Continued from last week.
The adoption of a “flexible forex” policy that (subtly) officially institutes and recognises the black market is counterproductive, flawed and totally ill-advised. It is not in the economy’s interest. It is meant to favour a privileged segment of the society.
It is baffling, perplexing, and indeed, confounding that the CBN, over the decades, failed to advise government against the operation of two parallel exchange markets and at the same time expecting an equitable financial market.
Truth is that the existence of two parallel forex markets is one of the fundamental problems of the Nigerian economy. It is the root of money laundering and also the round-tripping by banks.
Since the CBN announced the new forex policy, the naira is in free fall in the black market, thereby causing excruciating price rise of basic consumables, at a time workers across the country are receiving neither salary nor pension. Did the CBN take this into consideration?
Why can’t Nigeria have one exchange rate like in other countries? What is the “flexible forex policy” meant to achieve? Can it save the battered economy? How sustainable is this policy? Is this not yet another ad-hoc measure that leads us to nowhere? As it were, in a couple of months, this policy would once again give way.
The measure seems, largely, predicated on one thing – fuel importation. It didn’t consider the big picture. It didn’t address the fundamental problems of building modern refineries by government or private investors as the only solution to fuel scarcity.
It didn’t address the near total power failure across the country. It didn’t address low productivity and mass unemployment. If anything, among the various battered sectors of the Nigerian economy, the naira appears to have received the highest treatment that offered no cure.
Faced with an excruciating economic hardship that has adverse ripple effects, the question the CBN and government’s economic managers should be asking is what should be done to bring Nigeria out of the recession, indeed, depression? It is foolhardy shying away from the true economic situation.
I maintain that the economy is already in recession mode and should be treated as such. Any further recession in the manner the CBN is thinking would lead to depression. Already, there are millions of families that can no longer afford a meal a day. The support chain has been broken by mass unemployment and none payment of salaries and pension benefits to workers.
The CBN and its co-economic managers should be honest enough to compare the effects of the Great Depression of the 1930s in America, for instance, with what is happening in the country at the moment: Millions are unemployed; industrial production decline; banks in dire straits leading to lay-offs; fall in GDP; reduction in the income of the average family; over 60 per cent of the population classified as poor, etc. America’s economy during the Great Depression was not confronted with insurgency/militancy and abrasive corruption and looting of the treasury as it is presently in Nigeria.
Consequently, any treatment of the economic crunch that ignores the threats posed by the various violent militant groups in different parts of the country would be senseless. As a matter of fact, the militancy attacks and corruption compound the problem. For instance, it would be foolhardy to ignore the threat on oil production and electricity supply, two key components that Nigeria need for survival. Any viable solution must take these into consideration.
Like during the Great Depression, the greatest challenge facing Nigeria at the moment is low productivity. Low productivity was a critical feature of the Great Depression in America. Industrial production fell by 45 per cent between 1929 and 1932.
In the case of Nigeria, industrial production is near zero. It averaged a meagre 2.12 per cent between 2007 and 2015, reaching an all time low of -6.40 per cent in the second quarter of 2015, according to a CBN report.
Agricultural production is equally low, with cotton recording a growth rate of 25 per cent in 2015 and palm oil recording 0.00 per cent between 2012 and 2015, according to USDA statistics.
A revitalised industrial production was the solution to America’s depression. This came from 1939 at the start of World War II. Manufacturing employment jumped from 11 million in 1940 to 18 million in 1943. The recovery of private sector employment continued throughout the war period.
Therefore, boosting productivity is the single most potent solution to the economic crunch. This economy cannot bounce back without productivity in industry and agriculture. But productivity, in this context, won’t happen in a vacuum; electricity must be available. The import of electricity cannot be overemphasised for it is the lifewire for both industrial and agricultural production.
It is not just enough to urge people to go back to agriculture; they must be convinced that whatever is produced would be sold and utilised to create a value chain, otherwise, the products would waste and the farmers lose. There has to be electricity to operate agro-based industries that would form part of the value chain.
Unfortunately, at the moment, electricity is the greatest problem facing Nigeria. Over the years government had adopted inappropriate strategies that never worked. The focus on gas powered power plants has not worked because of militancy in the Niger Delta.
The divesting of inept power production and distribution to private concerns has not worked either. The problem has gone from bad to worse. Millions of Nigerians across the country no longer expect power.
The private “investors” in power generation and distribution are in a fix not knowing what to do next. My investigation shows that reeling out outrageous bills without electricity is not helping matters. Consumers are refusing to pay for services not rendered. The present arrangement has simply not worked.
The way out is a radical change. The issue of power should be made a state affair. Each state should be mandated to produce its own power using whatever sources of power it has comparative advantage.
Coal, hydro-power and solar energy should form the plank of power supply. Gas power plants should be limited to the Niger Delta. The Federal Government should hands off power supply. Competition by states and private operators would make power available.
Concluded.
