TURNING THE ECONOMY AROUND
Suleiman Abubakar argues that the President needs seasoned economists to drive his vision
A Central Bank is remarkably different from a commercial bank. That is a statement of fact. A commercial bank basically attracts deposits at a given interest rate, and uses it to create loans at a higher interest rate, thereby making profit. In contrast, a central bank is a crucial economic institution that plays a pivotal role in a country’s monetary and economic system. Its primary function is to engender price and monetary stability in order to achieve specific economic objectives and support sustainable economic growth. Because of the all-important role it plays, it is easily called the banker’s bank, lender of last resort. Central bank’s policies help commercial banks to define their own monetary stability in a more holistic manner to engender a growing economy, and a healthy financial system in the country.
In Nigeria, the central bank’s responsibilities are laid out in Section 2 of the Central Bank of Nigeria Act (2007) to include price stability, reserve management, monetary/financial stability, and provision of economic advice to the federal government. While the CBN has tried to manage these responsibilities to the best of its ability, the current economic conditions of the country are not showing good signs to elicit the kind of confidence that should exist within the system.
Inflation has been over 10 percent for the past 16 years and is currently at 24 percent, making it one of the highest in Africa. The country’s unemployment rate stands at 33.3 percent, which is the second highest on the global list of countries monitored by Bloomberg. This rate of unemployment translates into over 23 million Nigerians who are unemployed, which is more than the entire population of Romania, Mali, Netherlands, Burkina Faso, Zambia, or Portugal. With current trajectories, the unemployment rate could surpass 40 percent in the coming years.
Over the past seven years, Nigeria’s economy has grown by less than one percent on average. With a population growth that is slightly over three percent, and inflation is more than 24 percent, GDP growth has to be at least 6-7 percent in order to have any meaningful impact on ordinary Nigerians. Given these numbers, it is not surprising that poverty has become endemic in the country. According to the World Bank, Nigeria’s headcount poverty ratio at US$2.15 per day is 31 percent, giving the country the unenviable position of the world’s poverty capital.
In addition, Nigeria consistently imports more than it exports, even though it is one of the world’s major oil exporters. According to data from the Observatory of Economic Complexities (OEC), Nigeria imported goods worth US$61.7 billion in 2021 but exported goods worth US$57 billion in the same year, leaving a deficit of almost US$5 billion. In the last 12 months, exports from Nigeria stood at US$30.7 billion while imports are already above US$39.9 billion. Such deficits are not presenting a healthy economic scenario for Nigeria.
On the basis of these metrices, the Naira has been under persistent pressure for a long time. In 2023 alone, it has depreciated by nearly 75 percent, translating into higher pressure on local prices, particularly in light of subsidy reform, which has significantly raised transport and logistics costs. While the subsidy removal is desirable, the country must make quick intervention in fixing the local refineries to cater for local production of petrol to service local demands and consumption. The promise by government to fix the Port Harcourt refinery by December 2023 is a sure-footed opportunity to reverse the trend in coping with the incidentals occasioned by the removal of subsidy.
While gross foreign exchange reserves are officially at US$33.7 billion, word on the streets is that the CBN has current obligations in swaps and forwards that significantly reduce the reserves. A new government has moved quickly to make bold moves to remove fuel subsidies and liberalise exchange rates, delicate issues swerved by policymakers for a generation. Nigeria needs to see positive results, and quickly: this can be done by selecting a person with the right skills and capacity atop the Central Bank to deliver the dividends that these new policies offer but do not automatically guarantee. A thorough-bred economist with a rich network of influence in the global financial system will be best suited to mount the leadership of the apex bank, to properly redefine the status of the bank and take it to the good old days.
There is no doubt that if the only tool in someone’s box is a hammer, everything he/she sees would look like a nail. That is why the appointment of investment or commercial bankers as Governors have tended to make operations of the apex bank appear more as a commercial bank rather than playing its enviable role as a policy bank.
The new government in the country has set the right tone for a robust engagement across board, but the President must, as a matter of priority appoint an economist with a rich experience and expertise to utilise all these visions for the greater good of the country. To his credit, Mr. President has already a new strategy and vision. It needs the people to make those policies a success. With a cabinet in place, nothing is more critical now than the appointment of a new Central Bank Governor. There will be all kinds of political and security considerations to be made. But given the precarious state of both our domestic and the global economy, the key consideration at this time has to be competence and capacity to tackle inflation, stabilise the exchange rate, provide sound economic advice to the government, and manage the supply of key monetary aggregates. These matters are not the forte of a commercial banker. They require a seasoned economist.
Abubakar writes from Abuja
