OPINION: CBN and the Nigerian economy – Henry Boyo

Published:21 Jan, 2013

CBN-HeadquartersLast Monday, January 14, the Pastor Tunde Bakare-led ‘Save Nigeria Group’ marked the anniversary of the 2012 “Occupy Nigeria” fuel subsidy protest in Lagos with a public lecture titled “Nigeria’s Fiscal and Monetary Crisis: the Way Forward”.  The occasion afforded the Central Bank of Nigeria the opportunity to publicly defend its failure to create an enabling environment for industries and businesses to bloom, in consonance with its core mandate for price stability.  The major indicators of price stability, of course, relate to conducive low single-digit interest rates for bank loans and an even lower inflation rate.

I was privileged to be a guest speaker at the forum, where the CBN Directors of Research and Finance argued that it was virtually impossible to resolve what they described as the “unholy trinity” of low interest and inflation rates, and simultaneously also improve  naira’s exchange rate.

Nonetheless, the apex bank commended its own performance on these indices when compared with other economies in West Africa.  Why they chose to benchmark their performance against ducks, when indeed, they should be aspiring to be eagles, remains unclear.

However, the directors were hard pressed to identify any nation that successfully grew its economy with cost of funds to the real sector at over 20 per cent, and abiding inflation rate at over 12 per cent, while its domestic currency rate is constantly threatened by increasing export dollar revenue.  In order to compensate for its failure to enthrone an enabling monetary strategy, the CBN reported its involvement in several projects such as the cash-lite policy and various selective bailout packages involving hundreds of billions of naira.

The source of these huge cash injections including the N1bn donation to a particular university remains a mystery. Regrettably, these rogue interventions have so far failed to revitalise beneficiary subsectors and stimulate economic growth and employment opportunities.

Interestingly, the CBN rejected responsibility for the nation’s poor infrastructural base, as well as blame for the inability to diversify production in our economy.  The apex bank’s representatives were obviously in denial of the fact that massive infrastructural enhancement is impossible with double digit interest and inflation rates. For example, Bi-Courtney would most probably have since revamped the Lagos-Ibadan Expressway if cost of funds were as low as five  per cent rather than 20 per cent or more.  Also, the agricultural, power, aviation, textile, transport and other sectors would similarly be much stronger if operators in each sector also had access to much cheaper funds.

Indeed, Nigeria’s paltry annual capital budget of barely $9bn indicates that our hope for rapid infrastructural enhancement is better placed on private sector investments.

Nonetheless, the CBN boasted that only the uninformed would demand a stronger naira rate of exchange, as textbook economics suggests that a strong naira rate would make Nigerian products more expensive than imports!  The fallacy of this argument was obviously ignored, as reckless depreciation of the naira from stronger than parity to about N160:$1 has obviously had a negative rather than a positive growth impact on exports and other sectors of the Nigerian economy.  The CBN certainly misses the point that the demand for oil, our major export, does not depend on naira’s exchange rate!

Surprisingly, the CBN’s understanding of its core mandate of price stability seems related primarily to modulation of excessive high and low cycles in the levels of interest and inflation rates rather than the promotion of enabling rates as in industrialised and successful economies elsewhere!  Besides, according to the CBN, the capital market remains a cheap source of funds for all investors, including Small and Medium Enterprises.

The CBN directors were obviously acquainted with my strident advocacy for an urgent review of Nigeria’s monetary strategy, but quickly described the thrust of our argument as “misleading, misguiding and miseducating”!  Regrettably, however, they failed to demonstrate the logic beneath this questionable conclusion.

They also failed to justify why Nigeria’s economy has remained a victim of surplus cash for decades, or indeed, why the burden of excess liquidity exists side by side with the failure of the real sector to access adequate and cheap funds!  Besides, there was no satisfactory explanation why the CBN combats inflation by borrowing back perceived excess cash in the economy from commercial banks at rates above 12 per cent, only to warehouse the loans as idle funds.  It is inexplicable that any commodity would become more expensive whenever the market is awash with a surplus of that item, especially when the CBN also agrees that our high rates were the product of market demand and supply.

The CBN is obviously unrepentant for crowding out the real sector by borrowing at outrageous levels of interest rate while such risk-free sovereign borrowings in successful economies elsewhere generally attract lower single-digit interest rates; rates level, which the CBN insists are inapplicable in our state of development.

The directors did not even attempt to fault my observation that the CBN’s inability to achieve its core mandate of price stability is actually the product of its poor management of money supply!  It is nonetheless, irrefutable that the ever-present burden of excess liquidity induces heavy government borrowings at high interest rates and also fuels inflation rate as the increasingly huge cash surplus in the system cannot be immediately matched by available goods and services.  This systemic cash surplus is regularly pitched against relatively paltry dollar auctions by the CBN, and this ultimately also depreciates naira’s exchange rate!

Undoubtedly, the CBN’s alleged “unholy trinity” of interest, inflation and exchange rates have a common causative influence; i.e. the ever-present burden of excess liquidity.

Instructively, massive reduction or total elimination of excess liquidity will actually create a “holy trinity” of lower single-digit interest and inflation rates and also engender a stronger naira, all of which constitute the requisite profile for an enabling environment for growth and economic development with increasing employment opportunities.

In truth, the economic poison of excess liquidity is not administered by increased government spending, as often alleged, but by CBN’s capture of the nation’s dollar revenue and substitution with naira allocations to the three tiers of government.

The CBN’s claim that they are compelled by the constitution to substitute naira allocation for dollar revenue is certainly not substantiated by Section 162 of the constitution, which simply states that all monies must be paid into the federation account.  The section really does not stop the three tiers of government from maintaining domiciliary accounts just like any other citizen.

We will discuss the CBN’s lion share of our reserves next week!


Henry Boyo (lesleba@lesleba.com

One thought on “OPINION: CBN and the Nigerian economy – Henry Boyo”

  1. Great insights into the dilapidation in our economy, from the above write up, it’s obvious that we need strong policies to check liquidity level in Nigeria.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts

Recent Posts

I Will Nominate Aisha Buhari As my Running Mate in 2019 – Agoro

Founder and former presidential candidate of the National Action Council (NAC), Dr Olapade Agoro, wants Aisha Buhari, wife of President Muhammadu Buhari to be his running mate for the 2019 election. In an interview with Daily Independent, Agoro said: “If I have my way, I will nominate Aisha Buhari as my running mate in 2019. I am looking forward to meeting with Buhari and tell him that Aisha is not fit for the kitchen. “Buhari made a mistake building up...

Suge Knight Claims Dr. Dre Hired Hitman To Kill Him In $300 Million Lawsuit

Suge Knight and Dr. Dre have had a longstanding feud, one outlined in N.W.A’s biopic Straight Outta Compton. Now, that dispute is intensifying with a new lawsuit.  Knight believes Dre hired a hitman to kill him on two separate occasions in order to avoid paying him as part of their alleged lifetime management deal, according to TMZ.  The first of these incidents took place at 1OAK nightclub...

We Fought Corruption Without Making Noise– Jonathan

Former President Goodluck Jonathan has said that his administration fought corruption in the country without making noise about it. Mr. Jonathan said this on Monday while speaking at the Oxford Union of the University of Oxford in the United Kingdom. The immediate past Nigerian leader spoke on the theme “Promoting Youth Entrepreneurship”. Responding to inquiries by some of the students regarding his administration’s fight against corruption, Mr. Jonathan said he would not like to...

EFCC Arrests Reuben Abati Over N100 Million Funds

The Economic and Financial Crimes Commission (EFCC) has arrested Reuben Abati, a former spokesman to former President Goodluck Jonathan, over allegations of financial crimes. According to an EFCC source, Abati is being interrogated over allegation of collecting about N100 million from the former National Security Adviser (NSA) Sambo Dasuki. The source added that Abati is likely to be detained by the EFCC in its Abuja detention facility. Credit: dailytrust

I Beheaded My Victim To Avoid Running Mad, Arrested Man Confesses

The Police in Abia State have arrested a man, Emmanuel Effiong, who said he beheaded a woman in order to prevent himself from running mad. Effiong, who pleaded guilty in an interview with newsmen in Aba during his parade by the Abia Commissioner of Police, Mr. Leye Oyebade, said he beheaded the woman in the night and threw her head into the Aba River. He said a spiritualist had advised him to perform the act as a sacrifice to avert...

Police To Create Special Unit To Tackle Cybercrime

The Nigeria Police Force on Monday said it would create a Specialists Unit to deal with the rising cases of cybercrime in the country. The Inspector-General of Police (I-G), Mr. Ibrahim Idris, disclosed this at a three-day Training Workshop on Cybercrime for police officers in Abuja. Idris was represented by AIG Umar Shehu, Assistant Inspector-General of Police, Intelligence department. He said that the training further demonstrated the commitment of the force to check cybercrime...

Jay Z to Perform Ohio Concert for Hillary Clinton

Jay-Z is set to perform a “get out the vote” concert in Ohio, prior to Election Day, with the aim of getting black voters out for Hillary Clinton in the key swing state. The date nor the venue of the performance have been confirmed but a Clinton aide confirmed to BuzzFeed News on Monday that the show will take place in Cleveland. The gig comes as part of Clinton’s effort to lock up key battleground states, with...

EFCC Recovers Over N325m From Politicians, Individuals In North-east

The Economic and Financial Crimes Commission (EFCC) says it has recovered N325,181,919.00 from politicians and individuals the Northeast zone and secured five convictions in its operations across the states there.   Aminu Ado Aminu, EFCC Head of Operations, made this known in Gombe at the weekend while recounting the successes from January 2016 to date within the zone. It comprises Adamawa, Bauchi,...

What Buhari, APC Governors Discussed In Closed Door Meeting (SEE PHOTOS)

The All Progressives Congress on Monday said the lingering economic crisis in the country should no longer be blamed on the 16-year streak of the Peoples Democratic Party, PDP. The party said it could no longer continue to blame past administrations for the enormous hardship Nigerians are grappling with. The...

Video: Reminisce Ft. Seriki, Ola Dips & Ice Prince – Feego

Reminisce Releases the official video to his ‘street hop’ titled “Feego”, the second song off his Cypher Sessions project. “Feego” enlists the creative madness of veteran Ibile MC Seriki; the young king of the new school Ola Dips; and the indomitable Ice Prince. Watch as rappers exchange punchlines on the jaw dropping beat. This is certainly a must watch video for all Hip-Hop lovers. Check the visuals out below and share your views! AUDIO DOWNLOAD Watch “Feego” Video by...

Manchester United vs Man City to Be Refereed By Mike Dean

Mike Dean has been appointed as the referee for the midweek EFL Cup fixture between Manchester United and Manchester City. The 48-year-old will be overseeing his third Manchester derby, his last being in 2013 as City defeated United 2-1 at Old Trafford with goals from James Milner and Sergio Aguero. Dean has shown 38 yellow cards thus far in the 2016-17 Premier League season, whilst the one red card he has dished out was to United loanee Adnan Januzaj...

Protest: Benin-Lagos Highway Totally Shut Over Plans to Relocate Traders

Protesters on Monday blocked the Uselu/Ugbowo section of the Benin-Lagos highway over plans by Egor Local Government Area of Edo to relocate traders. The protesters, under the aegis of Uselu Market Women Association, were resisting the directive to move to lock-up stores built by the council. The women, displaying placards, blocked both sides of the highway, preventing motorists from continuing with their trips. Some of the women said the N1.2 million charged for the stalls was too expensive for them, especially...

“I belong to the kitchen, living room, other room”– Mrs Wike

Justice Eberechi Suzzette Nyesom-Wike backed the President, by saying that she belongs to the kitchen, the living room and every room created by God while speaking at the 10th Biennial Diocesan Women’s Guild Conference Thanksgiving Service of the Anglican Diocese of the Niger Delta North in Saint Thomas Anglican Church, Diobu, Port Harcourt yesterday.   According to her, “All women have been through a lot as they strive to build the society.   “Our contributions to societal development cannot be underestimated.   “I belong to...

NJC plans to stop publication of petitions against judges.

The National Judicial Council is set to bar media reportage of allegations of misconduct levelled against judges and employees of the judiciary. This is contained in the National Judicial Policy to be launched by the NJC on Monday and which will widen the dark veil that shields disciplinary proceedings against judges. Under the new policy, the NJC or any institutions of the judiciary shall discard a complaint sent against a judge or employee of the judiciary for investigation if after receiving...

Military operation won’t stop us – Militants

Adaka Boro Avengers (ABA) has said military presence in the Niger Delta will not stop agitation for control of resources. The ABA said hostilities will soon break out in the Niger Delta but held out that it is ready for a dialogue process that would be led by Chief Edwin Clark. “All we want you to know is that hostilities in the Niger Delta region will soon begin because the time that was given to you was enough for any meaningful...

Ondo guber: I remain PDP candidate – Ibrahim

The factional candidate of the Peoples Democratic Party, PDP, in the November 2016 Ondo State governorship election, Jimoh Ibrahim, has accused the Independent National Electoral Commission of trying to exclude him from the election by not accepting his papers as the authentic candidate of the PDP. Addressing a press conference in Abuja, yesterday evening, Ibrahim, said the Independent National Electoral Commission (INEC) is not an appeal court, therefore, cannot determine who is the PDP candidate in the election. The business mogul’s...

14-Year Old Girl Connives With Soldier Boyfriend, 20, To Kill Mom Because She Was Against Their Relationship

Young Jamie Silvonek might have only been 14, but her intelligence and grown-up mannerisms defied her age. Adults spoke to her like an equal and her teachers accelerated her learning. So when the young blonde caught the eye of an army cadet at a music gig in Pennsylvania in October 2014, Jamie had no problem persuading him she was about to turn 18. Caleb Barnes was 20, and very taken with Jamie. She lived in Allentown and soldier Caleb has based...

Father Sentenced to 1,503 Years in Prison for Raping Teenage Daughter

A 41-year-old man in Fresno, Califonia was sentenced to 1,503 years in prison for raping his teenage daughter over a four-year period. The man was sentenced Friday, October 21, to the longest-known prison sentence in Fresno Superior Court history. The Associated Press is not naming the man because it could identify his daughter. They also don't name victims of sexual abuse. In announcing the punishment, Judge Edward Sarkisian Jr. told the man he is a "serious danger...

Police Nabs Child Trafficking Syndicate in Akwa Ibom, Rescue 2-Month-old Baby Sold For N450,000

The Akwa Ibom Police Command has arrested a child trafficking syndicate and a woman for allegedly buying a 2-month-old baby for N450,000. The suspected traffickers were paraded to journalists on Saturday, October 22, at the state police headquarters in Uyo. Those paraded included a homeopathic doctor, Eneyo Nyang, who is accused of running the baby factory, two teenage girls and a twenty-four year- old mother Comfort Effiong, who had sold her two-month old baby to a 51-year-old woman, Rose Edwardfor...

Meet UNILORIN Medicine Graduate that Bagged 19 Awards at her Convocation

Yusuf Ololade Faidat, bagged 19 prizes at the University of Ilorin 32nd convocation ceremony that held yesterday. Faidat, who is in her early 20s beat the men in her department to win the prize for the best graduating student from the Department of Medicine, Faculty of Health Sciences. She received the prize of N20,000 awarded each session by the Senate to the student adjudged to be the best in each faculty. She also got another prize of N10,000,...

Former IGP Solomon Arase Denies 19 Vehicles were Recovered From Him

The Immediate past Inspector General of Police, IGP, Solomon Arase has denied allegations that 19 assorted vehicles belonging to the police force were recovered from him. A Special Investigation Panel set up by Arase’s successor, Ibrahim Idris had revealed over the weekend, that vehicle to include sedans, Sports Utility Vehicles and pick-up vans were recovered from the former police boss. The ex-IGP, in a statement he personally signed on Monday morning, stated that it was clear that some...