The Nation newspaper (Friday, June 25, 2010)
WALKING THE TALK
In editorial comment titled ‘Walking the talk’ was published on June 14 by The Nation. It made an interesting reading as it dwelt on issues about the Nigerian economy and concluded that “there is much to do to bring about economic turnaround” in Nigeria.
That conclusion was drawn from the panacea for economic renewal in Nigeria canvassed by the minister of finance, Mr Olusegun Aganga, that corruption and the prevailing negative orientation about economic development are the problems with the Nigerian economy which are beyond the ministry of finance.
With all due respect, this writer vehemently disagrees with the minister’s analysis of Nigeria’s problem on the grounds that he has given a political instead of economic reasons.
May I remind the honourable minister that Nigeria is in a hurry to develop. What we need is not lamentation but an economic blueprint that will transform the country radically before May 29, 2011 when the tenure of the present administration will expire.
As a patriotic Nigerian that operated in the Nigerian volatile money market as bank treasurer between 1983 and 1992; I will expose the problem with the Nigerian economy as I understand it from practical experience and proffer a workable solution that can be implemented immediately .
The problem with the Nigerian economy is that all previous governments have been appointing people with higher degrees in economics as Finance Minister, National Planning and recently Central Bank Governor. Most of them studied and worked abroad with rich background in what happens in developed economies which are irrelevant at home.
All these people do not understand the nature and workings of the Nigerian economy and the primitive or awkward financial system. That is why economic policies don’t work and we have been moving round in a circle.
The point being made is that economics is an international subject but it requires local adaptation or flavour to make economic laws or theory to solve Nigeria’s peculiar problem.
For the avoidance of doubt, all economic laws or theories are qualified with the clause Ceteris Paribus, meaning all things being equal. But all things are never equal. For instance, Nigerian economy is roughly 70 per cent informal and 30 per cent formal. But Britain, France, United States of America etc are arguably 100 per cent formal. Being market oriented economies, the private sector drives the economy, whereas Nigerian economy is driven by the public sector.
These countries have verifiable records, they have statistics for national planning that are reasonably accurate. All or majority of their citizens, including government and business units honour their obligation as and when due. Court orders are obeyed and votes do not only count but are counted and seen to count at elections which usher in democratically elected leaders.
In contrast Nigerian economy is roughly 70 per cent formal and 30 per cent informal. Yet, all the Central Bank’s monetary policies and fiscal policies of the Federal Ministry of Finance are based on assumptions of a 100 per cent formal economy.
For banks credit or lending policies are fashioned after those banks operating in Europe and America where business units keep accurate records and honour their loan obligations as and when due or they are declared bankrupt. That is why things are not working.
The Central Bank policies end up being targeted at 30 per cent formal economy which is causing regulatory distress and liquidity problem in the banking system .At a time the CBN claims to be mopping up excess liquidity which is artificial because 70 per cent of money supply in form of Naira currency is outside the banking system.
Monetisation of petro-dollar is responsible for the excess liquidity in the larger economy.
Lagos State is a model state because it has succeeded in making her economy 80 per cent formal and 20 per cent informal more or less by default. During the 2006 census, Lagos State conducted a parallel census with National Population Commission to forestall any attempt to credit her with doctored population and short-change her in revenue allocation by Federal Government. They got reliable record of Lagos residents, the facilities in their homes, business locations and address etc. which is now being used for aggressive revenue drive and provision of social amenities.
I advise the Finance and National Planning Ministries to collaborate and make Nigerian economy formal so that their economic policies can work.
Revenues are paid to banks and records of all payments are available. Lagos state can give you a reliable figure of vehicles that are registered or that renew their licenses and ply Lagos roads because their officials collect your phone number. You subsequently receive text messages each time your renewal is due. You are also alerted when an accident occur along some routes whereupon you are advised to use alternative routes.
In 1986, the Minister of Finance during the tenure of General Ibrahim Babangida, a PhD Economics holder, advanced the argument that Naira was overvalued against the US Dollar @ 1.3326 to N1.OO and must be devalued to boost export. Naira was devalued during the first auction around August 1986 to N3 to $1.00 which is outrageous. Naira continued its downward slide and today hovers around N150 to the US Dollar.
The then Minister of Finance failed to apply the ceteris paribus aspect of the economic law which is true, if but only if, exports are invoiced in the home currency. Over the years, Nigeria continued to invoice export in Dollars with no positive impact on the growth of the economy.
When you invoice exports in Naira, you create demand for Naira which in real sense is creating demand for goods and services which can be bought with Naira. You also hedge against exchange rate and sovereign risks. A country like Japan that is export oriented is flourishing because they invoice exports in Japanese Yen. Same with USA for dollar etc.
Ceteris paribus , the value of Naira will firm up if agricultural and other non-oil exports are invoiced in Naira. We can also invoice say 30 per cent of crude oil exports in Naira for maximum effect.
• Enyinnaya is a chartered banker and lives in Lagos