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