ICAN and the source of Nigeria’s economic failure

Blaming years of neglect and mismanagement for the country’s unsatisfactory state and convinced of the urgent need to reinvent the economic wheel, the Institute of Chartered Accountants of Nigeria (ICAN) on April 24, 2017 invited “experts in various fields” to an economic discourse to help identify and articulate the economic challenges, find short, medium and long-term solutions to them as well as to chart “how to move on economically as a nation.” However, from media reports, ICAN’s search did not unearth any shred of reinvention or new method of handling the economy that would yield better results than what is in place. Perhaps, that outcome was predictable because the lead speakers at the discourse have long been associated directly or indirectly with the policies that led to the economic mismanagement, the dismantling of which necessitated the discourse.

Notwithstanding ICAN’s long overdue realisation of the undesirable state of the economy, its stated intention is on the surface laudable, because the institute is eminently qualified to demand proper management of the national economy, to keep abreast with economic best practice and to insist that handlers of the economy conform to best practice at all times. Thankfully, the object of ICAN’s search, the root cause of the national economic challenges, has long been identified. As the economic lifeblood, the national currency should be soundly managed and realistically valued in order to eliminate economic distortions and promote sustainable economic progress. But the naira has for decades lacked these attributes and as a result multifaceted economic problems became unleashed.

Similarly, unwavering pointing to the road that leads to economic success has been the core of the ongoing campaign on the media since 2001, namely, insistent demand for proper management of the country’s oil proceeds. In this regard, coming as a handy reminder is the IMF report on the 2017 Article IV Consultation with Nigeria which “urged the (Nigerian) authorities to remove the remaining restrictions and multiple currency practices, thus unifying the foreign exchange market”. A realistic foreign exchange rate emerges from a unified forex market.

Now, how did multiple currency practices come about? To begin with, the country’s constitutions since independence and the various versions of the CBN’s enabling law since 1959 prescribe a single Nigerian currency for all legitimate economic transactions in the country. But there emerged creeping infractions of the stipulation until the Interim National Government-sponsored Nigerian Economic Summit Group (NESG), which dances to the dictates of foreign-owned enterprises, schemed and procured the Foreign Exchange Monitoring and Miscellaneous Provisions Decree 1995. The decree opened the door to multiple currency practices such as operating dollar domiciliary accounts without time limit. The attempt by the Nigerian Law Reform Commission to set time limit to keeping forex in domiciliary accounts is languishing in the National Assembly. Another form of multiple currency practice is the release of withheld Federation Account dollars and remittances from Nigerians in the Diaspora in raw cash to bureau de change and individuals, which facilitates dollarization, monotonic depreciation of the naira as well as provides physical forex for anti-economic activities and carting abroad. Very sadly, ICAN and its members are among the main props of NESG. The NESG professes to be the think tank of the private sector. It is the instrument of foreign capital in Nigerian enterprises and champions policies that systematically destroy the Nigerian economy as has become evident since the incorporation of NESG in 1996. In all sincerity, the NESG track record and the NESG-member ICAN’s new stated mission do conflict.

Next, the forex restrictions which the IMF urges the authorities to remove include (i) the wrongful withholding of Federation Account dollar allocations which prevents beneficiaries from participating in the hoped-for unified forex market; (ii) operation of excess crude account (ECA) in violation of the principle of the paradox of thrift; (iii) release of forex in cash outside banks as well as locking away forex in domiciliary accounts without time limit thereby constricting forex supply to the hoped-for unified forex market; (iv) allocation of a set proportion of available forex to particular economic sectors or for some specific purpose; (v) creating various fragmented forex markets such as the Importers’ and Exporters’ Forex Window recently introduced to spite the latest IMF report on the Article IV Consultation with Nigeria; (vi) banks serving as forex storage points and acting as profit-maximizing middlemen forex dealers where there should be uninterrupted flow of forex with banks serving as commission-earning forex brokers or intermediators. The restrictions do not apply to perfectly legitimate government policy decision which (if need be) may bar specified ineligible transactions by product class or import volume from access to forex. Such government action (a) promotes domestic industrialisation and economic diversification, (b) moderates forex demand, (c) guarantees sound balance-of-payments standing, and (d) conserves external reserves (this analogously embodies an acceptable form of excess crude (read forex) account for essential national projects.

In the main, the IMF report features avoidable economic problems, which arose from the improper management of the national currency over the years. For example, although not fully captured, the fiscal deficit levels were excessive no thanks to the substitution of apex bank deficit financing for withheld Federation Account dollar allocations. Secondly, a weakening naira exchange rate pushed inflation above 17 per cent and still left the naira technically overvalued. Thirdly, interest payments on a fake national domestic debt ate up 66 per cent of Federal Government revenue. Fourthly, no thanks to high lending rates, bank credit to GDP ratio is about 23 per cent in contrast to 186 per cent for South Africa and over 370 per cent for Japan., Fifthly, economic growth, where it occurs on paper, is non-inclusive leaving the country with a constantly rising absolute poverty rate that currently exceeds 70 per cent.

In sum, the economic policies being implemented will only lead to direr gloom. It is a big shame that Nigeria’s self-serving and bungling economic managers have strayed, quite willfully, so far from the road which leads to economic success that it requires the IMF, of all global institutions, to BEG the Federal Government (executive and legislative arms), the CBN and the interloping NESG to abide by the letter and intendment of the Nigerian Constitution, uphold the CBN Act and rally behind the national currency as sine qua non to get the economy out of the woods.

Clearly, the numerous aberrations shown above should be urgently removed to bring about a unified forex market. So for ICAN, its long neglected but newly assumed additional duty is well cut out herein before.