Experts chart path for single-digit inflation

Tackling the challenges confronting Nigeria’s economy requires seamless coordination of monetary and fiscal authorities, experts have said.

Though a few are within the control of the apex bank, most require coordination with fiscal authorities while identifying excessive printing of money as a major factor fueling inflation in the country.

The experts, while reacting to the spike in headline inflation to 20.52 per cent in August, argued that besides imported inflation, which is triggered by high energy prices, the country’s high inflation is strongly correlated with the increase in the money supply.

They said this against a spike in broad money from N20 trillion in 2015 to about N49 trillion. According to them, the short-term solution to the high inflation is to mop up the excess liquidity through further interest rate hikes and adopting open market operations (OMO).

The Chief Executive Officer, Diary Hills Limited, Kelvin Emmanuel, held that the Central Bank of Nigeria (CBN) needs to assert its independence by recalling the ways and means (W&M) facility, which has created a situation where the money supply is higher than output.

His words: “The Central Bank also must migrate the financial system from collateral-based to credit reporting-based lending by setting up the infrastructure that is necessary for the integration of the Bank Verification Number (BVN) with the National Identity Management Commissions (NIMC) National Identification Number (NIN) system. This is the key to developing regulatory frameworks for credit data aggregation, reporting and evaluation agencies in the private sector that are tasked with the duty of building a point-based merit system for individuals, companies, cooperatives and associations to de-risk lending in Nigeria.”

He added that the solution to increasing the loan deposit ratio (LDR) for deposit money banks (DMB) is not setting penalties, as the banks would rather prefer to pay a fine than give unsecured loans that raise their non-performing loans (NPLs).

“A credit reporting-based lending structure, will increase the integrity of the market, and help Financial Institutions access data for determining clean lines, which is a key to unlocking capital for raising productivity output,” he stated.

He stressed that the fiscal authorities on the other hand need to utilise their backward integration levy for the development of import substitutions in areas where Nigeria has a comparative advantage, explaining that when it comes to fiscal framework, the two major drivers of inflation are energy and food.

He said: “Fast-tracking the process that ensures the removal of government back PMS subsidy and government-subsidised exchange rate system, are fundamental drivers to decelerating the inflationary trend.” An oil and gas expert, Jide Pratt, said high inflation is a reality to which Nigerians would need to accept.

“Inflation is something we all have to face now. To stem the tide as individuals, we need to look towards holding savings for those who can in stocks, mutual funds and other currency for those who can afford it.”

Pratt, who is also the Chief Operating Officer (COO) of Aiona Nigeria, manufacturer of LED and solar lights, added that on the part of the government, a lot of what is happening in the economic space is due to insecurity, and a lack of adequate infrastructure to stimulate trade. A good example of this is the Lagos-Ibadan expressway, which has taken over a decade to construct.

He stated: “The man hours lost in gridlock has a direct correlation with trade between the two cities. The examples are numerous. Finally, the fiscal policies haven’t been apt to at least tackle the foreign exchange rates and devaluation. This has a direct impact on the cost of imported items as the paucity of foreign exchange from the CBN due to lower foreign direct investment (FDI) means that it is sourced at the parallel market as high as 710/ 713 as of today.”

Pratt believes that the next administration already has its job well-cut out for it as resolving insecurity, improving infrastructure and solving the foreign exchange conundrum would form the fulcrum of its core tasks.

“The first task for the next administration is the sincerity of purpose and then tackle insecurity, infrastructure, foreign exchange and FDI. These must be the building blocks. The need to also encourage manufacturing/production as well as boost mechanised agriculture to get food sufficient then excess to export leaning on ACFTA is extremely pertinent. The question is are we ready or will we rather face doom days that lie ahead?”

For Prof. Kingsley Moghalu, the CBN has to stop deficit financing of the Federal Government to bring inflation to control.

“Lending the Federal Government 20 trillion Naira in ways and means lending is illegal. The CBN is creating inflation and those in charge of the economy are clueless about how to manage the economy,” he said.

Moghalu, a lawyer, ex-deputy governor of the apex bank and professor of political economy, insisted that managing inflation is not strictly about adjusting the interest rate upwards to tackle rising prices, but deliberately taking steps to improve the entry of foreign exchange into the Nigerian economy.

He explained: “The Nigerian economy can attract huge foreign exchange, but we drive them away with too much government control such as multiple exchange rates. Some people can get foreign exchange and go and sell it in the unofficial market thereby distorting the system. No matter what anybody says, that happens. In a country of about two hundred million people, there is a market. So, if the government makes the management of foreign exchange transparent, there will be a huge inflow of capital that could drive down the price of foreign currencies.

“The first problem is the absence of a clear economic philosophy. The balance between the state and the market has not been properly spelled out. Therefore, we have political leaders that tend to use state power to manage the economy.

Then some people say that the market should be free where the private sector will drive the economy. None of these two extremes will work for Nigeria. What I propose is what I call a ‘developmental capitalist state’ in which the market will largely drive the economy. There must be a balance between the government and the market.

“While I agree that Nigeria cannot run a full capital state, it should have a welfare package for old people and unemployed persons. But for the unemployed, the government should have a transitional mechanism in place that is not more than one year to enable them to retrain to get something doing.”

To fully combat youth unemployment, Moghalu canvassed re-training of educated young Nigerians, especially in areas that need personnel.

According to him, another problem confronting the Nigerian nation is the absence of consistent economic policies.

Going memory lane, Moghlau explained that in the 1960s, regions made huge progress because political colossus such as Obafemi Awolowo, Nnamdi Azikiwe and Ahmadu Bello had philosophies behind their economic policies with consistency to deliver credible results.

Also, Head of Equity Trading, Planet Capital, Paul Uzum said the medium to a long-term solution to rising inflation is fiscal discipline – that is eliminating the perpetual fiscal deficit.

“There is little the government can do to checkmate imported inflation as long as we operate an open economy and import goods from other countries.

“It will be eliminated within 1-2 years when inflation rates in the world’s big economies fall back to their normal one to three per cent range. But we need to adopt more fiscal discipline and improve productivity.”

A professor of finance at the University of Nigeria Nsukka, Chuke Nwude, rising insecurity and foreign exchange (FX) shortage have triggered supply shocks as farmers are forced out of their farms while manufacturing firms cannot optimise their production.

According to him, the consumer price index, which is the prime inflation indicator, and costs of goods are uptick as a result of these factors.

“It is not surprising that such a level of inflation is occurring. The National Bureau of Statistics (NBS) is even economical with the truth. Honestly, it should be more than that if accurate inventory is taken.

“We are in a consumer nation. We don’t produce enough goods, which is a challenge. Our leadership is lame with no plan to resuscitate the ailing economy,” he said.

Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said the 20.52 per cent inflation rate is an indication that demand-side management has failed to tame inflation, given the fact that most of the factors responsible for inflation in Nigeria are traceable to the supply-side factors.

According to him, the supply side factors had been largely unresolved before the imported inflation was worsened by the Russia-Ukraine war. He also listed factors impacting negatively on the nation’s economy to include FX scarcity/mismanagement, unending insecurity and limited access to farms.

Other factors, according to him, are crude oil theft/inability to meet OPEC production quota, high cost of raw materials, infrastructure deficit and high cost of funding.

He warned that more Nigerians would become extremely poor due to poor purchasing power and heightening unemployment, a situation that would further hurt the economy.

Olayinka also belatedly criticized the fiscal authorities, describing it as weak, with no positive contribution to the performance of the economy, other than engaging in excessive borrowing and fiscal rascality, which have worsened inflation.

“Nigeria’s economy is in dire need of drip and blood infusion. It will be difficult for CBN’s demand-side management tools to solve the problem. This is not to say CBN is not aware of the possible failure of its demand-side management tools or that raising interest rates will not sufficiently address the current inflationary pressure.

“The apex bank must also act to address the possible threat of a reversal of capital flow, arising largely from an interest rate hike in Europe and America,” he said.

Olayinka submitted that while the global inflationary threat is dealt with by the more advanced economies, Nigeria’s fiscal authority should search for solutions to some of the self-inflicted supply-side problems affecting the economy.