The economy and global top 500 companies
Smitten by a collective guilt of underachievement arising from the continent’s no-show among global top 500 companies, some participants at Africa CEO Forum held in March in Geneva, Switzerland, sought solace in the future. They hinged the building of African companies that could achieve the feat over the next eight years on Nigeria’s big domestic market provided government ensures good business environment for economic growth. (But why should Africa CEO Forum be headquartered outside the continent in the first place?) In 2016, the annual revenues of the world’s biggest companies were US$482.1 billion for the first ranked and $20.9 billion for the 500th ranked company.
At the forum, a participant extolled three Nigerian banks as good prospects for the coveted prize. But that provokes the question, why has the laurel proved elusive so far? Nigerian banks have supplied many of the governors of the Central Bank of Nigeria. Even banks that do not produce the governor club together in the so-called bankers’ committee and go in partnership with the CBN, but they have jointly worked against initiating sound monetary practices necessary for actualising the country’s economic potential.
Typically, risk-averse by discouraging borrowing by businesses with high interest rates, the banks (many of which have significant foreign stakes) are preoccupied in exploiting the improper official handling of public sector forex. In this connection, they siphon government revenue through double digit interest charges being doled on a fake national domestic debt made up of mopped but non-investable excess liquidity created by the mal-handling of government forex. Secondly, the banks act as profiteering forex dealers where they should earn commission on transactions and in the process, they undermine national economic diversification and competitive domestic production.
Thirdly, they advance the fortunes of foreign economies by avidly financing importation of finished goods. The resulting persistently hostile production environment, non-inclusive growth, ever-rising unemployment level and poverty can only beget business outfits that are very distant from the ranks of global top 500 companies.
Incidentally, the first half of the CEO’s prescribed time span for incubating Nigeria-propelled world top 500 company(ies) coincides with the Buhari administration’s Economic Recovery and Growth Plan (ERGP) 2017-2020. What is the outlook? The ERGP document contains two different fiscal deficit level implementation options with opposite economic outcomes. The options are represented in Table A by the four year average inflation rate of 12.9 per cent and average fiscal deficit of 1.6 per cent of GDP as if they work in mutual agreement, but both do not.
The ERGP is predicated on the high fiscal deficit implementation option, a wrong practice which has its roots in the 1970s and which involves substituting apex bank deficit financing for withheld Federation Account dollar allocations to the tiers of government. Doubtless, the Ministry of Budget and National Planning is expected to generate simulated economic data based on different fiscal deficit levels in order to determine optimal fiscal deficit rate/inflation rate/interest rate/growth rate combinations. Projected data obtained by adding the deficit rate in the year-by-year budget assumptions and the percentage of expected oil receipts in the estimated annual budget totals will largely approximate the ERGP data.
Therefore, based on fiscal deficit levels in excess of three per cent of GDP, the ERGP data present dismal indicators such as, firstly, average real GDP growth rate of 4.6 per cent (which, given the population growth rate of 2.3 per cent, requires 60 years for the current starvation-level GDP per capita to double); secondly, average yearly federal capital expenditure that trails the servicing cost paid to banks and bond holders and which signifies that the country’s infrastructure will be in ruins perpetually; thirdly, net domestic credit as a proportion of GDP would rise from 22.5 per cent in 2016 to 25.4 per cent over the plan period which casts the banks as parasites with negligible contribution to national development. (This indicator in 2014, for example, was 186 per cent for South Africa and 374 per cent for Japan). So foreign financing (including public sector forex corruptly transferred to individuals) is projected to take the lead and leave the country as a bungling banana republic.
In retrospect, true unbiased expectation, after over four decades of unbroken application, the officially preferred high fiscal deficit implementation option successfully stunted the economy and produced the widespread economic woes facing the country. And from the above projected ERGP data, the high fiscal deficit implementation option will lift the country’s economic fortunes during the 2017-20 plan period.
On the other hand, the sidelined low fiscal deficit implementation option will keep inflation within 0-3 per cent and make the economy work. (Note that this option is stipulated and approved for implementation under the budget assumptions contained in every Appropriation Act since the year 2000). Now, how will low inflation come about? The average exchange rate throughout the plan period is fixed at N305/$1. Through direct allocation of FA dollars in a secure form to beneficiaries, unlegislated substitution of CBN deficit financing for oil receipts vanishes. Forex transactions, which should fetch banks only commission, for the most part involves naira funds in the economic system. Thus, with no destabilising addition to money supply, there is no excess liquidity to fuel high inflation, instigate high interest rates and there is no basis to create any fake domestic debt. Even when, based on eligible import list, surplus dollars are sold to the CBN to accumulate external reserves, the increase in money supply is minimal and absorbed through expanding economic activity.
Alongside the low inflation and set (stable) exchange rates, there will evolve internationally competitive single digit (5-7 per cent) lending rates across the board. These props of macroeconomic stability provide the yearned-for good business environment which government is expected to put in place. In that ambience, other economic needs including infrastructure fall into various categories of investment opportunity, which government and private investors (big and small) may undertake profitably by accessing the abundantly available cheap domestic bank credit. That is what makes possible the high level of bank credit to the economy as a proportion of GDP, which are obtainable in focused economies as earlier noted.
Accompaniments? Employment galore, enhanced purchasing power, rising prosperity, rapid and inclusive economic growth and flourishing enterprises that in due course join the league of global top 500 companies.
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