Restoring growth to the Nigerian economy will only be a mirage or undermined if policies become barriers and not enablers.
In the last six years, experts and analysts have called for a synchronisation in economic policies by the monetary and fiscal authority. However, the narrative has been a case of the Central Bank of Nigeria (CBN) stepping into the fiscal space while neglecting its core responsibilities to the Nigerian economy.
We have seen the CBN use unorthodox policies to drive down the cost of borrowing for the federal government, rendering investment in the fixed income space unattractive for the general public and PFAs most especially.
Also, fuelling the quest to stimulate local production of goods and achieve diversification, the CBN has also resulted in restricting FX access on food imports. It also firmly supported the federal government’s move to close the land borders. This has affected the economy.
Nigeria’s inflation rate accelerated to 13.22 percent in August, highest in 29 months according to an inflation report by the National Bureau of Statistics (NBS). In simple terms, it reveals how much the policies of both the CBN and the FG is eroding the purchasing power of Nigerians in an economy suffering from economic contraction amid rising population, declining income and rising unemployment rate.
Outlook for the inflation movement in coming months is bleaker given the recent move of the FG on food imports. Just like the position of the CBN in August 2019 that the President’s comments – to stop providing foreign exchange for food imports – were consistent with the Bank’s foreign exchange (FX) policies since 2015, it is most likely that Buhari’s orders to the CBN not to give a kobo for food, fertilizers imports last week Thursday, will receive a nod.
Once again, the CBN will keep prioritising its objective to manage dollars given its obsession with naira above its most important and core responsibility of maintaining price stability in the economy. The actions of our policy makers aren’t only hurting households who are yet to recover from the brunt of the COVID-19 pandemic but will undermine potential benefits from reforms in the power and petroleum sectors of the economy.
The CBN’s FX policy is hurting investment appetite in naira assets as foreign investors take caution for now. With inflation at 13.22 percent, yields on 1-year bond at 2.55 percent and heightened risk of policy inconsistency, Nigeria will have to offer a higher risk premium.
Also, following the government’s renewed push for reforms; we should normally see the Nigerian stock market respond positively, however, this isn’t the situation given the CBN’s stance not to undertake FX reforms.
For an administration that claims to take the welfare of Nigerians seriously, it is rather unacceptable that the results of policies are at variance with their objectives. It means only either these policies are myopic or they entirely lack the interest of the general public.
The moves for reforms in two key sectors of the economy are commendable efforts from the federal government. Although households have to pay more for petrol and electricity now, the long term gain is worth the current pain.
However, factors such as Nigeria’s unfriendly foreign exchange policy and closure of the land borders will only worsen the pains of Nigerians and may render a mirage intended gains from the FG’s bold reforms.
To alleviate the suffering of Nigerians, we suggest that the CBN must focus primarily on its core responsibility to stabilise prices in the economy. Rice, a staple dish in every household, now cost at least N26,000, accounting for at least 87 percent of N30,000 minimum wage of an average working class Nigerian.
We also suggest a reopening of the land borders and a relaxation of FX restriction orders while the CBN carries out necessary reforms in the FX market. Building and stimulating domestic production in Nigeria doesn’t necessarily have to take the protectionism route.
There are fundamental infrastructural challenges like lack of power, good roads etc. that are affecting the local industry. Fix it! This will boost the capacity of local producers to compete favourably with foreign products and gradually see consumers shift focus to locally produced goods and reduce demand pressure on dollars.
There is no justification to repeat the route of interventions in boosting local production when the answer lies in allowing a free market economy just as the FG recently permitted in the petrol and power sectors of the economy.
