TheNigerianVoice Online Radio Center

A look at Nigeria’s economy: Production, growth targeting

By This Day

With every conviction, our respected Central Bank monetary policy egg-heads are hell-bent on adopting inflation targeting, a monetary mechanism that is applicable for nations with functioning or incipient productive base such as South Africa and Ghana or with industrial base such as Europe, Asia and United States but which may be ill-suited, ill-timed for an economy like our own with inchoate productive or industrial base and rallying for vision 20-2020.

Apart from the quite commendable bank consolidation, the guardian policies of the CBN under Professor Chukwuma Soludo have been mainly euro-centric and IMF/World Bank/Washington consensus-cloning which have tottered on abysmal failure in recent global scenario. I had lamented this Soludo's-CBN inclination in ThisDay, Guest Columnist article “On The Suspended New Naira Policy” (ThisDay back page, Tuesday August 28, 2007). Why clone London or New York as great financial hubs when our infrastructure is decrepit and stone-age and manufacturing is in death-throes?

Inflation Bogey
In a nutshell, the inflation bogey in Nigeria is still largely cost-push and supply-deficit variety particularly of food staples as food is 60 per cent of the weighted inflation-tracking basket of goods and services. It could only sparingly be that of extreme money supply overshoots, if or when ab initio food supply and manufactures are cheaply available in the economy. In the main core inflation in Nigeria remains steadfastly single-digit while year-on-year headline inflation approaches 15 per cent now (14.7 per cent in November 2008). Food supply and fuels in the main dominate headline inflation figures and thus exacerbate core inflation base.

A More Developmental CBN Needed
Questions arise. Can or should CBN have an activist role in Nigeria's production and economic growth chain beside spawning legion micro finance banks (MFBs) offering killer lending rate loans? Can or should CBN chip in its bit to cheapen manufacturing and agricultural production if only through specially created window and targeted single-digit interest rates for our manufacturing and agricultural sectors as the bedrock of our advance towards Vision 20-2020 and while infrastructure improves? It is objectionable that the Bank of Industry for instance is being compelled to seek N250bn capitalisation from the capital market when a developmental CBN with sumptuous external reserves can specially empower our development finance institutions like BOI if we truly desire to achieve Vision 20-2020.Why won't a developmental CBN creatively define its mandate of price stability in the economy and relate with NNPC etc and aspiring indigenous or foreign downstream entrepreneurs as investors in refining to boost the nation's refining capacity, and even power capacity both being factors in core or headline inflation. Perhaps, Governor Soludo ingeniously had this in mind when he went for the African Finance Corporation (AFC). Overall why won't a CBN holding sumptuous external reserves be activist for development rather than being engrossed in mere monetary manipulation and management and now embarking on fiscal-limitation all in the furious demand-side anti-inflationary chase strategy?

In an environment of abundant production both of food and fuels and common manufactures, single-digit inflation will be natural and consequential as in most developed economies and not by CBN-induced fiscal emasculation or fettering of fiscal authorities, production and economic growth. These are what inflation targeting may connote if recklessly applied as in the CBN recently enforced illiquidity that ab initio heralded and spearheaded stock market crash. On the other hand, if inflation targeting by CBN is premised on realistic inflation expectations and not doctrinally and outlandishly single-digit for now as CBN insists then all could be well, while our economy in the next three years or so could realistically finally transit to a sustainable and consistent single-digit inflation rate economy.

Most of the African countries including both South Africa and Ghana already on inflation targeting monetary mechanism have double-digit inflation rates at this time. Perhaps, if after very wide consultation with the three tiers of government and labour etc we can adopt dollar certificates for our federation account allocations then macroeconomic stability in low inflation, low interest rates etc can be assured but a lot of consultation are still needed and time also needed for a recovery of the crude oil prices.

At the moment given the mindset of our CBN monetary authorities, inflation targeting in Nigeria at this time, with their unrealistic single-digit inflation mantra, will inevitably hurt money supply (system liquidity and further cripple the stock market) and spike interest rates, killing the real sector even more quickly and hurting both 7-point Agenda and Vision 20-2020.

Nigeria And The Global Financial Turmoil
I have ruminated long and with concern over the global financial meltdown sparked by United States sub-prime mortgage crisis. I find Professor Soludo's inaugural lecture on the subsisting dysfunctional global financial system quite scholarly and down-to-earth and congratulate him on that very brilliant lecture and his recent appointment to the United Nations Global Economic Panel alongside my favourite economist Nobel Laureate Joseph Stiglitz of my alma mater Columbia University, New York. All the same Professor Soludo has ignored the very fundamental reasons for the crumbling world economy.

I admit that I have not been able to conduct requisite research yet, and so cannot be definitive, but my early intuition and inclination is to blame the furious drive to post-industrial service sector in the United States and the developed economies particularly with the financial or money market cum capital market supremely downgrading and relegating manufacturing and agriculture in their Gross Domestic Product/Gross National Product profiles. Paper money created in equities and with neither gold nor metal nor hardware nor commodities underlay fuelled unsustainable credit boom and as soon as the inappropriate monetary boom bursts, as happened in United States in the sub-prime mortgage disaster, there is no market fall-back position durable enough to withstand the apocalypse except of course the hitherto much-dreaded government intervention. It is like oil price crash which destabilises our economy since there is virtually no production or non-oil export. In all recent economic literature available to me, only Kunle Sanyaolu in “Our Peculiar Economic Crisis” The Guardian on Sunday, November 2, 2008 pg 69 and more emphatically Professor Sam Aluko in “1997 Phantom Coup, What Abacha told me about OBJ” Daily Sun, Monday December 22, 2008 pg 4 have emphasised this crisis of lack of production in the current global economic mess. Most instructively, economics doyen and the one person who should be Africa's economics Nobel Laureate Professor Aluko wrote “They told him, they don't listen to Aluko, his economic policies are wrong. Now are they wrong? I told him that the world economy, the way it was going, it was going to collapse. All the world is doing today is to sell money, rather than build industries, agriculture. America has not built a new refinery since 1976, it is a bubble, you are running a casino economy.And since you are all running a casino economy, the bubble has burst”.

It is for this reason that economists of my persuasion deeply fault Soludo's asynchronous drive to establish Nigeria as a financial hub for Africa, in the mode of London and New York on the global scene, while almost totally ignoring the manufacturing and agricultural base of the economy. Neither an empowered IMF nor rejuvenated World Bank nor any new such-like supra-national monetary agency now being suggested by Nobel Laureate Joseph Stiglitz and his group of the United Nations Economic Panel would prevent a more cataclysmic financial/economic meltdown in future if good old production fails to regain its prime position in both mature, developed economies and the developing economies with less protectionism in the developed economies vis-à-vis the developing economies.

Asian/Pacific economies such as China, Japan (to some extent), South Korea, Singapore, Malaysia etc are more insulated from the current global financial turmoil, as production is very buoyant in their GDP profile, though the global recession particularly in their export markets will not damage their economic buoyancy. In the Asian financial crisis of late 90s over-bloated equity markets had played a role.

Relevant Links
In Nigeria, the stock exchange capitalisation from N6 trillion ($48 billion) in 2006 reached N13 trillion ($104 billion) by 2007 and crashed to N6.6 trillion ($53 billion) by the end of 2008. Stock market manipulation by empowered banks and deliberate bloating of stock prices by creative bank and stock exchange manipulation and ingenuity, meanwhile totally ignoring the weak production fundamentals of the economy and only positioning on the paper equities created by banks, all wrecked the stock market. This stock market crash was aided by CBN monetary policies that created systemic illiquidity and the subsequent portfolio investment capital flight.

In Nigeria, production and not banks and capital market should be king if we must avoid the current economic tragedy of United States in particular in the years and decades ahead.

Credit: Akanni Omole
Source: This Day