The discussion of the nation’s economy
is nearly always done in jargon that goes completely over the heads of
most Nigerians including unfortunately, its political leadership. The
proliferation of terminologies such as “stagflation”, “cost-push
inflation” and “recession” in the current discussion of the economic
hardship being suffered by Nigerians is no exception. The Minister of
Budget and National Planning, Udoma Udo-Udoma, the Minister of Finance,
Kemi Adeosun, and the Governor of the Central Bank of Nigeria, Godwin
Emefiele, may know what they mean by these terms. Some of the solutions
they are proposing may even have some merit, but they fail to address
the fundamental iniquity of the Nigerian economy, namely that most of
the citizens and small businesses of this country are being denied
access to bank loans. If this is not corrected, no amount of economic
jargons or palliative measures will produce any lasting cure for an
injustice that has become chronic.
There seems to be an unholy codependent
collusion between Nigeria’s commercial banks and the principal consumers
of their bank loans, specifically our governments. The CBN Governor
recently articulated how this unholy alliance operates:
“And I will give you an example. Is it
fair that the government allows ministries and agencies to release its
money to the banks and those banks do not pay any interest to the
government? At best they pay one or two per cent but at the same time
when government wants to borrow by selling Treasury bills, government
goes back to these banks and these banks use the liquidity that the
government gave through ministries and pass back to the Federal
Government at 12, 13 or 14 per cent.”
Of course, this did not begin with the
Buhari administration. In fact, it is the government that has been
courageous enough to impose the Treasury Single Account in an attempt to
check the abuse. Although it is clear that the collusion between
commercial banks and Nigeria’s government has perennially starved the
economy of investment and consumer loans, previous administrations have
looked the other way. It is no wonder that banks would rather lend to
an apparently very dumb government at the expense of the Nigerian
economy.
Over the years, the over-reliance of our
commercial banks on government’s deposits and borrowing has tended to
limit – if not completely crowd out – any appetite on the part of
commercial banks for consumption and investment loans to most citizens.
The banks could not care less about extending such loans to Nigerians
because the profits and safety of high-yielding government debts are so
much more attractive. And different administrations in Nigeria, all the
way up to the Jonathan era and beyond, have pretended and continue to
pretend that this unstated collusion against the real economy does not
exist. But it does.
It involves denying many businesses and
consumers credit through a liquidity squeeze that is marked by rates of
interest that are almost perpetually high. Instead, the banks provide
money to the government to use, steal or waste by stacking cash into
Treasury bills at dumbfoundingly high yields that make many bankers
millionaires and billionaires without breaking a commensurate sweat.
Under this profane symbiosis, the banks and the government win. The
economy and the people lose.
This connivance between government and
commercial banks can single-handedly shrink economic growth and may have
contributed to Nigeria’s negative growth over the past two consecutive
quarters (current recession) and the high unemployment that we continue
to suffer. Small businesses are the major victims of high interest
rates, yet the world over; small businesses are recognised as the main
key to job creation.
That’s why the Minister of Finance was
right to make her recent distress call for the reduction of interest
rates. Such a reduction would encourage consumers to borrow money from
banks with which to buy goods and services from businesses. That is
what obtains in a normal economy that has not been booby-trapped by what
I hereby christen “GABIA”: Government and Bankers Iniquitous Alliance.
Increasing economic growth and
employment of citizens is certainly part of the macroeconomic objectives
of the Buhari administration, but it is one that can only be achieved
when there is money in the pockets of citizens to buy the things they
need. That is why the minister had to call for interest rate reduction,
but if there is any doubt about the extent to which GABIA is
entrenched, it should be erased by the lukewarm – and even dismissive –
response to her call by some pundits, a situation which points to a
certain affection for GABIA.
It is true that the increasing levels of
inflation in this period of recession have further complicated a
situation for which the textbook response is to raise rather than lower
interest rates. Many analysts tend to parrot this as the only possible
response to our present situation.
But suppose we step out of the box to
ask whether our present condition really is in that same text book? And
whether what we are facing is cost-push inflation – as the
administration claims, or inflation caused by increases in money as the
data seems to suggest? A bit of economic theorisation is in order.
Some economists have argued for donkey’s
years that most rises in prices are due to rapid increases in money
supply. In fact, the CBN’s own analysis confirms that this is the case
in Nigeria. Only last year, an empirical, rigorous and non-evangelical
CBN Working Paper entitled, “Monetary Growth and Inflation Dynamics in
Nigeria”, confirmed a direct relationship between the growth in money
supply and inflation in Nigeria. This suggests that inflation can be
managed through the manipulation of money supply, meaning that the
inordinate fear that we are in a killer stagflation (a combination of
recession and inflation) is tenuous at best.
The truth is that our recession will not
last for long because its underlying causes (including the impact of
devaluation on raw material costs, and low receipts from crude oil
sales) may in fact be temporary. The International Monetary Fund has
recently confirmed as much. In its October 2016 World Economic Outlook,
it forecast that the current recession in Nigeria will end in 2017, as
the economy will grow by 0.6 per cent that year. Well, 2017 is just
around the corner. This is why I call our much hyped stagflation – baby
stagflation, to stress the point that it does not deserve the irksome
hubbub that has consumed public commentaries.
Given that many of our citizens are in
the grip of recession-induced suffering, any administration worth its
salt must do whatever it takes to give them some immediate relief. That
is where the Minister of Finance seems to be coming from, and she has
my full support.
Sometimes, a government has to intervene
subtly – but resolutely – in the free market to protect infant
industries, domestic producers, the security sector, and generally, the
health and well-being of its citizens and economy. In Nigeria, the time
for such an intervention is now. Suggesting that the interest rate be
lowered is a good place to start in the fight against recession. I
therefore identify with the finance minister, with the caveat that GABIA
must be caged and, hopefully, stopped.
- Prof. Onwudiwe wrote this piece from Abuja
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