by Nimi Walson-Jack
We the people and residents of Nigeria must have observed the lack of cash in the economy, increasing unemployment, absence of new industries and retrenchment in existing industries. Many State governments, who are the greatest employers of labour, are unable to pay monthly salaries and allowances. Some are gearing up to rationalize or reduce the task force. The bottom line is “the country is very hard and there is no money”.
Life is more difficult today than 12 months ago. The difficulty has nothing to do with the change in government and the wait for appointment of Ministers. The reason for the poor state of the economy is that our crude oil export sells at its lowest rate. We are getting less money than we used to receive from sales.
Our foreign reserves cannot cover our import bills. Here at home, companies are not expanding. No new jobs are being created. The value of the dollar is high, and imports are now more expensive.
Whether the authorities tell us or not, we must know that Nigeria is either heading into recession or we are already in Recession. That the GDP has been continually in decline since 2014 is not in doubt. The next stop is a depression. It is easier to stop a decline into depression than get out of it so the time for the CBN to act is NOW.
There is a problem in the way our CBN manages the relationship between interest rate and the economy. In all developed economies, interest rates are used to manage and control the economy. For example, in times of inflation, the interest rate is raised in order to stop the economy over- heating i.e. leading to hyper-inflation. Therefore, by increasing interest rate, it reduces the quantity of money in circulation thereby reducing the rate of inflation.
On the other hand, when the economy is in recession the reduction of interest rate to single digit helps to reflate the economy. How? It allows industries and small businesses to borrow money from banks and invest in businesses. As they invest, their businesses grow and employ more staff thereby reducing unemployment.
The present high interest rate in the country is contributing to the unemployment situation. The inter-banks’ lending (Banks lending to Banks) rate is about 11%, while commercial banks’ lending rate to individuals and businesses is about 26%. High interest rate and recession are two parallel lines that should not exist at the same time in an economy. Recession should be opposed with low interest rate.
High interest rate means that individuals and companies are not able to borrow money to invest or do business necessary to stimulate the economy. So rather than companies employing they are reducing staff, which is increasing the unemployment rate.
Even the objectives of the policy of banning certain imports are already defeated by the high interest rate. The so-called opportunities for the business community to produce commodities at home are a mirage as long as the industries cannot access loans for setting up, production or expansion.
In Nigeria there is also no incentive for savings. The interest rate for savings is only a mere 3%. No rational or business person would chose to save money for a 3% interest when there are other more attractive investment options e.g. in properties and land. No wonder people are taking their funds abroad or keeping them at home.
One does not need a degree in economics or banking from an Ivy League University to appreciate these basic economic principles. The Central Bank of Nigeria, and the Federal Ministry of Finance, who control the monetary and fiscal policies, are playing with our future. They have left undone these things they are expected to do and are doing the things they are not supposed to. They are pleasing the Commercial Banks to the detriment of the economy and the people.
Must the Nigerian economy collapse before preventive measures are taken? Why are the Federal Government and CBN saving money, that would eventually be worth less than the paper they are printed on, when they should be encouraging spending?
When President Obama assumed office during a recession, the US Government provided funds to businesses and industries to remain afloat, retain workers, expand and even open new businesses. Today the American economy has recovered.
The Federal Government of Nigeria and the Central Bank of Nigeria must put the interest of Nigerians above every other consideration, the CBN must immediately reduce the exceptionally high interest rate to a single digit of not more than 6%. Let businesses take single digit interest loans to establish, operate and expand.
Let people be employed, their income and expenditure would have a multiplier effect on the economy. Increase the interest rate for savings to ensure funds outside the banks to be brought in.
A stitch in time saves nine. It takes a little bit of oversight to be like Greece. I am really afraid of living in a country that looks like Greece.
Caution: The views expressed here are those of a “Waterside economist”, and should be treated as advisory but not legally bidding until you begin to experience the consequences of an economic depression.
Nimi Walson-Jack is an influential politician from Rivers State of Nigeria. He is a lawyer, criminologist, civic educator, pro-democracy, human rights, and civil society activist. He is a public policy contributor and analyst, an acclaimed publisher. He is a one-time general secretary of the Nigerian Bar Association and served as electoral commissioner in the Rivers State Independent Electoral Commissioner. Connect with him on Facebook.
The opinions expressed in this article are solely those of the author.
