• Mixed reaction follows World Bank insistence on withdrawal
• CBN programs are driving inflation and will throw the economy into a deeper mess – Owoh
• Ife welcomes Apex Bank’s support for the productive sector
• Urges FG to privatize 20% of NNPC stake to fund budget
As the administration of President Muhammadu Buhari approaches its sunset, a major assessment of its economic performance came last week in the form of the World Bank’s Nigeria Development Update (NDU), putting the emphasis on the near misses of the key administration and policies that had underdeveloped the country.
By focusing on the country’s unstable growth, falling incomes, unsustainable subsidies, unparalleled fiscal mechanisms, redundant monetary policies and flawed trade policies, among many other areas, the report exposes weak spots of the country, making them as clear as possible. It also highlights the many near misses of recent times while making recommendations on the path that immediate long-term plans could follow.
From a broader perspective, it is a succinct account of the country’s economic realities and near-term projections, many of which are as daunting as they have been in recent years. Although the reviews and some of the predictions are not entirely new, the report, titled “The Continuing Urgency of Unusual Cases” details the issues in a way that gives policymakers a benchmark for intellectual reconciliation.
The main idea of the report, including the PMS grant and the intervention program of the Central Bank of Nigeria (CBN), has sparked debate among economists and development experts.
Amid the controversy, Godwin Owoh, a professor of applied economics, noted that no aspect of the 100-page report is remarkably different from the advocacy and red-lights that have been raised by local experts over the years.
Owoh has aligned itself with the World Bank on the subsidy trap, saying they are clearly fraudulent, inefficient and unproductive.
“When other countries talk about subsidies, it’s about helping companies, including state-owned companies, to maximize their profits. But the subsidy amounts to fraud in Nigeria. No one understands what is subsidized. This is the argument that has been made and we don’t need to wait for the World Bank to tell us how inefficient it is,” he said.
Owoh also aligned with the Bank’s position on CBN development finance. The economist expressed the belief that the interventions are the main drivers of the country’s inflation, which currently stands at 17.7%, and warned that they would plunge the country into deeper economic mess.
In an earlier interview with The Guardian, Owoh described the interventions as a false imposition on the people as he argued they were unearned resources and unrelated to productive engagement.
But The Guardian has learned that part of the response funds came from the apex bank’s cash reserves, which would have been part of the frozen and idle cash.
The World Bank report indicates that CBN development finance accounted for 10% of the banking sector’s total credit at the end of last year.
The World Bank has warned that rising prices of basic necessities and the shock of the crisis in Europe will push seven million more Nigerians into poverty by the end of the year.
President Buhari, in an interview with Bloomberg, had noted that the food crisis in the country could be worse without CBN interventions. But Owoh said the interventions were aggravating the crisis rather than reducing its severity.
Like Owoh, Henry Adigun, a financial expert, also described the approach as excessive. But a global economic consultant, Professor Ken Ife, called the report an “error in judgement”.
While Prof. Ife aligned his thoughts with the World Bank’s report on the destructive effect that Premium Motor Spirit (PMS), otherwise known as “oil”, is having on the Nigerian economy, he argued that the CBN approach is the best way out of the economic quagmire. Nigeria finds itself.
His words: “The World Bank report is an error in judgment, but I agree with the need to end the subsidy regime. Consumption should never be subsidized. It is a production that should be subsidized so that the government can encourage job creation through economic activities. Spending four trillion naira on grants is money thrown away and it will not help anyone but will overheat the economy and create all sorts of problems.
Regarding the CBN’s interventionist approach, Ife said productive sectors such as agriculture were being completely ignored by commercial lenders, who preferred to finance politicians and fast-money activities rather than wealth-creating sectors and businesses. jobs.
The principal consultant for the Economic Community of West African States (ECOWAS) said there was no crowding out effect as the CBN does not compete with banks in the areas where it channels its development resources.
He said, “It has become necessary for the CBN to do so due to market failure and the level of structural factors that are constraining Nigeria’s productive capacity. These are the two main reasons for the interventions. We know that insecurity has worsened in all six geopolitical zones of the country and that this has depressed agricultural production, so we needed a response. We also know that we were spending $1.25 billion importing agricultural raw materials and related goods. It wasn’t viable because Nigeria didn’t have that kind of money.
“Again, all last year, the Nigerian National Petroleum Company (NNPC) which is expected to remit about three billion dollars to the federation’s account has not remitted a kobo as it is now trading crude directly with foreign refiners to get Premium Motor Spirit (PMS) All this means that more than 80% of the foreign exchange that the CBN would have had to defend the naira and support imports is not available Diaspora remittances are declining , foreign direct investment is not coming and foreign portfolio investment is not coming either because there is the normalization of monetary policy in the United States and in many European countries.
“The implication of these is that all the money that is meant to come to Nigeria is now going back to earn higher interest in America, which has seen its inflation above 8.2%, which is the highest in 42 years. They keep that money in the United States because it is safer there than in Nigeria. Those are the things that are working against us. It now comes from man management.
Ife further argued that restricting the exchange of certain agricultural commodities influenced the banks’ urgent need to fund local substitutes to strike a balance and prevent a total collapse of the economy.
He hinted that the government has given more money to the agricultural sector than the country has made in the past 20 years, saying that more than 4.8 million farmers have obtained unsecured loans.
“A single trillion was given to the beneficiaries of the Anchor Borrowers program who produced the food we eat and there are complaints? I do not understand that. More people would have starved to death than COVID-19 and terrorism have killed had this program not been introduced.
On the allegation that the CBN was unable to secure the repayment of the loans, Prof. Ife disclosed that the Global Standing Instruction (GSI) was initiated to prevent such a disruption.
He explained: “Every loan granted is guaranteed by someone. So, if the CBN switches to GSI, it can sweep the accounts of people who have taken out loans in the banks. The bank can go ahead to sweep the accounts of the guarantors as well. But the CBN must be careful not to send the wrong signals to farmers who have accessed the loan. The CBN should involve more farmers from the middle belt and the south of the country in the program. I can’t sleep at CBN’s ability to recover the money.
Regarding the PMS grant and Nigeria’s growing debt, Prof. Ife urged the federal government to privatize NNPC in the same way Saudi Arabia privatized Saudi Aramco to raise $25 billion.
Again, he said, “The situation surrounding PMS grants in Nigeria is very opaque. What I suggested was that Nigeria should consider what Saudi Arabia has done. When the Saudis needed $25 billion, they didn’t go to the World Bank or the International Monetary Fund (IMF) or a development bank, they just determined the value of Saudi Aramco, which was more than a trillion dollars, and they put it on the market. and got five percent. That’s how they got the money. Today, that same Saudi Aramco is now worth $2.5 trillion, which is now the highest in the world.
“Nigeria should do the same. NNPC is worth over 50 trillion naira if assessed as a going concern if all assets are added. If the federal government privatizes about 20% of this, it will read over 20 trillion naira. 10 trillion naira can be used for debt risk relief, use part of it to recapitalize NNPC, and then use part of it to pay a subsidy if the government wishes.
For his part, a financial expert, Henry Adigun, argued that the available facts do not support the “mass production of rice” by rice farmers.
“The fact on the ground today is that Nigeria still imports around 80% of the rice it consumes. It’s very funny how someone thinks rice can be grown while there is insecurity in the country,” he said.
Adigun also said inputs such as fertilizers and other essential tools needed to engage in farming are not available.
He further argued that adopting an interventionist approach allows the CBN to assume an “alternative government” status that offers services that distort economic fundamentals.
On how Nigeria can get out of the current quagmire, Adigun insisted that while he offered no solution, the CBN allowing financial institutions and other government agencies to operate would reset the economy and put it back on track. way.
“How can all this encourage foreign direct investment (FDI) in the country where there are four exchange rates? Investors are faced with multiple exchange rates which cause confusion. Money is not sentimental.
“Money flows where the best return on investment is possible. Nigerian inflation did not occur when the war in Ukraine started and it will continue to rise above the current figure due to the policies implemented by the CBN. For Nigeria to beat inflation, it needs to have one rate and maybe two markets. The differentials must be minimal,” he explained.