Nigeria's Austerity Measures Not Workable --- Mikati Featured

Sunday, 01 February 2015 00:00 Written by  Published in Finance Read 903 times
Shuaibu Idris Shuaibu Idris

An astute politician, Shuaibu Idris, popularly known as Mikati was twice an aspirant under the platform of PDP for the governorship of Kaduna State. A chartered accountant and banker with immense experience in corporate Nigeria, he was with the famous Dangote Group and rose to become Deputy Managing Director of Dangote Flour Mills Plc, before he resigned voluntarily to pursue a career in politics in December 2010. At an interactive chat  Shuaibu, a 'home grown person' as he likes people to see him, is a product of Bayero University Kano, University of Wales and Lagos Business School as well as Harvard University and  ‎Cambridge University alumnus, amongst many other schools. He shared his thoughts on the current economic challenges facing our country.

The Naira has been experiencing a free fall lately and the CBN has been trying to control the fall. What exactly is the problem?
Currency devaluation is a normal phenomenon in the world. The value of a country's currency relative to other currencies is determined by a number of factors such as demand and supply of the currency in the market, level of foreign reserve of the country relative to its import bills, unemployment level, interest rates and savings level, income generating capacity of the country, level of import and export, security and stability of a country's political system.
When you look at these factors, you would realize the value of our currency cannot be determined by our Central Bank alone. It is a collective responsibility. Herein   ‎lies the challenges the CBN is facing in trying to assist the currency. These factors are not totally in the control of the bank, hence its helplessness. Needless to add that the decline in the price of crude oil from $106 to just about half of that today reduces our foreign exchange earnings and foreign accretion ability, hence the panic.

The CBN has been taking some measures to stem the fall, but it would seem those measures are not just working. What has the CBN not done that it should have?
The actions taken so far by the bank appear not to be working because of a number of reasons. The actions appear to be too little, too late. Government does not appear to be acting in synch with the bank. You can't claim there is austerity in a land and you behave as if it is business as usual. Moreover, there appears to be a panic situation and most people are adopting the 'flight to safety' strategy! Organizations are hoarding foreign currencies and supply is drying up. In such a situation, the bank can't be in a position to do much.  ‎Furthermore, the bank has no control over the price of crude oil in the international market, and this is our major foreign exchange earner. On the other hand, government appears to have adopted a laissez-faire attitude to oil thefts!


What are the immediate to medium-term implications of the current situation?
In the short term, prices are likely to rise‎ because we are generally an import dependent economy. Governments at all levels would witness a massive reduction in revenue and their abilities to pay debts. For instance paying contractors could become a serious issue, and this could lead to another banking crisis. In the long term however, our export prices, particularly those of agricultural commodities would become competitive in the international market. Devaluation of the Naira should also discourage imports and help us look inward. In general, currency devaluation may not necessarily be bad. The dollar fluctuates in value relative to other currencies, so does the Japanese Yen or even the Euro!

The Finance Minister has doused fears about the economy, saying there is no cause for alarm. To what extent should Nigerians believe her?
I think the Finance Minister's statement is nothing but a political‎ statement. In a situation where the Central Bank, within a period of just 45 days, rolled out different policies, including some unpopular decisions and/or rules, one can only be either making a diplomatic comment or being in self-denial if one says there is no cause for alarm. Indeed no one expects her to say it is a crisis ‎situation, but to say there is no cause for alarm at a time when even our budget benchmark price of oil per barrel was altered is, to say the least, being uncharitable. We should be frank to tell ourselves the truth, so that we can begin to adjust now. Our foreign reserves cannot cover 12 months imports at the current rate. No one can tell how low the price of crude oil would go and how soon that would happen, hence it is dangerous not to raise the alarm bell now. It may be better to raise an alarm even if false, rather to wait to be taken by surprise or caught pants down.

How would you compare the banking and general economic philosophy of former CBN governor, Lamido Sanusi, with that of his successor and incumbent governor, Godwin Emefiele, in terms of the current situation, policy formulation and implementation generally?
I think it is a bit too early in the day to predict or know how the afternoon would be. Godwin ‎is a few months and his policies are just being articulated. Economic policies take some time to manifest when implemented. Hence, it may not be right or fair to attempt any comparison now. We would do that later. However, the few steps he has taken appear to be too much operational and too few in strategic issues compared to the first few months of Sanusi's tenure. We wait to see how it goes.

Some say what we are witnessing is tacit devaluation of the Naira, which could lead to serious inflationary pressures. What is your take on this?
Clearly, we are witnessing gradual devaluation of the Naira. It is an inevitable thing given the circumstances we found ourselves. Indeed, it is in the interest of the economy to allow some corrections in the value of the currency to avoid the cancer of round tripping and rent seeking via currency racketing. It is normal to see a rise in inflation rate following devaluation. Needless to say, rising prices are a source of challenge to the common man. Seldom are labour prices or wages adjusted in tandem with inflation. Devaluation is a necessary correction that can't be avoided when it is eminent.

How would you describe 'Jonathanomics', the economic management style of the President Goodluck Jonathan administration?  How has this style affected the state of the nation and impacted on peoples' condition generally?
Honestly, I can't see any policy direction that one can safely refer to as 'Jonathanomics'. No doubt a set of fragmented actions have been introduced or taken by the administration of President Jonathan, but there is no visible policy, ‎at least to me, to coin it as 'Jonathanomics'. Some of these actions have a measure of impact while many are just there. It may be a bit of 'confused' and disjointed policies, as opposed to coordinated and cogent policies. The economy has been growing from 'YarAdua's time at 6%, so the government inherited the growth! It has done well to maintain the growth rate, but it can't claim that it started the policy that brought about the growth.

It is generally agreed that SMSEs are the engine of growth of any nation. So much noise has been made by the Nigerian federal government on policy directions and funding. Would you say these policies and claimed funding have had the desired effect?
You have used the words noise and claims yourself, so obviously impact ‎of assistance given to SMEs does not match the noise being made. In most economies of the world, SMEs are strategic and provide employment opportunities to the teaming youth. Government policies over the years have seen mixed results. This is largely because a number of the policies and assistance are politicized and thus the assistance did not go to the right persons. Generally, our people tend to see such assistance as their 'share of the national cake', and they misuse the it. Some states and local governments are also not in a good financial position to even render the politically motivated assistance! There is certainly room for improvements in this regards.

Unemployment remains an intractable problem. How can it be decisively tackled?
The problem of unemployment to my mind is a challenge that is a permanent feature of the economic policy or ideology we practice. Capitalism by its nature comes up with such attendant consequences such as unemployment. However the target of any government is to manage the level to the barest minimum. Ours is certainly on the high side and thus is a big issue. Unfortunately some, the so-called unemployed Nigerians, are not even employable! Government's efforts such as 'You Win', SURE-P and other poverty alleviation schemes could reduce the level of unemployment if implemented well and the beneficiaries are serious. There is no solution to unemployment in a capitalist economy like ours! We have to make do with it unfortunately.

Another intractable problem is power supply. Why do the bottlenecks persist?
Power supply issue comes from our neglect of economic planning over it. Our National Development Plans were suspended during the long period of military era in government. Correcting such abnormality would certainly take some time, particularly given the population ‎explosion we witnessed as a country. Unfortunately, even when we realized the challenge, the monopoly status took almost forever to remove. The unbundling of the defunct NEPA and its successor PHCN could see some changes, and would better the industry sooner rather than later. The challenge of funding the sector by government would now be relatively addressed by the private sector operators, who have been given the chance to play a role in the sector. The Nigerian economy could see a boost with an improved power supply. Our manufacturing base would improve and expand, thus providing the much needed employment opportunities for our teaming youths.

Banking, once an industry and business of great pride, seems to have lost its sheen, with the industry a leader in the outsourcing and casualization resort to save cost. What are your thoughts on current developments in the banking industry?
The Nigerian banking system, like all other sectors in Nigeria, has witnessed deterioration in standards. Lending and credit as we used to know it has changed. Banks no longer lend to the productive sector of the economy‎. Greater proportion of credit facilities are given to the services sector. This does not help the economy. On the issue of outsourcing of jobs, this is a worldwide phenomenon and Nigeria being not an island has to go in tune with other climates. I honestly do not see much of an issue with outsourcing of certain jobs. Jobs of security men, drivers, tellers etc could be better managed by companies that have specialists in these fields and banks can then concentrate on their core businesses. The fact remains that weather a bank or other companies employ such staff, the jobs are there and are being filled by Nigerians. To me, it is semantics. Like they say, what is in a name? Who cares who pays my salary, Bank or company, as long as the salary comes?

How far can the austerity measures that the Finance Minister announced go in addressing the hiccups in the economy? Is it all about austerity measures or sound and honest management of the economy?
Isn't it curious that the same person who said there is no cause for alarm suddenly announced a package of austerity measures? To my mind, the policy framework espoused by the Honourable Minister is a bit too little and too late. The reckless spending over the last two or three years, the massive depletion of the excess crude account and our foreign reserves were a clear violation of sound economic principles. Indeed one may ask, how austere is the austerity measures announced by government? Have we seen any change in attitudes of our authorities? I think austerity should not just be in words. We should walk the talk and not just talk the talk. We need to see action.

‎How would you say huge spending by politicians during this political campaign period would affect inflation, the currency and the economy generally?
I think it may not be right to limit the analysis to spending by politicians in this period. The country is practicing democracy and thus every four years there would be election. From voters' registration down to actual casting of votes, money would be spent to buy ballot boxes, printing of millions of forms and other electoral materials, etc. These huge expenditures have the probability and indeed the potentials to heat our liquidity and the system and thus can cause a rise in prices. Politicians would also need enormous amount of cash to fund campaigns. Thus, there may be too much liquidity in the system. Ordinarily where you have too much liquidity, interest rates would fall and this is good for borrowers. However, where there is so much money chasing few goods, the result is inflation! The increase in prices would exert some pains to citizens. However, government and its agencies such as the Central Bank usually employ measures to address the potential impact of the injection of cash into the system to avoid the inflationary pressure. On the impact of the spending on the currency, I believe it could be positive as some politicians may have to sell their foreign currency holdings to fund their campaigns, and thus there may be an increase in the supply of foreign currencies in the foreign exchange market.

 

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