Monday, June 25, 2012

Nigerian Growth Without Development: Economic Crisis Persists

It’s the Nigerian economy…so so! .

Monday, 25 June 2012 00:00 By Ade Ogidan (Business Editor), Bukky Olajide and Femi Adekoya News
Nigerian Guardian

ALTHOUGH the Nigerian economy has not been out of the woods since the 1980s, it’s present state is even more precarious. While the Federal Government paints a picture of an economic boom with a Gross Domestic Product (GDP) yearly growth rate of seven per cent, the reality is that the economy is in a shambles.

Whether it is Boko Haram, kidnapping, armed robbery, corruption, poverty, poor infrastructure and any other vice, the root cause is the same: It is the economy…period.

The phrase: It is the economy…stupid, was first used by James Carville, the campaign strategist for Bill Clinton, in the build-up to the 1992 United States (U.S.) presidential election, to capture the depression in which the American economy was.

While in the American situation then, it was plausible to say stupid, in the Nigerian scenario today, one can only say So So!.

And at the weekend, the government and its National Economic Team received knocks from experts who argued that the managers of the economy were clueless on how to transform the nation’s economy.

Commentators on the systemic failure of the economy at the weekend queried the credentials of the managers of the economy, who they accused of lack of focus, alienation from the people, poor decision-making, whether monetary or fiscal, and poor responses to grievances expressed by Nigerians.

The 24-man Economic Management Team is led by President Goodluck Jonathan with Dr. Ngozi Okonjo-Iweala as the Co-ordinating Minister for the Economy.

Nigerians are more worried that the economic team generously features businessmen, who allegedly feed fat on the economy.

The data below on the state of the economy, which The Guardian obtained at the weekend, would shock anyone, who is interested in the future of the country.

The poverty index in Nigeria is 60 per cent (placing the country 156th out of 187 countries), current exchange rate of the naira to the dollar is N162, foreign reserves below $38 billion while inflation stands at 12.7 per cent from 10.3 per cent level in 2011. The lending rate is 22 per cent, unemployment 37 per cent (over 40 million Nigerians jobless), domestic debt is N5.6 trillion, foreign debt $5.9 billion while allocation to the states from the Federation Account in the first quarter of 2012 was N705.77 billion.

More worrisome to analysts are the business-unfriendly high interest rates, the rising domestic debt profile and phenomenally-parlous state of infrastructure.

Consequently, the analysts and business operators have passed a unanimous verdict: Nigeria’s economy is cascading with concomitant unsavoury consequences on the populace.

Like the proverbial Roman Emperor who was playing the tambourine while the empire was on fire, the economic managers are singing aloud tunes that are discordant with reality on the ground.

Besides, the state of insecurity in the country, being accentuated by the Boko Haram phenomenon and the consequential loss of business opportunities in the North have put strain on the fragile economy.

Significantly, the analysts told The Gaurdian that the continual receding profile of the nation’s industrial estates, which over the years had been accorded lip service, might further compromise the nation’s quest for a diversified economy, planked on a productive base.

But perhaps, of no less significance is the phenomenal corruption within the economic system, being perpetuated by the ruling class and their private sector cohorts.

The Director-General of Lagos Chamber of Commerce and Industry, Muda Yusuf, lamented that “the Nigerian economy presents a curious paradox.”

Yusuf said “the citizens have waited in vain for decades to see the translation of the proverbial huge potential to reality of prosperity for the country and its people. We have seen policies, fiscal and monetary, many with good intents and contents, yet, the impact is not felt.

“Fiscal and monetary policies most often work at cross-purposes and have therefore not adequately impacted the prospects for the economy. The democratic structures and institutions, and the key players in the political space, rather than offer a hope for a solution, have become a part of the problem,” he said.

Chairman of the Association of Plastics Manufacturers in Nigeria, Dr. David V.C. Obi, bemoaned the business-unfriendly monetary and fiscal policies being foisted on the economy by the rulers.

Obi, who is also a long-term serving council member of the Manufacturers Association of Nigeria (MAN), declared that no economy could grow on a sustainable basis under the current interest rate regime, which hovers around 22 to 24 per cent.

He described as anomalous the authorities’ machinations that are propelling the sliding fortunes of the naira in the foreign exchange market, when viewed against the fact that the economy is import-dependent.

“The Economic Management Team is a big disappointment to the nation. The pursuit of a trading economy, with poor productive base, gives no bright prospect for the country.

“I have said it times without number that academic excellence does not make one a good manager of an economy. It is now clear that first class graduates from universities like Harvard in USA may not be relevant to economic issues in the country, more so when such people are not well grounded on socio-economic realities of the economy. Being a good manager of an economy has more to do with the person’s disposition to the welfare of the people and the management of resources to achieve that,” he said.

The Lead Director of Centre for Social Justice, Eze Onyekpere, affirmed that a review of key monetary and fiscal policy indicators reflect discomforting scenario of the nation’s economy.

“The naira is depreciating by the day and currently exchanges for over N160 to the dollar while the growth of foreign reserves has stagnated and is even being diminished.

“Lending rate to the real sector of the economy is also in double digits and indeed in excess of 20 per cent. The real unemployment rate is alarming despite statistics churned out by the National Bureau of Statistics. It should be in the neighbourhood of 50 per cent of the population who are qualified, willing and able to work. The growth statistics is also troubling.

“Essentially, with no concrete and visible human and material development, coupled with a falling naira value in an import dependent economy; it has become extremely hard to believe the growth figures that are in excess of six per cent being churned out by NBS. Indeed, the finance minister recently warned Nigerians of the possibility of deep recession.

“Since money that should have been used for human and infrastructure development is being stolen and frittered away on a daily basis, the bottom is knocked off the implementation of fiscal policy,” he said.

The Managing Director of Lagos-based Marina Business School, Olayinka Odutola, said ample evidence abound that the economic managers are falling short of expectations.

Ikem Isiekwena, reacting on behalf of a group, “1000 Points of Light,” lamented the mortgaging of the future of younger Nigerians.

He said: “That majority of Nigerians are disillusioned and despondent is not state secret. That many generations to come will suffer anguish is a source of collective shame. That the two phenomena are somehow linked is the first realisation to be reached about the current state of Nigeria.

“One needs only to look out through the window to see exactly how waste and mediocrity has sustained a generation starved in the circle of poverty of hope, ideals and the basic necessities of life”.

A generation that has no business in the pursuit of a good life can but only worry about daily survival from a short, nasty, and brutish end.

“Our population, in the overwhelming majority, lives on less than a dollar a day. Decaying and obsolete infrastructure left by the colonialists is being replaced with redundant white elephants. The railways built by Lord Lugard and his compatriots have served generations of Nigerians far better than the budgeted trillions we read have been “invested” in our railways by our recent leaders.

“With a crumbling educational system, our children will not compete with their Chinese, Indian, Botswanian or Ghanaian counterparts. A nation with abundant energy resources, yet its people lack power supply.

“In extreme poverty, the ignorant are nurtured in social and religious intolerance - our diversity becomes a brutal burden, and a harvest of distrust, hate and blood. Our resources are a curse to us, yet prosperity for a few. This few, the ruling class, will ensure this blind prosperity is sustained, while the young majority will complain, again and again. But that is today. What of tomorrow?

Exchange rate of naira 162 to the dollar

Foreign reserves less than $38 billion

Inflation rate 12.7 per cent (from 10.3 per cent in 2011)

Lending rate 22 per cent

Unemployment rate 37 per cent

Domestic Debt N5.6 trillion

Allocation to states from Federal

Government in first quarter of 2012 N705.77 billion

Poverty Index 60.9 per cent (156th of 187 countries)

Paradox of growth without development, declining naira value

Wednesday, 20 June 2012 00:00
By Femi Adekoya Business Services
Nigerian Guardian

ONE of the parameters used in assessing the success of any administration is the level of the economic growth attained, vis-à-vis its impact on the citizenry within the period. For those who define development from the economic perspective, assessing Nigeria cannot be an exception.

To some economists, assessing Nigeria’s development efforts has shown that the situation on ground is, however, anything but cheering. To them, successive leaders have propounded several economic policies, some ambitious, others out of tune with reality, yet none has been able to get the country out of the woods. Visionless and corrupt leadership have been the bane of our economic development, they noted.

Nigeria’s underdevelopment has been attributed to be one arising more from poor implementation than lack of development visions and programmes. Policy summersault and development projects abandonment are common.

The worrying concern that successive governments in the country have a penchant for throwing overboard, development plans and projects inherited from their predecessors has continued to manifest and thus impede the rate of development in the country.

About 10 years after the Co-ordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala conceptualised the National Economic Empowerment and Development Strategy (NEEDS) to meet Nigeria’s development needs, reverse is the reality when the present development situation in the country is weighed against the goals of NEEDS.

Specifically, the attainment of macro-economic stability, such as stable inflation, interest and foreign exchange rates, the intensification of the fight against HIV/AIDS, the completion of all abandoned projects, strict budget discipline as well as public sector reforms remains desirable with the timeline for their actualisation being deferred.

If the complaints by the Nigeria Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), Manufacturers Association of Nigeria (MAN) and other stakeholders are anything to go by, experts note that the gloomy picture painted currently of the economy gives little hope of ever meeting the five per cent (GDP) as the capability utilisation has continued to slide.

According to them, if the policy is to make any meaningful impact, certain economic motivating infrastructure must be put in place.

Over the years, the need for political leaders to be sensitised on putting society interest first and committing to development visions and programmes has been emphasised at various forums.

Specifically, there have been calls to sensitise Nigerians on holding political leaders accountable to campaign promises and development programmes. This is because, at the end of the tenure, the nation is often left with no actualisation of the vision and no regrets for the failure, no review and no direction.

According to an analyst, if, and when, a non-performing leader who often aspires to continue in office even after his tenure has expired leaves or “steps aside” or is forced out of office, the successor jettisons some of the visions of the previous leader(s), adds to the list, and repeats the circle of chanting vision slogans for inaction. He may even abandon all the programmes of the previous leaders for his ‘new’ ones, or panel-beat them to feign some air of originality, ingenuity and sagacity.”

To this end, Nigeria’s former Head of State, Dr. Yakubu Gowon attributed the slow pace of development in the nation to lack of continuity of development plans by successive administrations.

To him, if successive governments had not abandoned early development plans, especially the third national development plan of 1975-1980, Nigeria would have been among top developed economies in the world today.

Speaking at the fourth memorial lecture of the Clement Isong Foundation at the weekend, Gowon noted that the development plan put in place during the 1975 to1980 period would have ensured the rapid transformation of the country to a politically and socio-economically strong nation, if successive governments had implemented it.

His words, “in the late 70s, the then CBN Governor, Clement Isong had come to my office to express how it was difficult for him to determine what to do with the excess money the government had earned then. At that time, we had put in place, the third national development plan of 1975-1980, which would have ensured the rapid transformation of Nigeria to a politically and socio-economically strong nation.”

“There was so much to do, but the abandonment of the development plan by successive administrations turned it to a missed opportunity for development. What was regarded, as ‘so much money’ then is mere pittance today. In fact, Isong would never have allowed this money to be frittered, just as I would never have permitted the squandering of the common wealth,” he added.

He, therefore, advocated for good governance in the course of nation-building in order to achieve a sustainable development.

“I will like to reiterate my strong belief in the corporate existence of Nigeria, no matter the distractions in the polity. Our nation has men and women of excellence, who can solve the myriads of challenges before the nation, if both the leadership and the people pull in one direction,” he stressed.

An Economist, Mr. Henry Boyo, noted that it would be impossible for the apex bank to stop the unyielding pressure and ultimately depreciation and devaluation of the naira under its current monetary policy model; this is because, whether we earn more or less dollars, the naira will remain under downward pressure.

Whenever we earn more dollars, the substitution of larger naira allocations for distributable dollar revenue will provide additional cash injections/money creation, which the banks will leverage on and engender a specter of excess liquidity, thus over-subscribing many times over the actual value of dollars offered for sale by the CBN, who is responsible for over 80 per cent of dollar supplies in the market.

As a result, there will always be too much naira chasing limited dollars. Thus, market equilibrium can only result in a lower price naira whenever we earn increasing dollars.

“On the other hand, the naira is also under similar pressure when we earn less dollars, as the government may have no other alternative than to further officially devalue the naira, in order to keep their naira revenue projections stable in nominal terms. Once again, the result is too much naira chasing fewer dollars. So, with the current monetary policy framework of the CBN, it becomes a case of head I win, tail you lose in favour of dollar value,” he added.

Boyo, however, noted that the only plausible way that the CBN can stem this tide and break the jinx of naira depreciation will be to turn the table of supply and demand against the dollar, saying, “this can simply be done when we break CBN’s monopoly of the foreign exchange market, so that export distributable dollar revenue is not unilaterally ‘monetised’ before sharing to the three tiers of government. If the instrument of dollar certificate is adopted for this purpose, the naira rate of exchange would be positively favoured.”

With an inflation rate of 12.8 per cent according to statistics from the National Bureau of Statistics for the month of April, and a relatively Ponetary Policy Ratio pegged at 12 per cent, Boyo added that, SMEs with their great potential for economic growth and employment generation will continue to remain prostrate, as a result of CBN’s payment model, noting that no economy has been known to grow with inflation and cost of funds at such high rates.

“Inflation is a silent plague, which gradually erodes the purchasing power of all income earners. The poor and those with static incomes are, of course, the major losers when this happens. Regrettably, instead of confronting this failure, the CBN, who has the prime responsibility for establishing price stability through its monetary policy model, has in reality become the instigator of inflation and price instability.

“The aim of monetary policy everywhere is to reduce inflation, foster a benign rate of cost of funds so that industries, particularly SMEs can borrow at between five and seven per cent and thereby stimulate rise in employment, create demand and grow the economy. Obviously, our CBN has failed to achieve these objectives with their monetary policy model since the mid 1980s,” he added.

On his part, another economist and financial analyst, Dr. Kennedy Izuagbe noted that the free fall of the naira should not be a surprise to every discerning economic unit.

According to him, “as long as our productive capacity remains non-existent and a political class devoid of sound economic management skills, it could be worse. The CBN is doing its best in my own opinion, but I do think that the extraneous factors exerting pressures on the naira are more of political than economic issues.”

“Even for the increasing interest rates, poor infrastructure is still a central issue. As long as there is poor infrastructure, which accounts for over 50 per cent of the cost of doing business, interest rates will continue to increase. The options are clear. The government must be embrace fiscal discipline, block all the leakages in governance and weave time tested and home grown policies to move the economy forward,” he added.

Corroborating Izuagbe’s views, Boyo noted that it will be impossible for CBN to bring interest rates to between two and three per cent as in more serious economies. The current monetary policy model, whereby CBN suffocates the market with its injection of naira allocations for dollar revenue, will inevitably necessitate eternal excess liquidity mop up.

“The CBN will be constrained to pay as much as 15 per cent to the banks for its risk-free borrowings with treasury bills in order to reduce the amount of spendable money in the system, while it simultaneously continues to decry the inability of banks to lend to the real sector. So, so long as the CBN and the Debt Management Office continue to crowd out the real sector by borrowing N200 – 300 billion from, predominantly, the banks every month, it will be difficult to persuade the banks to lend money at single digit interest rate to the real sector,” Boyo added.

Already, the continued decline in the value of naira at the interbank market has continued to raise concern, especially as the dollar continues to hover between N170 to N180 at the parallel market, while high interest rates due to insider activities continue to make lending difficult.

Specifically, despite the efforts of the Central Bank of Nigeria (CBN) to maintain a band of between N150 and N160 to the dollar, the naira in the last three weeks has continued to fall out of this band, with experts expressing the possibility of the naira easing to N200 before the end of the year.

At the close of interbank market on Monday, June 18, 2012 the naira rose to its highest level in three weeks against the U.S. dollar to N161.45, after the central bank’s direct intervention to calm the market and speculation due to the planned dollar sale by the Nigerian National Petroleum Corporation.

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