Published On: Sun, Mar 4th, 2018

CBN’s magic wand has proved effective – Chizea

Dr. Boniface Chizea is the MD/CEO of BIC Consultancy Services. He is a renowned economist and former banker who has deep knowledge of the political and economic dynamics of the country. In this interview with Felix Oloyede, Chizea believes that the CBN has proved to be effective in managing our financial system.

Dr. Boniface Chizea

To what extend do you think political activities would impact the foreign exchange market this year as politicians are notable for spending a lot of FX during elections as seen during the run-up to 2015 general elections?

There is no doubt that the run up to the 2019 elections would witness lots of money exchanging hands as politicians try to influence the voters or crudely attempt to buy votes. This slur on electioneering practice in our environment is a sore reflection of the level of sophistication we have attained and to that extent the level of development of the Nigerian economy whereby voters could be swayed by such mundane fleeting considerations to do throw away votes. It is not conceivable for that to happen in a more advanced environment. The vote is so important because it is the only effective weapon based on which voters could speak forcefully and send potent messages as they read the score card to politicians to make them realize and appreciate the importance of accountability. A situation whereby the whole motivation to attaining political office is self-aggrandizement is simply not acceptable and we would not be able to effect a change in mind set and thereby underwrite prompt and robust growth and development of the national economy if this prevalent attitude should persist.

Despite the recession the economy experienced resulting in reduced velocity of money in circulation and in spite of the fight against corruption there is substantial liquidity in the hands of politicians to spend as they attempt to buy votes. Therefore the authorities particularly the monetary should gird their loins to counter this threatening scenario.  But voters are hungry and angry and therefore amenable to being influenced by ad hoc provision of ‘’stomach infrastructure’’. And the practice is that for big ticket payment to influence political overlords that because of the humongous amount of monies involved payment by Naira could be cumbersome, therefore there is resort to moving such slush funds in dollars for ease of laundering. When that happens there is the inevitable demand pressure on dollar liquidity at the official window which could impact the rate of exchange. But the reality of the foreign exchange market situation is that the informal market is awash in volumes of dollar liquidity the depth of which may not be fathomed by most compatriots therefore most of these funds will not be from the official foreign exchange market.

In fact considering the level and extent of controls at the official market it is not conceivable that any significant amount of such monies could be sourced from the official market. But the obvious downside is the negative effect it would have for the level of excess liquidity in the economy which is problematic from the consideration of macroeconomic stability particularly price stability. And as the fiscal authorities have served notice of impending upward adjustment to the minimum wage slated to come into effect at the end of the third quarter of this year, which in itself is bound to account for a significant injection of liquidity into the economy and consequent effect for inflation, the value of the currency will be affected. Therefore the monetary authorities would have been prepared as this scenario would surely have their work cut out for them.

Of what economic value is the Council of States’ decision to invest $1 billion in agriculture, especially livestock as a way of putting an end to the herdsmen/farmers clash?

The fact of ad hoc allocation of monies to sectors of the economy must be decried. We have a budget 2018 which as we discuss is currently suffering from lack of requisite attention wherein we have attempted to agree a template for driving economic activities for the year including agriculture. What is also worrisome is sometimes such fund allocations might not be effectively deployed as we are not aware that this vote is tied to any specific endeavours. And the logic that this allocation is made for livestock to put an end to herdsmen/farmers clash is spurious. The herdsmen would still look for market for their herds and therefore would still migrate down south to sell their cows and come to think of it what time lag will it take to rear cattle for that to have any impact or for that matter; is the Nigerian state going to be saddled with the task of rearing cattle for consumption? If this vote is to construct ranches as has been widely canvassed it might make some sense even if it could be argued that cattle rearing is private sector endeavour and should therefore be pursued under such consideration. Well if government intends to develop the ranches to be hired to herdsmen that could be some consideration, put where do we find the capacity to recoup the cost of such investment? And therefore at best this decision remains suspect?

Nigeria’s debt profile has risen over 60 per cent in the last three years. The government argued that our debt-GDP ratio accommodates these massive borrowings. What is your take on this? When the country found itself in a recession, I was one of those who canvassed for the need for us to spend ourselves out of it through fiscal measures of budget deficit and massive borrowing. And therefore the fact of the massive borrowing in itself is not the problem. What could be problematic is to what extent such borrowings have been effective? It is also appropriate to observe that not all countries in dire straits and therefore with the urgent need to borrow are able to do so. But Nigeria has good credit rating which must not be taken for granted. However, what is worrisome for me is that with the rapidity of such debt accumulation also considering the diversity of the sources of such borrowings one is a bit concerned that sufficient coordination might not have been made to ensure that such debts are purposefully utilised. If that is the case we might be getting back to debt overhandg of not too long ago which constrained economic activities in our economy.

Government has decided to aggressively pursue tax through VAIDS and other policies at this time when the economy is still fragile. Do you think this is the proper thing to do?

The reality is that the country’s tax/GDP ratio at 6 per cent is about the lowest in the sub-region. And this is because of revenue inflow from oil. But spending revenue from oil wasting asset on consumption does massive injustice to the upcoming generation and therefore results to inter generation inequity. Such assets should be used to argument available infrastructure and build requisite institutions to make the environment investor friendly. The revenue from tax should as a matter of fact take care of recurrent expenditure which is not the case now.

And as the fiscal authorities work on improving the economy this area is certainly deserving of focused attention as it is currently being witnessed. Same experience with Customs tariffs whereby has been reported there is massive increase in revenue and therefore there is no better time to take such decisions that would commence the process of correcting structural deficiencies in the economy. What the authorities have to do is to provide palliatives such as the planned wage increase to mitigate somewhat the effect of such measures and to ensure that emphasis is focused on broadening the tax net instead of simply hiking the tax rate.

What is your rating of the CBN since the Buhari regime?

The Central Bank as it were has gone through the crucible! When the recession was on and massive instability was witnessed at the foreign exchange market there was panic in the land as the neck of the Governor was on the cutting block. He was called all kinds of names with the label of directionless and incompetence liberally ascribed. But right now the jury has passed its judgment. There is stability at the foreign exchange market albeit at a depreciated rate. Some of the measures the Central Bank introduced such as the Investor/Importer window have accounted for massive inflow of dollar liquidity for particularly portfolio investment and Reserves stand at a level which they had not attained from the inception of this government. And the awards are tumbling in. Just this past weekend the Governor received two awards from Silver Bird Television and Sun newspapers in addition to many other awards he has received since the exit from recession. They say that nothing succeeds like success and that success has many fathers. The current position which the Central Bank occupies provides accurate testaments to such observations.

What do you think the government should do to tackle unemployment?

Unemployment is a big albatross around the neck of this country. The rate at which able bodied young men are joining the unemployment market is worrisome and a veritable keg of gun powder waiting to explode on our face if we are not proactive about it. The government is sure mindful of this observation and has embarked on all manner of palliatives to create emergency employment opportunities; the latest is the N-Power project through which graduates register and are paid a token of thirty thousand naira a month as stipend. But what would be sustainable is growing the economy. Projections of GDP growth of three per cent while our neighbouring country Ghana has managed growth of nine per cent is inadequate particularly considering the fact that the rate of population growth in the economy is about three per cent and therefore under the present growth scenario there is certainly no development. We must deliberately grow this economy massively by attempting concerted efforts at implementing policies. When, for instance, is Budget 2018 going to be approved ready for implementation? And when would the capital projects included in the budget be implemented to facilitate badly needed growth? That is the trillion naira question.

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