By Joshua Ephraim Danladi
It has been reported today, that the CBN has raised the interest rate to 27.50% .
I am not an economic expert; I am a lay man, and below is my understanding of what has ( or will ) , happen :
.
So, CBN is still struggling with excess liquidity, in the economy?
My elementary economics tells me that when there is excess liquidity , in the economy, the Central bank ( on its part ) , can use several monetary instruments, one of which is to encourage people to save, by manipulating the interest rates.
In this case, the rates are raised, to encourage people, not to spend, or not to borrow, but to save.
Invariably , it means that people are being discouraged, from taking loans, or borrowing, as the rates payable on such loans , will be very high, and discouraging, and this may make repayment difficult. The repayment would be far above this fixed rate by the CBN .
We have been informed that this action is necessary , in order to control the growing inflation in the economy.
However,, this rise would cause sources of financing of investments to become very expensive. This will certainly, adversely, affect investments, in the economy.
When this happens,, it will also affect potentials for employment,, and invariably the sources of income of the ordinary Nigerian, would become limited, and there will be massive unemployment .
It would seem that the issue of excess liquidity ,in the economy, shows itself , when too much money is available, or is pumped, into circulation,, and such large amount of money begins to chase fewer goods, as production of goods and services has not changed. In other words, we will have a situation of too much money chasing the same quantity of goods.
But in Nigeria’s present situation, it is not like that. The excess money is in the hands of a very, very few people ,who retain such excess liquidity , outside the system, or a lot of it was exchanged for the limited forex we had . Those who should make effective demands are therefore hamstrung by little, or no disposable income, available to them . In this situation therefore, you will have the goods, but there will not be what Economists call,
” effective demand “.
To, some of us, the correct actions by the monetary authorities, would have been, how to remove this excess liquidity, that is in the hands of the few, and ensuring that the common man, ( who is not the cause of this excess liquidity), is taken care of.
Secondly, there seems to be no proper linkage of the cause of the inflationary, spiral, in the economy .
To some of us, we feel that this inflationary spiral has been caused, by the floating of the local currency against the dollar . The Naira was previously denominated against the dollar, but now, it is allowed to float.
The source of our forex is from a mono-product –the crude oil, ( which itself had been massively stolen ) , while the official production of this crude fell from an apex production rate of 2.2 million barrels per day, to a low of about 800,000 barrels per day. From that low, it started growing back again, to the present 1.5 million barrels per day.
We should also bear in mind, that the Nigerian economy is an import–dependent economy. Therefore, it means whatever happens to that one source of forex, will affect the whole economy.
As the Naira was allowed to float, it had to find its true value vis a viz the dollar.
There was already, excess liquidity, in the system, caused by the CBN’s corrupt “ways and means” ( paper money, printing, not backed by any value, ).
The Naira was massively printed ( N25 trillion ? ? ), and floated into the economy . This was bound to have inflationary effect .
This Excessly produced Naira found its way to a few who,had priviledged access to it. They therefore, used it to mop up, the available forex, and the proceeds hidden in all kinds of places, outside the system.
It is only natural that with these actions, the Naira would lose its value, vis a viz the forex.
So, far, the Naira has lost its value vis a viz the dollar by about 400% — 500 %.
Yet, majority of Nigerians’ income still remained fixed, while there is massive unemployment .
Even with the review, and increase, of the minimum wage ( to N70,000), this increase ought to have been proportional to the loss of the value of the Naira vis a viz the dollar, by four to five hundred percent too, from the former minimum wage of N30,000 . Yet it is that highly appreciated dollar that is used to import, virtually all products Nigerians need.
The effect of this is therefore, is to make majority of Nigerians not to be able to afford these imported products , what Economists call,
” in- effective demand”.
Therefore, to begin to manipulate interest rates, by raising them, on the excuse if trying to control that inflation, is to be economical with the truth, and to try to be diversionary, or at worst we can term it ignorance.
A student of cause/effect, will most likely concentrate on what caused the inflation, and not to assume,(as they have presently, done ) , that the “excess liquidity” , is in the hands of the majority of, or all Nigerians.
With due respects, we say no. The excess liquidity, is not evenly spread, within the economy. It is in the hands of a few
” thieves”, in the past Buhari government.
Therefore, whatever is done ( by trying to make people bring in such proceeds, into the banking system ), will not attract those thieves to deposit such illegal proceeds, within the system ( that is, in the banks ). The last thing would be for them to expose their theft and corruption, to the authorities and to the public.
Yet the monetary authorities, are not looking at it from this angle: they are merely, being theoretical, and thereby being blind, either ignorantly, or intentionally. This is unfair.
We would have expected that the Authorities should focus, on the cause of the inflationary spiral , in the economy.
They could do so at four levels :
1. Increase the production of crude oil, and reign-in LNG production as well ;
2.fix the value of the Naira, vis a viz the dollar, and subsidize it the Naira ;
3.go after those “thieves”. At least, they are known and;
4.withdraw the Naira, and redenominate it, by removing one decimal point. i.e. N300.00 will become N30.00.This was done during Buhari’s military regime, in the eighties.
Finally, stimulate the production of goods and services ,by promoting investments, and making the economic environment attractive to both foreign and local investors.
But it will be hard to achieve the objective of stimulating the economy and attracting investments.
The success of this goal would depend on the general security in the country.
There is also massive hunger in the land. This is an agricultural country. Yet due to insecurity, farmers can not reach their farms. This is due to the massive insecurity.
This massive insecurity, is more so, in the former Northern region which , most often, had acquired the reputation of being the “food-basket” of the country.
INSECURITY IN THE NORTH:
There appears to be a new dimension to this insecurity, in the North. It seems criminality, is taking a religious dimension, and more worrisome , it seems, there is now the incidence of, more and more, international terrorist organisations, becoming involved, in the terrorism, in the country, and particularly, in the North.
Within the West African sub-region, particularly countries we share borders with, there is a new on-set of insecurity, which may be as a result of lack of cooperation among the countries in the sub-region.
Our borders are extremely porous, and Nigerians in those border areas, are not sufficiently sensitized, as to the need to be patriotic and to be security conscious .
We would advise, especially, with the present political instability in the country, wherein, the core-north feels it is politically short-changed, and the political atmosphere hazy , President Tinubu, should consider declaring a state of emergency, in states of the core-north, during which period, the constitution is suspended, due to the emergency, while the area is governed militarily. It would seem the present civil authorities appear to be incapable of restoring peace, security, and progress, and this would not augur well for the country, at large .
* Bartister J..D.EPHRAIM.writes from Abujs