By: Sir Henry Olujimi Boyo (Les Leba) first published in August 2014

Intro:

Last week, this column re­published ‘The Realistic Path to Economic Prosperity’. The article provides rationale for recommendations that would aid economic recovery in Nigeria.

(See www.betternaijanow. com for this series and more articles by the Late Sir Henry Boyo)

This week’s republication discusses the blindfold over the masses that prevents them from seeing the root causes of econom­ic distress in the nation. It also discusses why poverty has deep­ened despite increasing dollar re­serves which Sir Henry identifies as a contradiction. Kindly read on to see why.

As you read through the below article taking note of previous events or rates, keep in mind its year of publication (2014), a clear indication that Nigeria’s econom­ic situation is yet to improve even after all this time.

A popular indigenous ar­tiste cautioned in one of his lyrics that you can­not sow cocoyam and hope to harvest rice. Notwith­standing the above wise counsel, Nigerians inexplicably hope and believe that in spite of over 70% of our population, reportedly, currently living on less than $2/ day, our country could still blos­som to become one of the top 20 economies six years from now.

Clearly, this ambitious expec­tation is the product of a well cho­rused propaganda championed by government and its Econom­ic Management Team to sustain hope and distract Nigerians from recognizing the obvious econom­ic contradictions which block our path to economic prosperity.

This week, we will examine some of these economic contra­dictions which must first be re­solved before we can realistically expect strident, inclusive eco­nomic growth and also witness enhanced social welfare. To begin with, we shall consider the evi­dent contradiction of deepening poverty, despite increasing output and revenue.

Ordinarily, rising real income would normally be expected to improve the economic welfare of any person or community. Sur­prisingly, however, despite con­sistently rising income, Nigeria began to be listed amongst the world’s poorest nations at a time our foreign reserves base regular­ly exceeded $30bn after the return to civil rule in 1999.

Surprisingly, the social and economic welfare of our people was not positively impacted even when external reserves exceed­ed $50bn while systemic surplus Naira, unexpectedly also re­mained a burden three years ago! How do we explain the unusual mix of unyielding surplus Naira and increasingly bountiful dollar reserves existing simultaneously with deepening poverty and in­creasing rate of unemployment!! The question is, why have we become poorer with increasing income?

Similarly, Nigerians also fail to see the inherent contradiction of an increasing national debt bur­den existing side-by-side with surplus Naira and equally boun­tiful dollar reserves. Surely, no ra­tional person borrows what it has in excess at any cost whatsoever.

 Nonetheless, such brazen contra­diction is clearly amplified in the process of accumulating both our domestic and external debts. On the domestic front, for example, we have gleefully sustained a cul­ture where government places hundreds of billions of Naira for zero percent yield with the banks only to return shortly thereafter, to borrow back the same funds with oppressive double-digit in­terest rates; it is also inexplicable that regardless of the attendant oppressive high cost, these loans are simply sequestered and kept idle. Similarly, on the external front, government sits on boun­tiful reserves of over $40bn which earns little or no yield, while the same government ironically in­dulges in seeking external loans which conversely carry unusual­ly high interest rates for what are actually risk-free sovereign debts.

Curiously, despite over N500bn annual debt service charges, the Debt Management Office lately assured us not to worry about the size of the bloated current debt of over $65bn, when conversely, our debt burden of barely $35bn in 2004 was adjudged excessive and unsustainable! Regrettably, no satisfactory explanation has been offered for this peculiar volte-face.

The contradiction of un­yielding Naira surplus existing side-by-side in the market with scarcity of cheap funds to grow the real sector, also appears lost in the consciousness of our peo­ple. Worse still, why would CBN, whose prime mandate is to grow the economy, also consciously dis­courage liberal access to cheap funds to SMEs who invariably constitute the backbone for in­dustrial growth and job creation, by deliberately instigating high Monetary Policy Rates to frus­trate and discourage bank lend­ing to the real sector. Similarly, we do not interrogate why CBN appears to cut its own nose to spite its face by instigating a high Monetary Policy Rate of up to 12%, knowing fully well that such a high benchmark inevitably also pumps up the cost of servicing not only CBN loans, but also the increasingly precarious debts of governments and its agencies at all levels.

Besides, why would any ra­tional person pay any interest whatsoever to borrow money it does not need? Evidently, CBN re­peatedly commits such faux pas every month whenever it borrows hundreds of billions of Naira with double-digit interest rate from banks only to store away these expensive loans thereafter from any redemptive economic application. Why would anyone condone such reckless anti-social monetary strategy at a time when government itself seeks addition­al loans to fund annual budgets and remediate our severe defi­cits in the quantity and quality of infrastructures in the educa­tion, health, power and transport subsectors? In other words, how come obviously “burdensome” surplus Naira and bountiful reserves exist side-by-side with such socially depressing depri­vations?

Evidence of blatant contradic­tions in government’s economic strategies are also apparent in the foreign exchange market where, in spite of increasingly buoyant reserves, the Naira exchange rate has lost over 50 percent of its value in the last 16 years. For example, in 1996 when the Naira exchanged for N80 = $1.0, our to­tal reserves of $4bn was report­ed to be adequate cover for only 4 months imports. Surprisingly, however, when our reserves base of over $50bn was reported to be adequate for at least 12 months imports payment in 2010, our ex­change rate fell to almost N160 = $1.0. Surely, an extended imports cover should induce an exchange rate that is stronger than N80 = $1.0, and not the other way round!

Similarly, we must wonder why CBN is apparently averse to dollar denominated allocations to government and its agencies, when the same CBN consciously and regularly allocates billions of dollars every month to Bureau De Change, in spite of the clear recognition that the nefarious ac­tivities of treasury looters, mon­ey launderers, and smugglers are facilitated from CBN’s regular deliberate dollar allocations to BDCs. There is no gain saying the adverse impact such predato­ry strategy has on our industries and ultimately on our economic and social welfare.

It is similarly unbelievable that in spite of the possibility of lower fuel prices and the po­tential of earning a reasonable sales tax on every litre of fuel, government’s monetary strategy still consciously accommodates a bill of over $12bn to subsidize fuel prices annually. Undeniably, a stronger exchange rate of N80= $1.0 will immediately reduce fuel prices to below N80, thus wiping off any further payment of fuel subsidy, while enabling govern­ment to earn at least N17/liter tax instead, from the daily sale of 35m litres of fuel.

Consequently, in view of these disenabling contradictions in our economic framework, is it real­istic or foolhardy to seriously expect a positive transformation that would catapult Nigeria to one of top twenty economies in year 2020? Well, maybe I should let you be the judge.