When doctors apply therapy to an ailment but the patient does not get better, it is either the disease is not accurately diagnosed, or the right treatment is not being applied. The Nigerian economy has defied all solutions and has refused to grow so what is it? – wrong diagnosis or wrong treatment or a combination of both? Nigeria has had experienced economic managers like Dr Ngozi Okonjo-Iweala (who is currently managing global trade as the Director General of the World Trade Organisation) run the economy as minister of finance and coordinating minister of the economy for a combined period of 7 years without recording double digit economic growth. Nigeria has also had development plans such as Structural Adjustment Programme (SAP), Vision 2010, Vision 20:20:20, 7-Point Agenda etc without visible results. Nigeria has also instituted medium term planning strategies such as the medium-term expenditure framework (MTEF), but the economy is not responding to the implementation.
With unemployment at over 33%, youth unemployment at nearly 50%, inflation at over 18%, the Naira weakened to nearly N500 to a US dollar, it is evident that these development plans have largely being unsuccessful, and this is down to the so many kneels placed on the neck of Nigeria’s economy. In this article we will identify some of the factors where the diagnosis is missed or where the wrong therapy is being applied. The basis for appraisal will be the outcome of the 163 meeting of the Monetary Policy Committee (MPC) which was held in May 2021.
1. MPC OUTCOME: Notwithstanding that all these have helped in boosting output, the Bank should continue to aggressively increase its interventions in these subsectors, including agricultural processing and manufacturing.
Commentary: The MPC has taken its eyes off the elephant in the room which is the main driver of the economy in the industrial/information age – ELECTRICITY! The MPC fails to recognise that Nigeria’s economy needs 200GW of electricity but is currently being supplied with only 4GW. Agricultural processing and manufacturing will not experience growth without sufficient electricity supply no matter how much support the MPC provides. Agricultural post-harvest losses will continue to erode value as the economy groans under the weight of severe power deficit. The power sector must be fully privatised to allow investors to quickly increase power output to a minimum of 100GW within the next 5 years if Nigeria hopes to stimulate output and sustain growth of the economy as planned by the MPC.
2. MPC OUTCOME: It also recognized that measures put in place to stimulate output growth through the use of its intervention facilities to inject liquidity into employment generating and output stimulating initiatives like the Anchor Borrower Program, Targeted Credit Facility and Agri-Business Small and Medium Enterprise Investment Scheme (AGSMEIS) had started to yield results.
Commentary: With the rising state of insecurity in Nigeria, the success of this policy will be curtailed as farmers and micro, small and medium enterprises (MSMEs) cannot thrive. Government must tackle insecurity to create the enabling environment for the MPC policy directions to achieve the desired outcomes.
3. MPC OUTCOME: In the Committee’s view, such measures should include boosting consumption and investments, as well as diversifying the base of the economy through FX restrictions for the importation of goods and food products that can be produced in Nigeria.
Commentary: The policy direction by the MPC to restrict the supply of foreign exchange for the importation of goods and services which are available in Nigeria is contravened by the CBN policy of draining foreign reserves to issue FX to holiday makers (PTA), business travellers (BTA), school fees, medical fees etc.
All these services are available in Nigeria and those consuming them are more than capable of fulfilling their FX needs from the parallel market if they decide to patronise foreign providers! It is therefore unclear why the CBN is working at variance with the MPC policy direction by playing Father Christmas with Nigeria’s foreign reserves. The CBN should stop the issuance of FX to all users who import goods and services to encourage local production and tame inflation as prescribed by the MPC.
4. MPC OUTCOME: Committee further recognized that the strategies put in place to rein in inflation through the use of series of administrative measures by the Bank to control money supply through liquidity mop up in the banking industry had started to yield results.
Commentary: On the one hand the MPC prescribes mopping up excess liquidity to control inflation but at same time the CBN conceded that they are printing money to fund the FG budget thus injecting money into a hyper-inflationary economy! These two policies are counterproductive, and it is yet unclear what the MPC and the CBN seek to achieve with two policies that are in the boxing ring with each other. The CBN must stop printing money to enable the excess liquidity mop-up measures to be effective.
5. MPC OUTCOME: Under the National Mass Metering program, N35.9 billion has been disbursed to 9 DisCos for the acquisition of 656,752 electricity meters. Under the Nigerian Electricity Stabilization Facility 2 (NEMSF-2), N93.8 billion has also been disbursed to 11 DisCos.
Commentary: When Government gets privatisation right as it happened in the telecoms sector, the investors unlock value by investing in the sector, provide services and bill customers. The telecoms companies have to date invested over $70 billion in Nigeria to build infrastructure and provide telecoms services to subscribers. The privatisation of the power sector however was flawed because unlike the telecoms the licences were not issued to established power sector players with global capital, expertise and technology at their reach to upgrade and expand the distribution networks! The CBN is now making grants to the DisCos which if professionally managed should be generating trillions in revenue and paying taxes into the coffers of Government and not constitute drainpipes on Government’s revenues. The privatisation of the power sector needs to be revisited urgently so that the entire power value chain – generation, transmission and distribution – are fully privatised to established power sector players with regional/global pedigree if the Nigerian economy is to experience the growth envisaged by the MPC!
6. MPC OUTCOME: The MPC voted to retain the MPR at 11.5 per cent.
Commentary: MPR is Monetary Policy Rate which is the rate the CBN lends to commercial banks. The higher the MPR, the higher the interest rate charged by banks on the loans they lend to the economy. The MPC objectives to boost output, diversify the economy, curtail importation etc are directly contravened with a double digit MPR retained by the CBN. For an economy to experience growth, credit must be readily available and cheap. The Bank of England base rate is currently 0.1%. The Federal Reserve Fund Rate is currently 0.25%. Whilst the dynamics of the UK and US economies are different from Nigeria’s, no economy can grow with double digit interest rates to economy. Additionally, banks in Nigeria pay as low as 1% on savings and turn around to charge over 20% on loans granted from these savings thus creating a huge margin which is inimical to economic growth. The CBN needs to take urgent steps to cut the MPR to no more than 5% to stimulate cheap credit to the economy. Additionally, the CBN needs to implement lending policies such that banks cannot charge interest on loans at more than specified basis points above the interest paid on savings. E.g. if the CBN specifies a 5-basis point margin, a bank that pays 1% interest on savings will only be able to charge a maximum of 6% on loans to the productive sector of the economy.
CONCLUSION: For Nigeria’s economy to experience growth, there needs to be complementarity between Government macro and micro economic policies, alignment between Government institutions and actors, strong political will, full privatisation of key economic drivers such as power with Government retaining regulatory oversight, stoppage of forex allocations for the importation of goods and services produced in-country, reduction in the lending rates and more efficient allocation of resources. The MPC policy directives and the actions of the CBN are mostly at variance and counter-productive and this must be addressed to ensure the benefits of the policy directives are felt and the quality and standard of living of Nigerians is positively impacted.