Jacobs: Policy change, Hallmark of responsible government
Frank Udemba Jacobs is the President of Manufacturers Association of Nigeria. In this interview with DAVID OGAH, he says it is a sign of humility when government reverses self.
What does not having stable policies do to an economy?
In a globally challenging world, I don’t think it will be normal for any government not to have or operate on a well-defined economic blueprint, unless that country is a failed state, ravaged by war without a commanding central government. Though, our country is seriously challenged in areas of security and cash flow, looking through the recently signed Appropriation Act, one can see the thrust of the economic policy and direction of the administration, anchored on creating a more diversified, sustainable and inclusive economy through import substitution and export promotion to build a robust and resilient economy.
Do you think that government is implementing Ahmed Joda committee’s blueprint?
The major planks of the Joda Committee Report are hinged on: drastic reduction in government in order to bring overhead and non-statutory recurrent expenditure to a manageable level for more savings for capital expenditure, bridging the gross capital deficit is a major priority for competitiveness of our businesses to be realized, Diversification of the economy away from oil, our main revenue earner, reduction in the huge unemployment level in the country and minimising corruption and blocking of revenue leakages in public sector.
Let us look at electricity, definitely, there is no way inadequate and unreliable public electricity will not impact negatively on economic growth. Electricity is very germane to industrial development in any country. At present, self generated power and the little supply received from the DISCOs altogether constitutes 40 per cent of production cost on the average in the country, while in the countries of our competitors, it is in the single digit.
Apart from the problem of long term neglect of the sector, the issue of gas supply to the thermal stations has not allowed for stability in the utilisation of the little available capacity of over 6000mw. Incidence of pipeline vandalization has really constrained gas supply in recent time. It is necessary for the Federal Government to sort out the perennial problem of pipeline vandalism and accelerate the development of the identified hydro dams, coal to power, solar energy and other sources as captioned in the 2016 Federal Budget.
To be candid, government has no business in supplying petrol for local consumption. MAN and other real sector operators have been advocating for the deregulation of the downstream petroleum sector. All what is required of government is the provision of the regulatory environment for private refineries to thrive and meet the local demand and export excess products. The huge volume of importation of the product that has been going on for over thirty years under the subsidy arrangement has been a huge drain on the economy, which amounted to eating up the future. Apart from this, the country has been exporting jobs and wealth to the countries from where we import. Inability to undertake local refining has made the country to be depended on importation of vital petrochemical related industrial raw materials, which constitute a lot of drain on our foreign reserves.
The decision taken by the government to partially deregulate the sector is bold and courageous, coming at a time when the country is greatly challenged by in-flow of foreign exchange. Moreover, it does not make economic sense to keep on subsidising petrol consumption by the government as the subsidy did not really benefit the poor, and it did not encourage or attract local investment in refineries. The economy was worse off under subsidy regime.
The government has tampered with cash reserve ratio in banks and the interbank interest rate a number of times, in what ways has this affected the banking operations and the economy at large?
It is the prerogative of CBN to adjust the cash reserve ratio of Deposit Money Banks as one of the monetary tools in regulating the volume of cash in circulation and to direct the movement of bank lending. When the monetary authority observes excess liquidity in the economy, the cash reserve ratio will be increased to reduce the credit creation ability of banks and vice versa. The use of this tool and such others cannot just be done at the whims and caprices of the CBN Governor. It is dependent on the outcome of the deliberations of the Monetary Policy Committee.
Interbank rates, on the other hand, are determined by the interplay of market forces of demand and supply at that market segment. The rates are not directly determined by the CBN.
The movements of the cash reserve ratios and interbank rates have bearing on banks’ lending rates to businesses and the economy either positively or negatively.
Last week, when the government announced fuel price increase, it said exchange rate at the second market would be N285 to the Dollar and the first market at N197 to the Dollar, yet it said before that it would not devalue the Naira. Does government have control over black market?
The reality of our economy today led the government to take the drastic decision on fuel price increase. With the huge foreign exchange demand for fuel importation alone ($225m out of forex earning of $556m in April), there is no way the situation can continue. Remember that many products have been moved to the secondary market (inter-bank forex market) with the list of CBN 41 items. Included in the list are critical industrial raw materials. Fuel import has just joined the list.
Government has not officially devalued the naira. What is playing out is currency adjustment in the secondary market, whose exchange rate will be determine by the law of demand and supply, with occasional intervention by CBN, through sales of forex to the market.
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