Prof. Akpan Ekpo is the Director General, West African Institute for Financial and Economic Management. In this interview with ABIOLA ODUTOLA, he picks holes in the economic policies of the Federal Government. For him, government must implement sustainable policies to make the economy and rebound, and act more than it talks
How would you assess the handling of the Nigerian economy by the team of President Muhammadu Buhari, especially as recession bites harder?
The economy has been soaring in recession even before the government admitted. The unfortunate thing is that it is an avoidable development. The economy under the administration is filled with high rate of unemployment among youth, high inflation, high lending rate and 70 per cent of the population in poverty.
In my view, the attitude of the government affects both the demand and the supply side of the economy. The demand side is worsened by the fact that about 24 states owe salaries of workers. So there is insufficient demand in the economy. Workers do not have money to buy goods and services.
On the supply side, we have structural problems because the power supply remains epileptic, the road network is in bad shape. And to make matters worse, the foreign exchange market is in disarray. Putting all these together, the administration has not performed up to expectation. Grounded by these problems, it has not been managed effectively in the last one year. There have been problems with the economy for years now, but it has gotten worse this last one year.
What are the lapses of the government and the way out?
The present administration, in my view, has started to do what it should have done about a year ago. It has started to pump money into the economy by paying some contractors. The delay in passing and implementing the budget had created a serious problem because it means for a long time there was no access of fiscal policy. There were no existing buffers, so there was no fiscal policy. Yet, we need both monetary policy and fiscal policy to fix the economy.
Social programmes are not fully implemented by the government. When an economy is in recession, only the government can stabilise the economy. And in this case, you have to spend on both capital and recurrent projects because salaries have to be paid to the workers.
What is your take on the performance of the Central Bank of Nigeria, especially under the leadership of Mr. Godwin Emefiele?
The CBN’s major mandate is price stability and in Nigeria that is done through monetary policy targeting. Now, each time the Monetary Policy Committee meets, there are discussions on what they are supposed to do but because of development functions of the CBN, they now dabble into some other things that are not supposed to be done by the CBN. Some, in my view, dovetail into fiscal policy. If there was strong fiscal policy to support the monetary policy, perhaps it would have helped.
The CBN has failed with its foreign exchange policy because it did not take into cognisance the nature and structure of our economy before taking certain decisions. For instance, the naira is not a convertible currency and that means you have to change it to dollar or pounds sterling before you can travel abroad or trade and one would have expected the CBN to manage the supply of the currency effectively.
How do you think the apex bank could have managed the situation better?
When it observed the scarcity of the currency due to the sharp decline in oil revenues, it should have moved the band of the exchange rate. Though it was done later but the lateness in implementing the current policy is part of the problem.
Having said that, the policy also has a problem. You are introducing a futures market into a foreign exchange market whose commodity is already scarce. Introducing futures into that market is not correct. That makes sense when an economy is developed with vibrant manufacturing sector and has other sources of earning foreign exchange. So, the model they are trying to implement is not good for our economy, rather, it will heighten speculation and inflation, and if we do not correct it now, it will engage or sharpen uncertainty in the country.
But that is happening already…
Yes, the naira’s value has been dropping almost on a daily basis. It has dropped from N350/$1 to N425/$1 in few weeks. That had affected the price of imported goods because the traders hike their prices in order to have enough naira to buy dollar when they get to the market. In that case, the policy is not helping, because when inflation becomes uncontrollable, it affects the poor people but the rich can dwell on their savings to survive for a while.
If CBN claims it is floating the currency, why are some 41 items still banned. Rather, you should let the Ministry of Finance place a tax on those items, so that whoever wants to import those items will have to pay so much because they are luxurious goods.
Few weeks back, CBN banned nine banks from forex trading due to their inability to remit the Nigeria National Petroleum Corporation fund worth $2.33 billion to the Treasury Single Account. This is one of several policy summersaults witnessed over the years, how does this affect the economy?
For me, what the CBN should have done, since the money is in forex, was not to announce it publicly. Announcing it publicly can create problems, they could have quietly asked the bank MDs to refund the money to the apex bank and hopefully, the CBN will now use the money to back up the naira. Such action creates more scarcity and the value of Naira drops further. Announcing such amount in public will create uncertainty in the market, which will further create problems for the Naira. I don’t support banks violating CBN directives but there are better ways of going around it, especially in this period of recession.
Diversification of the economy is one of the major goals of this administration. Looking at the efforts of President Buhari and his team so far, will you say they are on the right track?
Till this time, I have not seen any sign of concrete action. There is more talk than action. We cannot diversify with the current lending rate of 25 per cent, it is not done anywhere in the world. The first thing to do is to lower the lending rate. Diversification means people should depend less on oil and invest in agriculture and manufacturing among others. Considering the fact that lending rate is 25 per cent, nobody will borrow at that rate and make profit. The lending rate is just too high, the real sector is dead.
Until lending rate becomes single figure or close to it, the real sector will remain dead and the economy will not be diversified. My fear is that, if the oil price starts showing sign of increase, everything we are discussing will die down.
There are a lot of things on paper and nothing has been done. Nigeria has been talking about diversifying the economy for about 45 years. Now, what we need is action, otherwise nothing will happen. We need to know what you are contributing in the value chain. Are we converting cassava into starch? What value are we adding to cocoa to become chocolate?
