Government of Nigeria’s (GON) Economic Policy is still developing, but there are critical Milestones:
• GON is running a very stringent economic policy (strict monetarism). The highlight so far seems to be plugging leaks and cutting budget in order to boost the anti-corruption campaign.
• Treasury Single Account (TSA) is another definitive Milestone. Over 3 Trillion Naira has been saved SO FAR
The challenge is how to move from austerity to stimulus.
Anti-corruption is yielding results as huge monies are being returned; TSA has led to massive saving of over 3 Trillion Naira, but the question remains how do we use these milestones to stimulate the economy?
1. Getting Financial Services Sector (FSS) right: This would involve limiting the role of CBN and creating a Financial Services Agency (FSA). CBN is currently overburdened. CBN should focus on lending, interest rate and exchange.
Quantitative Easing (QE): Tied to FSS is the role of CBN is keeping inflation in check. Nigeria is technically in recession with her 10% growth rate dramatically reduced to 3%. To carry out QE, central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment.
2. Job Creation and Stimulating Small Businesses
If we get the FSS right, as highlighted above, job creation and stimulating small businesses would naturally fall in place. Jobs can only be created when we have a vibrant manufacturing and real sector. Currently, the manufactory sector is in a comatose state with the Manufacturers Association of Nigeria constantly complaining of the need to reduce the cost of doing business. Small Businesses are hindered because of absence of capital: they cannot easily access loans from banks. Interest rates are high and banks are shy to lend because of the problem of bad debts, exacerbated by inefficient regulatory environment.
3. Reviewing Public/Private Sector Economy
Public Sector Economy is not properly defined in Nigeria. Whilst Nigeria’s State owned Public Enterprises are often ineffective, China’s Model appears very effective. The Privatization escape route that Nigeria is often eager to employ has not been successful. In fact, none of the privatized entities in Nigeria could serve as a model. It is urgent therefore, that Nigeria reviews her Public/Private Economy. Government must control the overarching sectors of the Economy. There is need for a strong Public/Private Sector Framework. It is important that despite current challenges, Nigeria is still rated as the 20th largest economy in the world. Reviewing Nigeria’s public/Private economy would go a long a way in turning potentials into reality and move the economy forward.
4. Meeting the Funding Gap
(a) Devaluation: The choice here is between regulation and deregulation.
The Regulation logic would encourage the CBN to dictate the exchange value, in this case devalue it. This is the position favoured by IMF. The contrary view, which I feel is more reasonable, is to deregulate the environment and allow market forces to determine the exchange value. Also tied to this is that the CBN should allow free flow of forex. CBN should expand the space and allow all Nigerians to participate in this. Currently, the centralized system on this issue excludes critical stakeholders from Dangote to the ‘Mallam’ on the Street. The problem with Forex is that CBN does not have enough, but if we expand the space, we would be surprised that many Nigerians can participate and increase the stock. All that is needed is to create a legal framework to encourage this participation, subject to Money laundering Rules.
b) Diversification: This is already notorious in the face of the post oil economy that we are witnessing. The roadblock, however, is the massive infrastructural deficit to serve as a backbone. We must return to ‘Receivable Financing Option. The proposal that Nigeria pledges her oil to receive loan from countries like China, should be revisited. We need to fill our huge deficit gap by receivable financing. It is only such huge receipt of funds that could plug the serious infrastructural deficit that impede diversification in Nigeria.