Rewane: Sub-national Experience Not Enough to Run Government at Federal Level

•Says Nigeria’s economy plagued with misalignment between policy direction, economic destination

Dike Onwuamaeze

The Managing Director/Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, has called the attention of President Bola Ahmed Tinubu’s administration on the, “need to ramp up the skills in understanding federal and national economic dynamics” because experience gained at state government’s level is not enough to run a federal government.

Rewane pointed out that the Tinubu’s “management team is vast and experienced in subnational economic policies” and warned that, “transplanting a state team to run a federal structure has serious limitations.”

He also observed that, “Nigeria has moved far ahead in the economic decay curve,” warning that “subnational experience is inadequate for running a federal government. Therefore, new skills and capacity are required because state executive councils do not have responsibility for macros, i.e. growth, inflation, external obligations, exchange rate management, foreign policy and external affairs management.”

Rewane, stated emphatically that “the All Progressive Congress (APC) will have to prove that it is not an oligarch machine,” and advised that, “the presidency will have to maintain a distance from political cronies and hustlers and focus on pure economic management for the next 12 to 18 months.”

According to him, “exchange rate management and allowing for price discovery are critical to the political favourability calculus.”

Rewane, expressed these views in a paper he presented at the November edition of the Lagos Business School Breakfast Session titled “Policy Direction Misaligned with Economic Destination” in which he said that the country’s domestic environment is “caught in a web of economic contradictions.”

He said there was a, “disconnection between policy direction and economic destination.”

Rewane identified the country’s economic destination in the next eight years as achieving a GDP of $1trillion, average annual growth rate of 7.0 per cent, interest rate of 9.0 per cent, inflation rate of 13 per cent, exchange rate of N550-N600/ dollar and the projection that unemployment would fall to 17 per cent from 33 per cent.

However, the policy direction is “monetary tightening but loose monetary conditions” and “foreign exchange reform in theory but managed fixed exchange rate in reality,” adding that personnel changes are not the same as policy changes.

He noted that “credibility gap makes policy ineffective” while “lags are increasing as people’s belief evaporates” and “credibility gap continues to widen making policy implementation more arduous.”

He further pointed out that “the lags between policy articulation, announcement, impact and peoples’ belief are becoming wider,’ adding that the recent “Supreme Court’s judgment (on the 2023 presidential election) and the bickering of retired judges are making a bad situation worse.”

According to him, “macroeconomic stability is dependent mainly on good policies but more on credibility.”

The revered economist also attributed the volatility in Nigeria’s foreign exchange market to the crisis of false expectation and lack of clarity on the sources of dollar, which is fueling currency speculation.

He also expressed the view that the naira was theoretically undervalued by 20.46 per cent at NAFEM rate of N993.82 and 31.86 per cent at NAFEM rate of N1,160 assuming the unification of exchange rates, emphasing that the Purchasing Power Parity (PPP) of the Naira is N790.44 per dollar.

He also remarked that Nigeria’s foreign exchange market is structurally defective, opaque and controlled by rent-seeking oligarchs who also control the political machine.

Rewane, also averred that the features of current structure of the country’s supply of foreign exchange bore the characteristics of price discriminating monopoly as the Central Bank of Nigeria (CBN) is controlling 85 per cent of foreign exchange supply to the market with no price discoveries, which     is creating arbitrage opportunities.

He advised that the solution was for the CBN to promote transparency, efficiency and price discovery in the foreign exchange market through a wholesale auction system where banks, financial institutions and large corporations should submit bids and offer for specific currency pairs (e.g., USD/NGN, GBP/NGN) at specified prices and quantities.

According to him, this would enhance transparency in the foreign exchange market by affording participants equal access to pricing information. Its other benefits, he said, included price discovery as exchange rate is determined based on bids and offers to promote stability and liquidity of the market.