Henry Boyo, an industrialist and economist who is passionate about Nigeria adopting economic best practices speaks about what the country fails to do, lamenting that it has been driving the economy in reverse gear
Q: There is hardship in Nigeria, and it affects everybody. Where did it all start
It started from the time the media also became complicit in the culture of reporting government policies which are destructive to the economy with a very bland narrative, despite the fact that as Nigerians, they also suffered the injuries caused by such distortional government policies. In this event, Nigerians have become entrapped by propaganda that ultimately diverts public attention from the actual realities of the adverse impact of government economic policies.
Lately the Finance minister, Adeosun, for example publicly pressurized the Central Bank to bring down interest rates; it is regrettable that the media generally failed to interrogate the true cause of the obvious chasm between the Finance Minister and the Managers of our Monetary Policy.
Many people have been telling the Buhari administration, please stop the blame game, we know you inherited problems from the last administration, please solve the problems you have at hand. I want you to assess how far the economy has fared under the Buhari government and what is he doing that he shouldn’t have done?
The reality that people are suffering is self evident. Although, the blame for the down turn has always been put on low oil prices, and the Niger Delta militants and corruption, but from a historical perspective, you will find that our condition should not be quickly blamed on only these factors.
If you are saying that low oil price and output are responsible for our present economic predicament, then you are also implying that if only we could earn more income, i.e., if price and output of crude oil improve, our economic predicament will be dispelled and Nigerians will be better off when this happens, this is the popular assumption; but if you cast your mind back, when crude oil prices exceeded $120 and output was reasonably consistent above 2 million barrels a day, our dollar reserves expectedly exploded beyond $60bn. The question is, did people’s welfare improve with the bountiful reserves? Did the employment rate in the country increase, did industrial production significantly expand, and did inflation fall to best practice of 2 or 3 per cent? If the answers to all the above questions are No, then you must admit that rising price and increasing crude oil output may not also reverse our current parlous state as presently assumed.
The truth is that we have been operating counterproductive monetary and fiscal strategies all along; we have been driving the economy in reverse gear, with unyielding high rates of inflation above 10 per cent, with high rate of unemployment, low rate of industrial capacity utilization, and a weaker naira. The truth is that the present fall in crude oil price and output only fired the accelerator while the economy remained in reverse gear! That is the reality.
So in order to correct our trajectory, we must shift the gear lever to “drive” so we can move forward and not backwards. What am trying to say is that the forces that support growth and development everywhere are driven by certain indices and if those indices remain inappropriate, the economy will clearly underperform; that is why you find countries that don’t have any resources still performing better than us, despite our bountiful mineral and human resources.
In modern day economies, economic management has become refined to distill certain indices which drive or retard industrial and economic activity; for this reason, Central Banks everywhere are statutorily mandated to manage these indices to achieve meaningful economic goals. For example, we have oil, we have groundnut etc, but we can’t seem to move forward, because inflation rate has never receded to international best practice levels below 3%; investors have to pay over 20% to borrow, while the Naira rate ironically failed to appreciate even when we had best ever dollar reserves.
The first critical index is inflation; unbridled inflation can destroy any economy; I have heard so called experts, intellectuals, and professors who are advocating that CBN should not worry too much about the scourge of inflation, but should concentrate on growth inducing policies by pumping more money into the economy; by making such statements these people expose their ignorance on how a modern day economic system works; the truth of course is that, we can never have meaningful growth when inflation is trending towards 20 per cent.
The right management of inflation is the beginning of economic wisdom; inflation is invariably the starting point; if for example, inflation is at 20 per cent, it means that every year your income must increase by 20 per cent; if not, it means you must cut down on your life style; pensioners will invariably, sadly, lose the total purchasing value of their static incomes in 5 years, with such inflation rate.
Furthermore, if inflation continues to rise, the consumer demand will contract and ultimately negatively impact on domestic production. Why would factory produce more, when there is no consumer demand in the first place.
Secondly, if cost of funds remains high, there is little motivation to invest as it will become difficult to repay your loan and ultimately non performing debts will also increase and may destabilize the banking sector and the economy. From the preceding narrative, you will see that the operation of an economy is an articulated process, inflation affects consumer demand and cost of funds and a combination of both factors adversely affect investment, employment and inclusive economic growth.
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