Business
Fiscal authorities largely responsible for Nigeria’s economic woes – Chizea
Economist and business development consultant, Dr Boniface Chizea, in this interview with Okey Onyenweaku and Emeka Ejere, argues that Nigeria needs serious fiscal and monetary re-alignments, among other policy adjustments to come out of the current economic quagmire.
Excerpts:
Nigeria is faced with two main problems – forex crisis and fuel price crisis. What is the way out?
I think Nigeria is faced with many more problems than that, but what you highlighted are the key problems. You have problems with banditry, insecurity; you have problems with not being able to formulate the budgets and implement them; you’ve not appointed people properly in positions; you’ve problem of corruption.
But when you’re talking of what has brought us to where we are today, then you’re talking of removal of subsidy and exchange rate. Those are the problems. And then it is scary the way we’re going about trying to tackle these problems. It is not the right approach. These are stupid decisions. Yes, in Nigeria we have issues with subsidy. It has been there for a long time. We have issues with exchange rate; it has been there for a long time. There is nothing in trying to manage these things we’ve not tried.
Anything you do beside the fact that you must be productive, you must earn the dollars, you’re peppering at the surface. That’s the fact. And so, we continued to do that and then you come; you have the issues on ground and you said you want to remove the subsidy and float the naira. That‘s the most stupid thing to do. You don’t do that.
When these things were happening I did some writings and I said to them, yes, there’s problem with subsidy; there’s embedded corruption in the subsidy process. People were taking advantage of the subsidy to take the product across the borders. So, the subsidy you were trying to do within the economy was being taken elsewhere. We have all these problems. But if you remove subsidy the way we did it, that’s one of the things that can make inflation escalate in Nigeria and, in fact, in any environment. Because once you did that, the effect it has will run completely through the entire system.
At that time we kept on shouting that we have Dangote Refinery, it was like a low-hanging fruit. What Tinubu and Co should have done when they came in was to have put all efforts, focus on that to remove whatever obstacles it was encountering. But of course, what is coming out now is conflict of interest. That’s exactly what is coming out. That’s why all the refineries we have in this country are not producing. And we’re spending so much money on recurrent expenditure – paying salaries, paying all sorts of things, and we’re not producing.
These policy steps have triggered inflation, which is not likely to abate anytime soon and the fact that the CBN has been raising monetary policy rate. What is actually happening?
You know, when you’re in a dilemma, the only weapon the central bank has is to raise interest rate. That’s the only weapon. If you look at monetary policy institutions overseas, they don’t have all these cash reserve ratio, liquidity ratio, and this and that, which we have here. The only instrument they have is interest rate. And like you rightly said, interest rate is a factor cost. It means that if you’re a business person and you go to borrow money, and the interest rate goes up, it’s going to cost you more to borrow. And it will impact the cost of the business you’re doing. And you will want to recoup. And for you to recoup, it means you have to hike your prices. Of course, it will be dependent on the price elasticity of demand.
So, the CBN doesn’t have options. What it is trying to do is to attract portfolio investors. Since we’re not as attractive, we’re not a beautiful bride, they’re trying to hike the thing so speculators, who have hot money and looking for where to put it will bring the money. But that money is not money, it’s not patient money. It’s not money that will come and you put in stocks. That is what they’re trying to do. Their core mandate is price stability, and price stability is about exchange rate. But overall, price stability should be inflation, because that’s what measures the rate of change, increase in price in an economy. So, they (CBN) should be concerned about it.
They’ve increased the rate six to seven times. Most people did not think that this last one was going to be made. They thought that it might be a hold decision. But now that it has been done, we’re asking, where is that one getting us to? I think I read in the papers that in the President’s Independent broadcast, he said we have about $37 billion foreign reserves. But look at that money, how much of it is deliberate? How much of that money did we borrow and put into the reserves? You borrow the money and put it in the reserves, and you celebrate the fact that you have this amount there, and people see it and take it as something good. That money in your reserves gives some level of confidence in trying to deal with you. But some of these people (potential foreign investors), they know much more than most of us know.
Do you think the fiscal authority is helping enough?
Fiscal authority is confused. They caused all this problem, in the sense that even in trying to float the exchange rate, I know that if Tinubu said no to Cardoso, he would not do it. It’s not anything new, we’ve tried it several times and it has failed. We’ve been trying it calling it all sorts of names, and we’ve not tried anything new.
If we’re saying we have inflation, to what extent does their own policy thrust align with or show some sensitivity to the fact that we’re trying to manage inflation? They’re not doing it.
Look at the deficits. One of the things they (fiscal authorities) should do if you’re trying to manage inflation is to reduce deficit. Because deficit shows that you’re borrowing money, and good house-keeping is that you’re keeping close to your money. So, we’re in a mess. What is happening is that you can’t see any direction.
Okay, you have inflation, and then you’re trying to do tariff rate, and then you’re floating the naira. And each time it goes up you go to the tariff and you hike it just because you’re measuring the rate when the thing is in naira. You shouldn’t be doing that. And you see it in many areas. You see that the naira has fallen in the market, and then you go to Customs and tell them to increase the tariff; what are you doing? You’re looking for more naira.
You’re trying to pretend that you’re doing good house-keeping. And you look at so many things – you look at electricity, now you have Band A, Band B and so on. Businesses have closed because of that singular measure. Some businesses cannot cope. Suddenly you find out that you’re paying a bill of about N500,000, some even up to N5 million. Even at individual level, people are complaining – those who’re on Band A properly. You do N50, 000, before 10 days the thing is gone.
So, if you’re saying you want to manage inflation, there is no substitute to boosting productivity. So, you have to, for instance, focus on bandits and insecurity in general. With the massive land expanse that we have, we can feed most places in the world. If you go to Niger, Zamfara for instance, look at the land sphere they have that is available for us to cultivate. We also have the Benue basin, which is supposed to be the food basket of the nation. So, produce food. Why should we have food inflation.
Central bank is supposed to enjoy a level of independence. So, why are we not seeing the central bank governors disagree with politicians in this part of the world or even ready to resign than do what they know is not the right thing?
It’s a reflection of our level of development. There’s no two ways about that. You have to know that when you talk of independence – independence of central bank, independence of judiciary and so on, what does it mean? You look at the way we appoint the governor of central bank, for instance, does it come to an independent election process? That is the question you have to ask yourself.
The President just decides, sometimes without any consultation. And he thinks of someone who may be a bit docile and liable, and then, he appoints the person. But if we do it the way it should be done properly, if we want to appoint the central bank governor, let’s advertise it – Nigerians in the Diaspora, Nigerians that are here, Nigerian that are in the universities, let them apply. Let us set up a body to interview them. And then let’s shortlist from those we interviewed three candidates, and send the three, not to the President, but to the National Council of State – the President will be there; the governors will be there and so on. And let the Council of State decide and come down to one, and then send to the National Assembly for approval.
Then you begin to have a procedure where you hire someone that will have a name, someone who can tell you if you don’t do this I will go. What we’re doing now is that the President puts you there. While he’s putting you there, you’re beholding to him. And you know in Nigeria, the President can just wake up and fire the governor of central bank, despite the fact that he’s not allowed by law to do that. For him to do that, he’s supposed to have concurrence of maybe two thirds (I don’t know the actual number), of the National Assembly.
After listening to the President’s Independence broadcast, is there anything that gives you some form of hope that something serious is being done to address any of the serious economic issues that we have today?
Well, he has said so many things; he has given us figures like I said earlier on. He told us about the balance on our foreign reserve and so on and things he has done. And he assured us that he knows we’re suffering, and that they’re trying to do this or that for us to have some relief. But, like I said earlier on, we need concrete actions.
The only new thing he said there is that there is going to be a summit of the youth for, I think, about 30 days. They will come and talk, and so on. And that’s just a strategy to get them talking, get them busy and feel that he’s doing something. Meanwhile, for the End-Bad-Governance protest, some people are still being held. And people are asking what sort of democracy is this? So, what they’re saying in effect is that protest is an allowed aspect of democracy. But the government criminalized it. That shouldn’t be the case.
