Paradox of growth without development, declining naira value

Paradox of growth without development, declining naira value

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.