacks today is not loanable funds; it is economic opportunity for the use of such funds.
First, why do we need to reduce interest rates in an economy? It is simply to raise aggregate demand when it is observed to be low for certain reasons. What is the state of aggregate demand in Nigeria today? It may be very low but we need to ask why. The Nigerian economy as a whole, not just aggregate demand, is in a high reverse gear. We have just successfully completed a six-month period of classic economic revisionism. And the tragedy is that no one seems to be in a hurry to wake up from this orchestrated national slumber.
The concept of Economic Revisionism refers to the theory or practice of revising one’s attitude to a previously accepted policy, conduct, situation or point of view. This term, which has a Marxian origin, has been used to designate activities that represent a reversal of accepted or long-held beliefs or practices.
We have changed many world-acclaimed rules of economic and even political management. We have quarantined the forces of the market by appropriating to ourselves the role of prices, which in normal environments should equilibrate between demand and supply. As a consequence, while petrol has sold for N120 per litre for at least four weeks now in Lagos, we bury our heads in the sand and leave the mass of our huge body outside, paying unwarranted and mostly fraudulent subsidies to renteers, oil thieves and their kindred economic scavengers in the oil sector. President Buhari, with due respect, and his economic team have done absolutely nothing palpable about this. The fleecing of Nigeria continues apace.
We have rewritten the age-old rule, which says that there is no free lunch. Governors that have flagrantly refused to cut their profligate lifestyles have been handed out our collective patrimony to pay their friends and relations masquerading as civil servants without any preconditions. As they prepare for the second tranche of the free funds, there is no iota of seriousness to improve economic management at any level of governance in Nigeria. Despite the finer faces and improved intellectual stature, in my view, of the National Assembly leadership, there is nothing to show that they support the inevitable need to cut the cost of governance in Nigeria.
We have put entrepreneurship in an equally high reverse gear. The lack of economic direction (Perhaps there is a political direction but I am incapable of discerning the route, not being a politician) in the last half year has guaranteed the death of many businesses. And for the avoidance of doubt, the dead and dying include both the big and small enterprises many Nigerians have laboured to build.
In the last quarter of a century we have preached private enterprise. We have cajoled Nigerians to invest in their country because nobody else will do it for them, and to their credit, many have put their money in this country. Today, those who invested in manufacturing can neither import raw materials nor pay their foreign partners. The foreign exchange market has returned wholesale to the ubiquitous illegal roadside racketeering mallams, who alone have the ability to meet the foreign exchange needs of the public. Many companies are warning of the imminence of the closure of their operations in Nigeria.
The truth is that productivity has declined so much that it is better to say that we have stopped production. All the efforts we made to reduce the informal sector are coming to nothing. It is now beginning to look like a crime to run a formal business in Nigeria. There is a massive return to illegality, and all the features of informality, including operating without registration, hiding the business name, avoiding documentation and such. Informality is now the vogue because of poor economic leadership.
While oil thieves and other economic renteers hang around government houses, pay little or no taxes and enjoy the pride of place in important events, entrepreneurs are forced into debt by a failed power reform programme, reckless pursuit of phantom Internally Generated Revenue from people whose businesses have collapsed, and sundry disabling circumstances. Governance is continually looking more and more like a fraud against the people. The year is ended yet no action has been taken against the power sector saboteurs.
To date, nothing new or inspiring has happened in the anti-corruption war. In my last article I reminded the president, most respectfully, of his statement that we either kill corruption or it will kill us. To me, that was the winning line for the Buhari-Osinbajo ticket. But today it looks like corruption will survive this presidency. As usual, every arrest ends in a discharge and then silence and then nothing.
Unlike Bloomberg and those who think President Buhari has no capacity to run Nigeria, I am yet to come to that conclusion. I believe the president is struggling with some big animals, perhaps a compound of vested interest and corruption, which want to gain upper hand. His response to this will determine the veracity of the Bloomberg statement. Meanwhile, the wide implications of the Bloomberg comments should not be lost on Nigeria.
Emeka Osuji
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
