FG’s Economic Policy Breeds Doubt, Unease

• Manufacturers Warn Of Gloomy Days Ahead
• CBN’s Polices’ Review Urged
• Importers Flock Abroad To Beat Forex Policy

ITS noblest intentions, notwithstanding, the Federal Government may have to do more to convince Nigerians its economic policies are not crafted to sink the ship altogether.

The Federal Government has toed policy paths, which officials vow are needed to bring the nation’s economy out of the woods. From The Guardian’s findings, however, not all stakeholders appear to be on the same page with government.

“There are more negatives than positives. If we look at the outcomes we have had in the past four months, they are quite drastic on the negative side. Gross Domestic Product (GDP) is declining; underemployment and unemployment are increasing, and the general level of economic activities is weak. The capital market is also declining. Coming from the position we were after the elections, when there were local and international goodwill and we had the opportunity to leverage on all that, unfortunately, foreign investment has stayed flat from the level we had in the first quarter,” said Chief Executive Officer (CEO) of RTC Advisory Services Limited, Opeyemi Agbaje.

According to the public policy analyst, the above situation can only be blamed on the absence of an economic direction. “Goodwill, on its own, is insufficient; it needs to leverage on the right policies,” he said, adding: “We have no policies, or at least, not a coherent policy. Nobody has defined a coherent economic agenda. We are just doing things on a day-to-day basis.”

The Treasury Single Account (TSA), particularly, has come under criticism. While experts acknowledged its constitutional basis, they argued that unless it is properly executed, it could stifle key economic nerves.

“The major advantage of the TSA is the fact that it will ensure and improve revenue inflow into the Federation Account, and this will improve the fiscal stability of all the levels of government – federal, state and local. However, it is necessary to caution against the resultant bureaucratic bottleneck that could be created in the disbursement of funds to the Ministries, Departments and Agencies (MDAs) for their operations. If care is not taken, the operations of some of the agencies may be crippled, if there is no adequate framework for speedy release of funds to the agencies for their daily operations. This is an area the authorities need to watch properly,” said Muda Yusuf, Director General of the Lagos Chamber of Commerce (LCCI).

Asked what he thought could happen if the Central Bank of Nigeria insists on its policies, in view of the negative effect some of these have on the real sector, Yusuf said: “Some industries will have to close shop, as their critical inputs diminish. There will be loss of revenue to government through customs duties, as there will be high decline in importation, especially through official channels. Contraction of economic activities will lead to loss of jobs. Nigeria’s country risk, as well as its sovereign risk, will be negatively affected because of the liquidity crisis in the forex market.

“The inflow of forex through autonomous sources will remain low, round tripping will continue to flourish in the forex market, given the high premium between the official and parallel market, as well as the transfer market. Transparency problem in the allocation of forex by the CBN will become more pronounced and vulnerable to corruption. Banks will witness increase in non-performing loans, as some of their customers face challenges with the current polices. Profit margins of businesses will drop because of the increased costs imposed by this policy.”

Manufacturers, a vital component of any thriving economy, have equally faulted policies of the CBN which they say are not in agreement with the fiscal policies of the Federal Government. “The CBN governor, I’m sure, has reasons for what he is doing. I know he carries the interest of the country at heart, but maybe the way he is going about it is faulty,” said President of the Manufacturers Association of Nigeria (MAN), Frank Udemba Jacobs.

“We paid a courtesy call on the CBN governor on the aftermath of these policies, and we told him that whereas we support the measures he is taking to strengthen the naira vis-a-vis the dollar, we appreciate the current position of government in terms of foreign exchange reserve, yet we figured that he ought to have consulted widely with stakeholders before coming up with these policies. The 41 items that are no longer valid for foreign exchange, some of those items are raw materials for manufacturers without which those manufacturers won’t be able to produce. That policy is on and people are undermining the policy by going across the border to transfer money overseas and pay people in naira, at an exorbitant rate. They can’t do anything about it and that is why we told the CBN governor, in clear terms, that we want items that are raw materials of our members not to be on the list; most of the items were lumped together.”

Asked for his views on how persons going across the border for foreign exchange would affect the cost of production, Udemba said: “That is why we are still appealing to the CBN to reconsider its position. All along, people have been using the raw materials they stacked up, but in the next few months, we believe that cost of production would have gotten so high and it would soon lead to inflation, unless the CBN amends these policies, including the issue of access to your domiciliary account for purposes of importing. That policy is neither manufacturer-friendly, nor Nigeria-friendly, and needs to be revisited. We are hoping that CBN will revisit that policy because it will not help the economy.”

Godwin Emefiele, CBN governor.

BUHARINOMICS: Hastening Nigeria Into Recession
• CBN, CSJ point the way out
WHEN agitations by state governments for a distribution of savings from the Excess Crude Account (ECA) were mounting during the past administrations of the late Musa Yar’Adua and Goodluck Jonathan, against experts’ advice that the savings should be reserved for the ‘rainy’ days, most governors under the aegis of Nigerian Governors Forum (NGF) pointed to the ‘rainy’ days as being ‘now’.

In fact, the ECA funds were apart from the monthly Federally generated revenue, which was equally being distributed during the period under review by the three tiers of government.

Embarrassed by the opposition All Progressives Congress (APC) governors’ accusation that the immediate past president, Goodluck Jonathan, and his Coordinating Minister for the Economy and Minister of Finance, Dr. (Mrs.) Ngozi Okonjo-Iweala didn’t keep a clean account of ECA, Okonjo-Iweala was forced to release the detailed breakdown of how much each state and the Federal Government received within the period.

The figures revealed the extent to which some of the state governors had ripped their people off and we’re going around deceiving them that Abuja was withholding their legitimate revenue from the Federation Account.

According to the details released by Mrs. Okonjo-Iweala, the Federal Government received N3.29 trillion while the 36 states got N2.92trillion from the ECA within the almost three-year period.

It also showed that the 36 states received N966.6b in 2011; N816.3b in 2012; N859.4b in 2013 and N282.8b in 2014 as another share of revenue from the Statutory and Value Added Tax (VAT).

The document attributed the low figure shared in 2014 to a sharp drop in revenues due to the impact of the crash in global oil prices, which commenced in the middle of last year.

Further breakdown of the information released indicated Akwa Ibom State received the highest allocation of N265b from the ECA, while Rivers and Delta states followed with N230.4b and N216.7b respectively.

Other states with high allocations were Bayelsa N176.3b, Kano N106.5b and Lagos N82.9b.

Kwara (N52.8b), Enugu (N51.6b), Gombe (N47.7b), Nasarawa (N46.9b), Ekiti (N46.8bn) and Ebonyi (N44.3bn) made up the six states that received the least allocations.

It is, therefore, safe to conclude that the several trillions of Naira shared between the Federal and State Governments in those three or four years were not properly invested, particular in capital projects or income generating venture, because at the moment, both the Federal and state governments can no longer pay their workers, let alone, carry out capital projects implementation that could fast track growth and accentuate employment.

That the ‘economic rains and storms’ are here already is not the big issue, but what indeed is worrisome is the inaction and posture of President Muhammadu Buhari and his ‘Buharinomics’, some sort of laissez faire attitude to fiscal issues, which experts, including the Central Bank of Nigeria (CBN), have come out to warn may end up hastening Nigeria’s recession.

Some of the actions of President Buhari include, his inability to name his Chief Economic Adviser to help out in proffering solution to some very challenging issues of the moment, pending the assumption of duties of a Finance Minister and an Economic Team, after constituting a cabinet.

Secondly, and most importantly, is the recent fiscal measure forcing the movement of all funds maintained in the commercial banks to the Central Bank, a development, which has further worsened liquidity position of the Nigerian State, with the attendant negative implication on continued survival of some entities, inevitably leading to losses in jobs and income for households.

Again, the decision to elongate or reconstruct debt owed by states and a bailout package plan, designed for them in the face of huge revenue they had received from the Federation Account is equally seen as an endorsement of the recklessness of the governors, which is likely to be abused further.

Indeed, the CBN in its last Tuesday’s Monetary Policy Committee (MPC) also found it worrisome that Mr. President was undertaking some of these issues unilaterally, without the consultation of the monetary authorities, and thereafter, warned that if the practice continued, they will just be hastening Nigeria to recession latest by next. year.

And as a damage control measure to address the impact of some of the fiscal measures already undertaken, the apex bank had to reduce the cash reserved requirement to increase liquidity in the economy. It also warned that as a result of the fragility in the economy, occasioned by the lack of a determinable investible spending by the Federal Government the Nigerian economy stands the risk of a recession.

The apex bank further gave reasons for its assertion: “Committee noted that the overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance.”

The Committee noted that growth had come under severe strains, arising from declining private and public expenditures. In particular, the impact of non-payment of salaries at the state and local government levels as a key dampening factor on consumer demand. Year-on-year headline inflation continued to trend upwards, although the month-on-month measure remains moderated.

It said, “demand pressure in the foreign exchange market remained significant as oil prices continued to decline. Arising from these developments, there were indications that some of the banking sector performance indicators could be stressed if conditions worsen further.”

Specifically, the Committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state government loans as well as, loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets.

Having seen two consecutive quarters of slow growth, the Committee recognised that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors.

In the face of prevailing circumstances, it acknowledged that synergy between monetary and fiscal policies remained the most potent option to sustainable growth. The Committee further observed that the impact of the persistent decline in global crude oil prices on the fiscal position of Government continues to reflect in rising credit to government.

It noted that the initial market reaction to the decision by JP Morgan, to exclude the country from its Government Bond Index for Emerging Economies (GBI-EM) had largely dissipated, as yields soon adjusted to their pre-announcement levels’, adding that there may be second round effects over the next two months as the economy adjusts to that decision.

The Committee reiterated its unwavering commitment to naira exchange rate stability despite the pressures. Mindful of the possibility of diversion of any extra liquidity to the foreign exchange market, the Committee urged the Bank to closely monitor the nature and sources of demand pressure in the foreign exchange market to ensure that funds were not diverted to demand for foreign exchange but applied to specific growth- enhancing asset creation lending by banks. It further noted that sectors such as agriculture and MSMEs were sectors for rapid generation of productive employment and wealth creation, and must therefore, be painstakingly encouraged.

On inflation, the Committee was optimistic that as harvests progress in the coming months, pressure on food prices would gradually recede, while growth enhancing measures would over the medium term have some moderating effect on food prices.

There is advice for government in response to the alarm raised by CBN on the economy by Eze Onyekpere, Lead Director, Centre for Social Justice.

According to him: “To unveil the economic agenda of the administration whilst giving Nigerians the opportunity to make inputs for its modification and fine-tuning, public and private stakeholders cannot continue groping in the dark and imagining the content of government’s economic agenda. The unveiling of a holistic framework has become a matter of urgent national importance.”

He wants government to address the Nation on October 1, 2015, on the state of nation, especially, focusing on the economy; the administration’s achievement so far and what is to be done in the short and medium term to revive the economy. Thereafter, the President should start the quarterly media briefings on his administration.

“To create synergy between fiscal and monetary policy, unveil the Medium Term Expenditure Framework and Fiscal Strategy Paper 2016-2019 as required by the Fiscal Responsibility Act and open up public dialogue on macroeconomic policies for the medium term. The MTEF should have been ready by the end of June 2015; but it is better late than never.”

The CBN committee urged the organised private sector, labour and civil society to begin a robust and intensive proactive engagement of the Federal Government to ensure that the present inert and policy void is converted into actionable energy for development.

Agbaje

AGBAJE: Govt Is Moving Towards State Control Of Resources
Opeyemi Agbaje is a public policy analyst and Chief Executive Officer (CEO) of RTC Advisory Services Limited. In this interview with IKECHUKWU ONYEWUCHI, he insisted that the lack of coherent fiscal policy is biting hard on the Nigerian economy and that the Central Bank of Nigeria (CBN) is loosing its autonomy by dancing to the tunes of the government of the day.

For the past three months, Nigeria has seen what is now known as Buharinomics, a euphemism for what has become of the economy following choices and directives of the Muhammadu Buhari-led Federal Government; what do you make of the outcome so far?

THERE are more negatives than positives. If we look at the outcomes we have had in the past four months, they are quite drastic on the negative side. Gross Domestic Product (GDP) is declining; underemployment and unemployment are increasing and the general level of economic activities is weak. The capital market is also declining. Coming from the position we were after the elections, when there were local and international goodwill and we had the opportunity to leverage on all that, unfortunately, foreign investment has stayed flat from the level we had in the first quarter.

This is because of the absence of an economic direction. Goodwill, on its own, is insufficient; it needs to leverage on the right policies. But we have no policies, or at least, not a coherent policy. Nobody has defined a coherent economic agenda. We are just doing things on a day-to-day basis.

Secondly, the only place where we have a sort of policy is at the Central Bank (CBN), which now decides economic and industrial policies, tariffs, what to and not import; generally, it is the only place where there is direction.

We have a challenge from the decline in oil prices. Our responses, which, in my view, ought to have been fiscal policy-based are now monetary based, because they are coming from the CBN. The apex bank looks at the quantum of Dollars it has and then says it would ban 41 products. I don’t support that policy. I think it has done more harm than good.

But the president has said he won’t devalue the Naira?
In economics, it doesn’t matter if one buys the idea or not. Our reserves are down to $30 billion, the demand for foreign exchange is increasing, industries are being starved of Dollars to import components and we say we won’t devalue? What would happen is that someone in the CBN will now decide who would get dollar or not. Whether we like it or not, corruption would start in the apex bank.

What do you think of concerns that the CBN is now taking on the functions of the ministry of finance?
I think it is correct. And more than that, they are taking us back to the 1980s, when we had a similar scenario, and instead of adjusting the exchange rate, we asked the CBN to issue import license. Then, the CBN determined who got the Dollar. Very soon, they would start charging for it and corruption would start. For one officer to decide who would get Dollar, it has to be based on criteria. It is either they give their friends or they take political instructions from government on who to give. It would not be a transparent and rational process. I don’t know on what basis the CBN allocates Dollars to people. That, in it, is a destructive economic approach.

The economic philosophy is what we had in the 1980s, the state did everything, including controlling exchange rate and, at a point, they would start controlling interest rates. The CBN governor at the recent monetary policy committee is beginning to plead with banks to start lending money to certain sectors. And very soon, they might start dictating the minimum that could be lent to certain sectors and with that we would be playing with sectorial allocation of credit.

From the various directives from the president and the CBN, it appears government is leaning towards a social welfarist spectrum, do you think that is comforting, in anyway?
It is not evidently socialist. But it is state control; it can be called the Big State Approach. The state even wants to set up an airline again, even when other states are closing theirs. The government is talking about establishing a new airline and we are now going to spend scare hundreds of millions of dollars to buy planes. It is obviously the Big State that we had in the 1970s and 1980s, which has an anti-private sector inclination.

The international media have argued that, in reference to the few decisions taken so far, government seems to focus more on ‘protecting the common man’ as against opening up the business space for investment; don’t you think this should be a cause for concern?

I believe that these policies are not protecting citizens; rather, they are hurting the people. The policies are misguided. Civil servants and some businessmen, for their own selfish interestS, convince government that these things protect the citizens, but, in reality, it doesn’t protect anyone. If small and medium scale manufacturers are dying, because they can’t get Dollars, how can that protect citizens? Are workers, who lose their jobs, protected? The small airline businesses that employ people are going to suffer when we create a state airline. That airline would be inefficient, would charge high fares and one won’t have a choice, because they would say it would be the only one that can go on international routes or can stay in a certain airport terminal.

They would give it privileges that would make it immune to competition and its prices would be artificially high. How does that help the citizen?
I think it is a tendency towards state control, a nationalistic economic policy. For example, the argument with JP Morgan is just about us saying that we want to be our own man. We are not being rational and looking at a balanced approach to the issue. It is as if we are posturing that one foreign company cannot come and tell us how to run our business.

This is not about ego; it is about what is rational, what is in our best interest. I think, given the current state of oil prices, the fact that prices are more likely to go down, we need to send a signal that we want to produce and not consume, we should devalue the currency. We say we want Nigeria to be a productive economy and we subsidise exchange rate and consequently importation; how do we produce locally? The President thinks he is protecting the economy, whereas he is serving some narrow interests, who are manipulating him.

How do you think the banks would manage the shock from the implementation of the Treasury Single Account (TSA) policy?
It is good that we agree that the TSA is a good policy. It is good for public financial management. It has been the state policy since 2012; so, there is no controversy about it. It has been discussed at the Federal Executive Council (FEC).

As for the TSA, when we got to 2014 and oil prices crashed, it was sensible to be more careful with its implementation; it needed to be phased. With the oil prices, we were tending towards recessionary conditions; there was less cash available for government and the private sector. The last thing the economy needed was for resources to be further sucked out of it. I support the TSA wholeheartedly, but I have doubts about this speed of implementation the new government has adopted. It has economic implications in terms of liquidity and the stimulus the economy needs, which is why the CBN has responded by reducing the cash reserve requirement and trying to preserve the level of liquidity required in the system.
But there are arguments that the huge sum stashed at the CBN could have been used by banks in growing the economy through loans and other instruments

The CBN sees all the indices. If the apex bank sees that liquidity in the banking sector is insufficient, it has other instruments to use in balancing out things. For instance, it can use Open Market Operations to reduce liquidity or cash reserve ratio; it can also reduce the monetary policy rates. And if there are specific institutions, which need injection of liquidity, it has tools to do that without undermining the TSA policy. The bank can use monetary and market tools and others to reflate the economy, if it thinks it is necessary.

Already, banks are laying off staff, chambers of commerce complain of shortage of funds to do business and stifling operating environment; what do you think these portend for the economy?

The new government came in ignoring the economy. I think there is a posture almost as if the economy is not important and that corruption is the only problem in Nigeria. It believes that if it fixes corruption everything would be fine. It seems to me like ancient economics, a pre-modern approach to managing the economy. Yes, we can deal with corruption, but we must also consider state, industrial and economic policies. The fact that we just did not constitute a government in a modern economy, especially in a time that our country was facing so much volatility in terms of oil prices, Foreign Direct Investment (FDI), jobs and other indices; it is unforgiveable that, for no apparent reason, we choose not to have a cabinet for four months.

People were waiting for the handover to get a sense of whether to retrench staff, whether the economy would improve or; for instance, if the fuel subsidy would be removed or for a new Petroleum Industry Bill (PIB), so that the oil companies can renew investments and for a new industrial policy or the continuation of the auto policy or of the agricultural reforms of the previous government. If someone was waiting and discovers that government does not have a cabinet, not to talk of a policy, he would decide that it was better to let the people go. And that is exactly what has happened.

Banks that think they are a bit top-heavy, have retrenched staff. Oil companies that could no longer wait for the PIB, have done likewise.

Manufacturers, who couldn’t get Dollars to purchase their input, did the same. Hopefully, government would take the issue of a cabinet very seriously and I hope they would meet the promise of September, which is just a few days to go. This has been very costly to the economy in terms of jobs, rise in inflation, and the opportunity cost of FDI that hasn’t come, among others. We have also missed on local investment. Local firms can no longer invest as much as they planned because the elections went very well and everyone was optimistic, but there have been no cabinet ever since.

MAN President, Dr. Frank Jacobs

YUSUF: CBN’s Policies Are Complicating Economic Woes
Muda Yusuf is Director General of the Lagos Chamber of Commerce and Industry (LCCI). In this interview with TEMILOLUWA ADEOYE, he says CBN’s response to the economy is fueling uncertainty.

THE fact is, the economy has been on a decline since the last quarter of 2014, when the GDP growth rate was 5.94 per cent. This dropped to 3.96 percent in the first quarter of 2015; by the second quarter, it further dropped to 2.35 per cent. We can attribute the totality of this to the CBN policy. Evidently, the drop in crude oil price and its impact on fiscal stability of the country was a major factor in this scenario. Revenues have been affected at all levels of government. Foreign exchange inflow has also been considerably impacted.

However, the CBN response to the resultant foreign exchange challenge further complicated the problem. The response fueled speculative activities in the forex market, because of the uncertainty and volatility it created. It led to the weakening of investors’ confidence and created room for sharp practices in the forex market, especially, as a result of the disparity between the official exchange rate and the parallel market rate.

It also depressed the inflow of foreign exchange into the economy, creating more pressures on the forex market. These, in my view, were the critical issues that slowed down the economy over the last couple of months.

Let me now address the specific implications of the CBN policies. First, the effect of restriction of the 41 items from accessing the forex market — the restriction placed on the 41 items is one of the most appalling policies that investors have experienced in the Nigerian economy. It is even more baffling that the restriction was not limited to foreign exchange in the official market; but extended to cover export proceeds. The shock on the system and on investors was profound. The policy was practically a ban on the importation of those items.

First, in coming up with the list, the CBN didn’t provide proper classification of the items. The list was generic and open to very loose interpretation by the bank. This has led to denial of many investors access to foreign exchange. Secondly, there is hardly any production activity in the country, which will not require one imported input or the other. For many manufacturers, there is need for importation of some items that are critical for production. Some of these items are unfortunately on the list of the 41 items. This has been having adverse effect on the production processes of these companies, putting their sustainability at risk.

Some of the sectors currently affected include, the food and beverages sector, pharmaceutical, furniture, fabrication, construction and foam industry. Many of them are already in a dilemma as to the sustainability of their businesses.

In what ways have the policies affected the credibility and confidence of Nigeria’s trading partners?
With the current official exchange rate, it is impossible for all demands for forex to be met, even for those that are eligible by the CBN criteria. Many investors had suffered serious embarrassment and credibility crises as a result of their failure to meet their financial obligations to their overseas suppliers. This is an experience that cuts across all sectors of the economy.

Transactions under Bills for Collection were among those most affected. Bills for collection are credit facility arrangement between the Nigerian importers and their foreign suppliers. Because some of them could not remit funds to meet these obligations, these facilities have been terminated. Major problem of credibility has been created for these firms.

Even more disturbing is the fact that some of these transactions were ongoing before the introduction of these policies. Some importers had even taken possession of their consignments. Remitting funds have now become a problem. The situation is so bad that some of the foreign suppliers had to fly into the country to validate importers’ claim that they had an issue with access to foreign exchange. It is disturbing that there were no sufficient provision even for transactions that were ongoing before the policy.

The truth is that, these developments have significantly dented the image of the country in the international trade arena and international financial markets. This, I believe is not good for the image of the country as the largest economy in the African continent.

How are investors and importers reacting to these policies?
Investors are taking steps through their various business associations such as the Lagos Chamber of Commerce & Industry (LCCI) and Manufacturers’ Association of Nigeria (MAN) to engage the CBN and the political leadership of the country to ensure a review of the policy in the interest of private sector development, job creation, and larger economy as a whole. Some have also scaled down their operations as their stock of input decline and this may inevitably lead to scaling down on their workforce, which has implications for job losses in the economy. Many have experienced erosion of profit margins as the current situation has pushed up their cost of operations.

Let me say that the current perception of importers in this economy is not the best. They bring value to the economy in their own way. The importers are important elements in the value chain of virtually every sector of this economy. What they import and sell are products of value to various sectors of this economy. These are finished goods; intermediate products, equipments and some are raw materials.

And it is also important to emphasise that the distributive sector of this economy contributes an estimated 24 per cent to the GDP of this country. So it is not a sector that we should not reckon with. This is not to endorse the importation of just any kind of products into this country especially those that we have a comparative advantage to produce. But it is caution against a sweeping perception of trading as an activity that has no value to the economy. Trading sector is one of the biggest employers of labour in Nigerian economy. The current forex policy has severely affected the distributive trade sector. Many of them are in the informal sector that does not have revenue streams in their domiciliary accounts that normally buy forex from the open market and pay their customers abroad through their domiciliary accounts. Some of them have relocated to the neighboring countries to remit funds to their customers abroad. And let me emphasis that these businesses are legitimate businesses because the products that they import are not contrabands.

CBN just concluded the mop up of public fund in deposit banks, what does it portend for the banks?
The most recent mop up of cash has to do with the implementation of the Treasury Single Account (TSA) policy. This is actually not a CBN or a monetary matter. It was a decision of the fiscal authorities to reduce leakages in the system and curb corruption. It will no doubt have some effects on liquidity banking system and the capacity of credit creation. But the good news is that the CBN has reviewed the CRR, that is, the Cash Reserve Requirement from 31% to 25%.

This will definitely mitigate the effect of the cash withdrawal through the TSA. In the end therefore, the net effect may not be very profound. Besides, private sector deposits are generally more stable than public sector deposits in the financial system. Banks do better business with private sector deposits than public sector deposits.

The CBN alerted of an impending recession in Nigeria, could this be linked with the recent monetary policies?
Economic recession occurs when a country experience contraction in GDP for two consecutive quarters. Given the recent trend of GDP performance of Nigeria, the worry about the prospect of recession is justifiable. The country’s GDP growth rate declined from 6.23 per cent in third quarter of 2014 to 5.94 per cent in the fourth of 2014. The growth rate declined to 3.95 per cent in first quarter of 2015 and to 2.35 per cent in second quarter of 2015. With this trend, the economy appears to be moving gradually to recession. Unless there is a major reversal of policies and unless steps are taken to quickly stimulate the economy, the recession prospect may crystallize.

A number of factors could explain this trend. First, there was the uncertainty that characterised the economy since the beginning of this year, being an election year. This affected the tempo of economic activities, which impacted the general economic performance. Secondly, the collapse of crude oil price, which is a major source of revenue and foreign exchange for the economy, had profound effect on the fiscal stability of the Nigerian economy.

Third, the uncertainty of the policy direction of the current administration has dampened the enthusiasm of some investors. Many of such investors are still waiting to have a clear understanding of the direction of policy of the present administration. Four, the current foreign exchange controls and administrative allocation of foreign exchange CBN had significantly disrupted many economic activities and created major confidence crises for many domestic and foreign investors. This also impacted the tempo of economic activities in the last two months. Therefore, what we have witnessed in the last couple of months concerning the status of the economy is a combination of all the above factors.

How has the delay by government to release its economic blue print affected the economy?
The CBN policy cannot be taken as a substitute for the economic blueprint of the present administration. If anything, some of the actions of the CBN were a consequence of the vacuum that was created by the absence of a clear economic policy direction of the government and the absence of an economic team for the administration. All these have probably affected the quality policy environment. The policy stance of the CBN was also perhaps a reflection of the reluctance of the leadership to take responsibility for the adjustment of the exchange rate.

This was, perhaps, so, because of the phobia for exchange rate adjustments. The absence of an economic plan is a major factor in the uncertainty that investors are currently worried about. If there is anything investors don’t like, it is uncertainty. Investors want to know the position of the government in some key reforms such as the oil and gas sector, tax policy, tariff policy, Common External Tariff (CET), sectoral policy for manufacturers, Agriculture, ICT, power sector etc. And also, for infrastructural development, investors also need to know the position of the current administration on the 2015 budget. They want to know what policies will be sustained and what policies will be reviewed. All these are very critical for major investment decisions.

What are the implications of the CBN’s policies to the Nigerian economy?
Because of the obstruction that the current administrative allocation and exchange controls have caused in the forex market, many economic operators have sought other avenues to carry on their businesses. And let me point that these businesses are legitimate businesses. One of these avenues is the transfer market, which is like a swap between those who need forex in their forieg accounts and those who need naira.

The worry is that the exchange rate in this market is even much higher than what obtains in the parallel market — the exchange rate in this market is between 230 and 235 naira per dollar. For small businesses and informal traders that usually source their funds from the open market, some of them have resorted to travelling to neighboring countries to undertake their international financial transactions. These are some of the consequences and additional burdens that the current forex policies have created.

My view is that if the exchange rate is adjusted to reflect the fundamentals of the demand and supply conditions in the forex market, the economy and the CBN itself would have been saved all these troubles. Fiscal policies can thereafter be invoked to stimulate or discourage any economic activity as vision of the administration dictates.

These are better strategies for policy and sectoral targeting than the use of discriminatory access to the forex market.

The Organised Private Sector seems to be in support of Treasury Single Account, Why?
The TSA will reduce corruption to some extent. But it certainly cannot stop it. To the extent that government agencies, especially, the income generating agencies have less access to revenue that they generate, the scale of corruption will reduce. But corruption could still be perpetuated if the expenditure and procurement processes are not put under effective oversight.

The major advantage of the TSA is the fact that it would ensure and improve revenue inflow into the federation account and this will improve the fiscal stability of all the levels of government-federal, states and local. However, it is necessary to caution against the resultant bureaucratic bottleneck that could be created in the disbursement of funds to the MDAs for their operations. If care is not taken, the operations of some of the agencies may be crippled if there is no adequate framework for speedy release of funds to the agencies for their daily operations. This is an area the authorities need to watch properly.

What do you think will happen if the CBN insist on its policies, in view of the negative effect of some of them on the real sector?
First, some industries will have to close shop, as their critical input diminish. There will be loss of revenue to government through customs duties as there will be high decline in importation, especially, through official channels. Contraction of economic activities will lead to loss of jobs. Nigerian country risk as well as its sovereign risk will be negatively affected because of the liquidity crisis in the forex market.

The inflow of forex through autonomous sources will remain low, round tripping will continue to flourish in the forex market, given the high premium between the official and parallel market and, as well as, the transfer market. Transparency problem in the allocation of forex by the CBN will become more pronounced and vulnerable to corruption. Banks will witness increase in non-performing loans as some of their customers face challenges with the current CBN polices. Profit margins of businesses will drop because of the increased costs imposed by this policy.

JACOBS: Manufacturers Groan Under Unfavourable Monetary Policies
Frank Udemba Jacobs is president of Manufacturers Association of Nigeria. In this interview with DAVID OGAH, he urges government to review some Central Bank’s recent monetary policies, which are stiffening the economy.

Don’t you think the economy is being stiffened with the CBN adhoc policies, looking at the TSA, the exclusion of 41 items from forex market, the operation of domiciliary accounts being indirectly banned from being operated, do you think it is good for the economy?

YES. Although, TSA is the best for this country, but some of the policies of the CBN are not in agreement with the fiscal policies of the Federal Government. When we went to pay a courtesy visit to the President, an officer of the Federal ministry of finance mentioned that the policies of CBN are not congruent with the fiscal policies of the country. But CBN governor, I’m sure he has his reasons for what he is doing. I know he carries the interest of the country at heart, but maybe the way he is going about it is faulty.

For instance, we paid a courtesy call to the CBN governor on aftermath of these policies, and we told him that where as we support the measures he is taking to strengthen the Naira vis-a-vis the Dollar, we appreciate the current position of government in terms of foreign exchange reserve, yet we figured that he ought to have consulted widely with stakeholders before coming up with these policies. The 41 items that are no longer valid for foreign exchange, some of those items are raw materials for manufacturers without which those manufacturers won’t be able to produce. That policy is on and people are undermining the policy by going across the border to transfer money overseas and pay people in Naira, at an exorbitant rate. They can’t do any thing about it and that is why we told the CBN governor, in clear terms, that we want items that are raw materials of our members not to be on the list, most of the items were lumped together.

In importing or exporting goods, there are HS codes. Of the 41 items, when you break it down into HS codes, it gave us 680 is HS codes, these are different items. Of this number, 102 are our raw materials, which we communicated to the CBN to remove from the list. We gave the CBN 93 items that we have the capacity to produce in this country, but it said it wasn’t possible to remove the 140 items. We are still appealing to the CBN that they must re visit it because already, what we hear from our members and Nigerians is that people are going across borders to transact their foreign exchange business. Those same items would still find their way into this country.

Will going across the border for foreign exchange not escalate the cost of production?
Definitely, it will. That is why we are still appealing to the CBN to reconsider its position. All along, people have been using the raw materials they stacked up, but in the next few months, we believe that cost of production would have gotten so high and it will soon lead to inflation, unless the CBN amends these policies, including the issue of access to domiciliary account for purposes of importing. That policy is neither manufacturers friendly, nor Nigeria friendly, and needs to be revisited. We are hoping that CBN will revisit that policy because it will not help the economy.

What about the policy that forbids exporters to utilise the proceeds, of their export?
It is as bad as other policies, because it doesn’t make any sense. If you tell me I cannot access forex from the market and I have proceeds from export and you cannot allow me use it to import, you want to stifle me. We think that policy is terrible and something needs to be done about it.

So what danger does it portend for the real sector?
The danger is that if people are not able to use their export proceeds, the plan to diversify the economy in order to generate foreign reserves, that plan will not work. There is no way we can diversify the economy because there won’t be any incentive to export. if when I export, I cannot use my proceeds as I wish, then there won’t be need for me to export, and If we don’t produce export, we will remain a mono product economy. But then we subject ourselves to the vagaries of international crude oil market prices. We hope that government would do something about it.

Is that policy intended to make Nigeria a destination for foreign investments?
Naturally, it will not make Nigeria a destination for investment because a foreign investor coming with Dollars to Nigeria to invest does so because he sees the potential to export. If government wants to diversify the economy, the best thing is to invest in a product that can be exported. But then after exporting, he won’t be able to use the proceeds the way he feels like, he will not want to come and invest. That will cut down the Foreign Direct Investment into this country.

Power has been relatively stable, has it impacted on the activity of manufacturers?
It is improving, not stable. Yes, someone said the fear of Buhari is the beginning of wisdom. It seems that we don’t know how the magic was done, but everybody seems disciplined today. And it is because of this discipline that we are having improved power supply. It has affected our members positively, because we were crying about power. My factory is in Imo State, in a small rural area, we used to stay two months without power, but today, we get power supply for a number of days, that is a big improvement, I believe it will get better in view of the current arrangement, agreement that is being brokered between manufacturers and Nigeria Electricity Regulatory Commission (NERC). We are going into partnership to draw up legal frame work for micro grid system and embedded power, so that companies and individuals can generate power and find a way to sell those power to industrial clusters. The industrial clusters can also generate their own power and supply to themselves.

The Federal government has refused to withdraw subsidy on petroleum products, how do you think that can assist this government?
Personally, I don’t think the whole idea of subsidy is the right thing. I wish government would remove subsidy and let the market forces determine the price of our petroleum products. It is not the subsidy now that is lowering the price of petroleum product. The prices are going down because people are becoming more disciplined, corruption is being removed from our system, that is why.

If you look at the prices at the international market, the price of petroleum products should be lower than the current amount per litre, and government is still claiming to be subsidising, what is going on?
I have said that government shouldn’t be subsidising, even from the price of crude oil, we shouldn’t even be buying petrol at this rate, It should be lower than this, but because of the corruption in the system, that is why it is still there. Until corruption is eliminated from the system, we would continue to suffer. But I believe that if corruption is completely eliminated, the price will be at the right level.

As a manufacturer, what are those policies you need to heave a sigh of relief?
We have always talked about poor operating environment. In the areas of infrastructure, a lot need to be done. The power sector is not yet at the level where it should be, it can be better. Our roads need to be rehabilitated. The railways should be upgraded. Take for instance, the Peugeot Automobile of Nigeria (PAN), in Kaduna used to have railroad from Lagos to their factory. That made it easier for them to evacuate their raw materials from the ports to Kaduna, the same way they shipped the finished products down south. Now that rail line is not functioning, government should rehabilitate the rail lines.

Multiple taxations is a disincentive to investment in this country, both for local and foreign investors. Lack of funds at an appropriate interest rate is a major challenge. From time to time, CBN comes up with intervention fund that is not the solution. There should be a policy by CBN to make it possible for the commercial banks to give out loans and facilities to manufacturers at a relatively low rate, as it is obtainable in other parts of the world. There is no place in this world where manufacturers source loan at 28 per cent. There is no way you can borrow money at 23 percent and expect to make enough profit to pay the interest on that loan and keep some for yourself and shareholders. So there is need to strengthen Bank of Industry (BOI), empower them financially to be able to cater for the financial needs of the manufacturing sector. BOI should also be made to lower their interest rates. Towards the end of the last administration, they launched the Nigeria Development Bank; we are urging the present government to implement it as soon as possible. We need that development bank to be able to give out loans at 10 percent interest rate, because that is the only way we can get both local and foreign investors into the country.

Now that the CBN has mopped up funds from deposit banks, how will banks still have the muscle to give out loans for investment?
It may interest you to know that our members are not benefitting from the commercial banks. They don’t lend to manufacturers anyway. So even if they don’t have any money that is their problem, because they don’t lend to us. If you want your product to be competitive in this global market we have today, there is no way you can use their money. Most of our members avoid them, except when it is absolutely necessary, you don’t have any other choice.

You said until the ministers are appointed before we can see the economic blue print for this government?
Yes, that is what I think.

The Nigerian economy appears to be stagnant, how can it move forward?
I wouldn’t say the economy is stagnant, because a lot of things are going on. Manufacturers are still in business, though, they may not be doing so at full capacity. There are a number of challenges and we don’t expect all of them to be addressed in one day. Government hasn’t come out with a policy, because the ministers are not on ground yet. I don’t know how we can react about the economy, when there is no policy thrust. I’m hopeful that by the end of this month or next month, there should well known policy thrust of the government, after which we can then react. I think the economy is moving on, though sluggishly.

How is TSA affecting the economy?
The Treasury Single Account (TSA), according to what I heard, is still being reviewed. They came up with a list of 12 institutions that are exempted from the TSA. It is also possible that they might come up with new agencies that will be exempted too. But let’s look at it objectively; don’t you think we need TSA? We do. That is one way to curb corruption. Someone gets into a position in this country and feeds fat and begins to own properties that he or she couldn’t have owned all his life in one year, because there is access to money. Even the regulatory agencies, if government allows them to continue to do it the way it was done in the past, where they have access to surplus funds, they may misuse it. But now that they have one common front, when they need funds, they will apply and it would be given to them. At least, corruption would be reduced. So, TSA is a good thing for this country.

If it is good, why then do you support the exemption of some agencies and ministries from it?
For instance, Bank of Industry (BOI) and Nigeria National Petroleum Corporation (NNPC) cannot run on that single account, because there are things they have to do everyday. BOI gives out loan to people, would it be asking for permission every time it wants to give out loans? That is not practical, but I’m sure that the provisions of the TSA would ensure that they don’t misuse opportunity given to them now to operate their own account. So, I think it is the best thing for the country, no doubt. But there are some exemptions, and government is taking care of them, by excluding some of these institutions and agencies from the TSA.

There are initial challenges with the TSA. Funds have been mopped up and most of the agencies have not keyed into CBN software to access their money, so they cannot operate for now. How do we get out of the problem?
That is why I said it is a work in progress, and we should allow the innovators of that concept time do make the necessary amendment. I am sure when they do, we would be satisfied with it.

EREGHA: FG Is Using CBN To Indirectly Steer Fiscal Policy
Dr. Bright Eregha, who specialises in economic theory and econometrics, is a lecturer in the Department of Economics, University of Lagos (UNILAG). In this interview, he tells IKECHUKWU ONYEWUCHI that government policies in the last three months have had drastic effects on the economy and it would only take concerted efforts at building a formidable investment climate to steer the country off a predicted recession.

Many Chambers of Commerce are complaining bitterly over how hard doing business in Nigeria has become since CBN imposed certain policies, especially, with sourcing foreign exchange; are their fears for the economy?
WHAT the CBN needs to do is to put up a system that identifies genuine needs for foreign currency. If items identified by the chambers of commerce are input to production, they should be allowed to access forex. When an item is an input to production and it is being imported, it is definitely going to affect domestic production. Manufacturers Association of Nigeria (MAN) has met with the CBN to relay their fears and also identify productions that are being dumped into the economy. They want the bank to ban them.

Actually, it is not the job of the CBN to restrict imports. That is a fiscal policy function. CBN is meant to regulate monetary policy. Restriction of importation is the job of government, which is part of fiscal policy; it is not the CBN’s function. For now we don’t have a ministry of finance or of trade and investment or of agriculture; they are the people to do these things. They might work out a ban, a tariff or a quota system, which are not monetary policy tools. But the CBN is using monetary policy to do all that, which is by saying that importers can’t access forex instead of banning imports.

This policy is also supposed to encourage local production. When the cost of importation is high, if one wants to make profit, it would not be too palatable.

The truth is that the environment does not encourage local production; do we have good roads, good tax system, or good governance in place? Government also needs to put in place a good investment environment that would encourage local production.

In the absence of a finance minister, it appears the CBN is filling up the gap in steering fiscal policy?
Yes, the CBN is taking on fiscal policy functions. They are doing it from the angle of the pressure on the foreign reserves. What they have done is like a fiscal policy. One of the ways we came out of the last economic meltdown was by deploying non-conventional monetary policy, where we see the CBN trying to sell assets. It is not the job of the CBN, but because interest rate in the US was almost going negative, they had to leave conventional policy for non-conventional policies. This proves that the CBN is not wrong in its approaches. It is an indirect way of stabilising the economy so that the pressure on the foreign reserve would be reduced.

The CBN Monetary Policy Committee (MPC) has just said that the country may go into recession next year, going by prevailing economic conditions; do you think this is a fallout of the lack of an economic blueprint so far?
I think the prediction can be traced to our overdependence on oil. The prices are going down by the day, which has resulted in states not being able to pay salaries and our revenue, generally, dropping. That is what we call recession. A boom is when income is up. It would get to a time when they would have to start cutting salaries.

The implication is that we would have what is called fall in aggregate demand, which means that the purchasing power of consumers has reduced because some of them are not paid and others may experience salary cuts. If aggregate demand falls, aggregate supply must fall. When that happens, unemployment would be on the increase. To revive the economy, we have to bring aggregate demand up. The only way that can happen is for government to look beyond crude oil and look for other forms of revenue, some of which include taxation, diversifying of the economy into agriculture and others.

There is also the need to cut cost. The cost of running government is too high. Nigeria is the only economy that I know where government runs the economy with oil proceeds; we should be financing government with tax earnings. Government needs to restructure the tax system, such that it would sustain the economy.

There was a call recently for an upward review of the Value Added Tax (VAT) rate; are you in support of the move and how do you think that would help in shoring up revenue?
The move might only create revenue for government and would not boost aggregate supply. The price that is increased is going to government and might not contribute to productivity, except government spends the money on the economy. Can VAT sustain the economy? How many companies remit Vat earnings even? Let’s look at other forms of taxation such as corporate profit tax, personal income tax, tariffs and oil royalties. The question is not only on the increase, but the sincerity of people who collect the tax for government. When I say reform, it is not just in increase, but also in monitoring and in ensuring that what is due to government gets to her. I believe there is so much tax revenue loss to government.

There are arguments that government is tending towards a welfarist inclination, which many foreign observers see to be inimical to attracting Foreign Direct Investment (FDI), especially with the refusal to devalue the Naira and insistence to sustain the subsidy regime; do you think this posture is positive for the economy?

Subsidy is also a way of siphoning money. With subsidy, we increase production for foreign countries. If the subsidised product was manufactured locally, it would increase local production and increase output as well as employment. But that is not the case; we are subsidising import. We are giving foreign firms incentive to increase their production and employment at the expense of this country. To me, that should be stopped.

The economy is going through so much stress. Even at these, we are still subsidising. For the social welfare argument, I believe it is better to stimulate local production instead of caring about social implications. I believe it is a price system that gives an efficient allocation of resources. That won’t happen when price is controlled as we have it today. I think the president should burden himself more on policies that would encourage investments and establishment of refineries.

If you were to critique the economic choices of the Federal Government so far, what would be your assessment, taking the JP Morgan episode into cognisance?
Most African countries are suffering from infringement on their sovereignty by external forces. We believe we cannot do anything for ourselves, so we try to make ourselves valuable by what foreigners would do or say to us. Let’s look inward. Today, we believe so much on foreign aid, which is making us lazy. The major element affecting the tax system is foreign aid, when government is waiting for free assistance from foreigners and as a result we play down on the tax system. Free money is coming from somewhere; that is why government is not serious with the tax system. As at today, the price for our currency is not the real value; it is overvalued. Our import bill is so huge. Exchange rate is in three phases: fixed, flexible and managed float. If we have these in international monetary system, if a government comes to say that it doesn’t want to devalue, it is right. JP Morgan’s sentiment is not the issue. But I believe we should get our system right.

What do you make of the major economic choices of Federal Government in the last three months and how has these impacted on the economy?
The Buhari government came on board when the economy was experiencing the unexpected. The country depends so much on oil as its major source of earnings and the price of the product was determined externally. The CBN governor saw the effects of the price drop on the economy vis-à-vis the exchange rate, just as some states couldn’t meet their salary obligations and recurrent expenditure obligations. The CBN governor then decided to instill some short-term measures, which might not have been monetary, but at least, for now, we are seeing some effects in terms of stability. One of the measures was the restriction of importers of 41 items from accessing foreign exchange, because crude oil price has dropped by almost 50 per cent. Oil is the source of our foreign reserve and importation is a function of the foreign reserves.

To lessen the pressure on the foreign reserves, the CBN decided to restrict those products that don’t really have impact on the economy. Even with that, there was still much pressure on the currency. In Nigeria, we practice what is known as currency substitution, where people prefer other currencies to the Naira; they don’t have confidence in the Naira anymore. Some banks, also, give room for currency substitution. For instance, if one goes to a bank, he could be paid in pounds or dollars.

The CBN went further to restrict funds transfer from a domiciliary account to other accounts. It was such that one could withdraw, but can’t deposit. The parallel market was short of foreign currency and the price was going up far more than it did at the official rate. Since one can’t deposit in the banks, he would move the funds to the parallel market. When the money is available, the price in the parallel market can be controlled.

Another measure was that withdrawals from Nigerian accounts from outside the country were pegged at $300, and one can’t make such withdrawals as much as possible. What happened was that people were withdrawing money outside the country and bringing them back to do businesses in Nigeria. It was to restrict people from withdrawing too much to flood the market.

As regards the Treasury Single Account (TSA), the policy has always been in the constitution. All that was needed was for a leader to allow the system work and that is what has happened. People started sitting up when the president came on board riding with an anti-corruption slogan. The president doesn’t care whether the banks are suffering or not because he is following what is provided for in the constitution.

However, there are implications with the TSA. For instance, almost N2 trillion was with the banks, which have been transferred to the CBN. Actually, what happened was that government had money in these banks and the same government would borrow money from them. The banks would then charge interest from government on the latter’s money.

The argument is, shouldn’t the money be left in the banks so they could give out loans and other instruments to fast track development?
The money belongs to government, in the first place. Banks exist to source for funds, where it is surplus and deploy it to places where it is scarce. They have to put up products to attract people to save and use the fund to create more wealth. Even when the money was in the banks, there was restriction on the amount that can be taken out. But we have a law that says government money must be lodged in the TSA; we are just following that law strictly. The banks have to work to get fund henceforth. They should not depend on government funds. I support the policy, despite the fact that it has caused job cuts. Cost per unit of production would be high in this case, because banks don’t have too much fund to make more money. I believe that the impact would be short term if the banks can sit down to work. When the banks get to realise that they now have to compete fiercely among themselves for private funds, they would sit up.

Other than that, it helps to curb corruption in government. For instance, at the end of the year, government parastatals are to return unspent funds. Ordinarily, there might actually be a lot of money in their accounts but as the year is coming to an end, they would round it up and a lot of things happen. Government now has the instrument to monitor the state of its funds.