Musings on Buhari’s Prickly Fiscal and Monetary Steps

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RingTrue: With Yemi Adebowale, Email:  yemi.adebowale@thisdaylive.com 

For almost 16 months, this country has been under an administration that is operating with a blurred/stifling fiscal, monetary and trade policies. The biggest albatross of the Buhari administration is not the fall in forex inflow, but the mismanagement of the reduced inflow, which has not favoured the real sector. This is the main reason why this economy is in recession. In the first 13 months of this administration, it fixed the exchange rate at N197/$, while the parallel market price was over N300/$. The government simply refused to allow the Naira to float. At that fixed exchange rate, the main source of supply of forex was the Central Bank of Nigeria. Of course, no normal Nigerian would sell forex to the banks at this rate.

This corrupt policy encouraged massive round-tripping, while the demands of manufacturers, who genuinely needed this forex could not be met at this rate. It greatly slowed down the real sector; and this is the main reason why our GDP is sliding. Manufacturers interested in remaining in business, had to patronise the parallel market to augment the little they got from the official window. No doubt, the government provided the incentive for round-tripping. Who would not take advantage of a perverted policy? Even businessmen in developed societies will do the same. Many became billionaires in Nigeria overnight reselling USD from the official market. This went on for over one year. The fear of the Buhari administration was that if the Naira was allowed to float, prices of goods and services would skyrocket. But it still happened, while the fixed exchange rate was in operation.

Few months ago, the under-pressure Buhari administration eventually (grudgingly) adopted the floating exchange rate. Unfortunately, the Naira, in the real sense of it, is still not being allowed to fully float. This administration, using the CBN, has been manipulating the exchange rate. The result is the growing gap between the official and parallel market rates and more trouble for the real sector. Inflation is still skyrocketing, with prices of goods and services at frightening levels. As at yesterday, the rate at the inter-bank spot market was N308/$, while that of the parallel market was N425/$. The gap between these markets is horrendous. The incentives for round-tripping are still all over the place. Just as Olisa Agbakoba, former president of the Nigerian bar Association noted recently, “If you become the managing director of a bank, and I am buying forex at N200, and I see that if I go out there, I can sell at N400, I will do that.” This is exactly what is happening to our dear Naira.

Change must begin with the forex policy of this administration if we are to get out of this mess. The era of squandering our limited forex must stop. The manipulation of the inter-bank forex market must stop. Naira must be allowed to settle at its true rate. The masses of this country are already suffering with our sliding Naira. The forex market must be fully deregulated to allow level playing field and to remove distortions such as round-tripping. Inflow of USD will instantly improve once manipulations are halted. Right now, investors, both local and foreign don’t have confidence in the Nigerian economy because of this instability and inconsistency in the forex management policy. This has greatly affected forex inflow and Foreign Direct Investment.

Muda Lawal, Director General, Lagos Chamber of Commerce and Industry, LCCI, was apt when he noted: “Historically, autonomous supply of foreign exchange had been higher than that of the Central Bank of Nigeria. This has virtually dried up because of the collapse of investors’ confidence. Of course, the plunge in crude oil price was a major cause. But perhaps the bigger issue is the unstable and inconsistent foreign exchange policy which has continued to create uncertainty in the forex market, thus deepening the liquidity problem.

“For an economy that is in a fragile mode and for an economy that is highly exchange-rate sensitive, policy actions and pronouncements that could impact the market should be done with utmost caution and care. This is imperative to avoid unintended consequences which may hurt the economy in very profound ways. Such is the recent suspension of nine banks from the forex market. These are shocks that the economy can ill afford at this time.”
The implementation of the Treasury Single Account is another step that has contributed greatly to our economic recession.

Money is the oxygen required to reflate a depressed economy. Unfortunately, the Buhari administration does not understand this. It simply transferred over N3 trillion to the CBN vault, in the name of TSA. This action is responsible for the gale of retrenchment in the banks. Freezing over N3 trillion has also slowed down production and consumption. The multiplier effect of spending such money would have improved consumption in our economy. What the TSA sets out to achieve is good. Unfortunately, it has done more harm than good to our economy due to slapdash implementation. In just one fell swoop, trillions of Naira were moved from money deposit banks to the CBN without any consultation with stakeholders. Good cash that should be used to reflate our depressed economy is locked in the vault of the CBN, while Nigerians are gasping for breath. Then, members of this government go around telling the unacquainted that they have over N3 trillion saved in the TSA. This is outlandish.

The suspension of the Export Expansion Grant, EEG, is also negatively affecting manufacturers. Also, outstanding Negotiable Duty Credit Certificates are no longer being honoured by government agencies. “We have made it clear to the government to reintroduce EGG and pay the outstanding NDCC to save many companies that are folding up. Some have folded up already. If nothing is done fast, many companies are still going to fold up; we are hoping that this government will soon do something positive regarding the NDCC,” said MAN President, Frank Jacobs.

Clearly, the main source of our economic problem is Buhari. Our president must rejig himself for things to improve. Yes, it is pertinent to reshuffle his cabinet, to remove the clowns and sycophants that dominate. However, Buhari himself must give his ministers and the CBN governor a free hand to do their jobs. Our President must start thinking and acting like a twenty-first century man, because he is heading a twenty-first century economy. His present command and control tactics must end. At present, ministers and heads of departments and agencies are summoned to Aso Rock and issued instructions like puppets.

Again, our president has spent virtually his entire 16 months blaming his predecessors, while offering no concrete alternatives to the purported decay he claims to have inherited. This must stop. How I wish he would listen to genuine patriots like the Catholic Bishop of Sokoto Diocese, Matthew Hassan Kukah. He remarked on Tuesday: “We didn’t vote a government to complain about yesterday, if we wanted yesterday the new government would not be there. It is really about taking responsibility. No matter how much you praise or abuse Jonathan, he is not the President of Nigeria. I think that people must understand; you take power to solve problems, not to agonise. As the head of a family, no matter how bad things are: no food in the house; you as a father can’t enter the house crying. It is the question of developing the mechanism: you can’t solve the problem.

“Even my best friends in APC now realise that nobody can sing the song about Jonathan being responsible for the problems we are in. We are not asking you to change the whole world, but Jonathan created problems: we are now riding a train between Abuja and Kaduna now; the train wasn’t there before. Things that Jonathan did that can help Nigeria, let’s continue with them. The bad things that Jonathan did and those who deserve to go to prison should go to prison. But sending people to prison will only be useful if it puts bread on the table of people.”

On a last note, Buhari should stop spreading falsehood about inheriting nothing from previous administrations. I will address this fully next week. However, this bit should interest honest Nigerians. The Nigeria Sovereign Investment Authority, NSIA, was created by the Jonathan administration to manage our Sovereign Wealth Fund. The bulk of the money it is currently managing ($1 billion), was saved by Goodluck Jonathan. The Jonathan administration also left about $30 billion in our external reserves. So, the story Buhari told us on Sallah day that the previous administration saved nothing is false. Yes, there was corruption in the previous administration; we should also be honest enough to give them credit for the good things they did. Goodluck Jonathan was not all bad news.

Still on Bailout for Governors

The position of the former Minister of State, (Police Affairs) Dr. Ibrahim Lame on the persistent financial bailout to state governors by President Buhari is thought-provoking. Lame, a chieftain of the All Progressives Congress in Bauchi State wants Buhari to halt the bailout, because, instead of using it to settle outstanding salaries, many of the governors diverted the money to other purposes, thereby inflicting hardship on civil servants.

Lame remarked: “The federal government should establish liaison offices in all the states of the federation so that it could directly carry out projects that would impact positively on the citizens rather than doling out such money to the governors who pump half of it into their security votes. As a President, you are not supposed to give bailouts to states; you are supposed to bail out the economy. Let the governors go and meet their campaign promises. They should look inwards and look for money because there were problems in the economy when they came in.”

This former minister has simply reiterated the position of sensible Nigerians on the bogus bailout. It is a shame that our president, who gave out the money, did not even review it, to see if it was used for the prescribed purpose. Now that a big man from the APC has come out against bailout, I hope the president will listen.

When Will Apapa Get Promised Facelift?

The persistent rain in Lagos has compounded the woes of residents and workers in this community hosting the nation’s biggest and busiest sea ports. Craters in Apapa, are capable of swallowing vehicles. There is this frightening one by Airways Bus Stop that has left many cars in shambles. This problem of craters aside, the persistent traffic congestion created by lawless lorry drivers in the area is still very much alive. The story then was that Apapa was in crisis because the party controlling the government at the centre was different from that in Lagos. But 16 months after the central government changed hands and aligned with that of Lagos State, the story of Apapa has not changed significantly. That was why I was depressed when Governor Akinwunmi Ambode said his administration was committed to restoring the glory of the Apapa area when the management team of the Nigeria Ports Authority, led by its Managing Director, Hadiza Usman, visited him recently. So, when will the transformation of Apapa into a beauty to behold start, as indicated by Ambode? It seems the Governor of Lagos and Buhari have forgotten that they have just two years and eight months to go.