Aliko Dangote and his worries over high interest rates

Alhaji Dangote’s activist stance on the need for lower interest rates to attract investments and create jobs is a rallying cry for urgent and pragmatic government intervention in Nigeria’s current dire economic situation.

Although Dangote’s argument is rooted partly in Reaganomics – a supply-side theory favouring lower corporate taxes and interest rates, his youth unemployment prognosis meets the bull’s eye.

Strangely, Youth unemployment and widespread poverty, which have grown into a national crisis, continue to escape the priorities of the political elite. As Dangote alludes, a failure to address these critical macroeconomic conditions that stifle business growth will trigger further job losses, resulting in hopelessness.

In the last decade, poor economic choices and corruption decimated average per capita income, halved national GDP, worsened unemployment, and plunged over 20 million Nigerians into poverty. It gets even worse. Food inflation has worsened, leaving nearly 60 million people on the brink of starvation. At least, 14 multinationals have exited the country, and about 767 local manufacturing companies have shut down operations, according to the Manufacturing Association of Nigeria (MAN).

The trend is evident, and the outcomes are predictable. If the current macroeconomic conditions persist, Nigeria might be heading towards another lost decade with a potential for massive social unrest.

Hence, the country’s political leadership must stop the unnecessary fiddling and halt the nation’s accelerated descent into anarchy.

Thankfully, Dangote’s comments offer both a barometer and a guiding compass. A barometer because he echoes the sentiments of critical actors in the private sector and a guiding compass because he proposes a gamut of policies that should, at the very least, spark a public debate.

While Dangote’s criticism of high interest rates is valid, monetary policy, as Aloysius Uche Ordu recently argued, “ought not to be the only game in town for the express purpose of stabilising Nigeria’s macroeconomy. An activist fiscal policy stance is urgently needed to bring inflation down quickly and painlessly.”

It is the absence of complementary policies on the fiscal side that continue to wipe out the meagre monetary policy gains.

The harsh reality is that Nigeria competes for investment capital with countries like Egypt, Ghana, and Kenya. If the CBN relaxes interest rates, Nigeria will lose portfolio investments to Egypt and Ghana and will be hit by a devaluation crisis that would push inflation to unbearable limits. Therefore, while it is important to keep Mr. Cardoso on his toes, it is even more pertinent to awaken the ministers of Finance, Agriculture, and Trade, all of whom appear to be asleep at the switch.

Professor Murtala Sagagi, a member of the Monetary Policy Committee, frames the issue succinctly when he argued that, “The efficacy of monetary policy tightening, a global best practice of taming inflationary pressure, largely depends on government’s reform agenda anchored around reducing market distortions, stimulating inclusive economic growth and fostering innovation.”