My Interview with the Daily Trust on State of Nigerian Economy
Dr. Mustapha Muktar (mmuktar75@yahoo.com)
Department of Economics
Bayero University Kano-Nigeria
On External Debt Profile
External debt is one of the sources of financing capital formation in any economy.
Nigeria is characterized by inadequate internal capital formation due to the vicious circle of low productivity, low income, and low savings. Therefore, this situation calls for technical, managerial, and financial support from Western countries to bridge the resource gap. On the other hand, external debt acts as a major constraint to capital formation in Nigeria. The burden and dynamics of the $32bn Nigerian debt profile showed that it does not contribute significantly to financing economic development over the years. The debt accumulates
Because of the servicing requirements and the principal itself. Nigerian debt profile has become a self-perpetuating mechanism of poverty aggravation, work over-exploitation, and a constraint on socioeconomic development of the country. The current debt profile is disturbing and unfortunate, nobody knows how it accumulated to such huge amount, worst of all, and no one can identify the so-called projects if any that the loans had funded.
Can Nigeria do without borrowing?
Of course the country can do well without necessarily borrowing from outside sources. First since the earlier debts collected have not significantly transformed the socioeconomic conditions of the country then one can appreciate the fact that borrowing is not necessary. Nigeria can still raise money from the money market internally thereby financing Key projects at the same time stabilizing the economy. Moreover, since the country’s foreign reserve is well above $42Billion why Nigeria should borrow unnecessarily from the international donor organizations and became indebted which will soon accumulate interest and accompanied by nasty and unfavourable conditions that are detrimental to the growth of the economy? Another way out is to utilize the excess earnings of the crude oil outside the $67 per barrel of oil benchmark for the budget to finance the budget. Research Evidence have shown that, the debt sustainability criteria being employed by the country is misleading and lacks any theoretical and practical underpinning. It is geared towards a nation’s perpetual dependence on loans rather than real development. It could be recalled that the national Economic Empowerment and Development Strategy (NEEDS) places much emphasis on Public Private Partnership (PPP) as a major source of development financing. Nigeria can judiciously utilize its oil revenue to transform all sectors and bring the economy back to the path of progress and development without necessarily borrowing from outside.
Impacts of debts on the Economy
Borrowing from outside sources have many impacts to an economy, in the first place if effectively utilized, funds that are borrowed can be used to Finance infrastructures and budgets, as well as boosting the growth of the economy due to multiplier effects. Borrowing is used to finance long term projects which the existing government may not be capacitated to finance. On the other hand the debt burden if it becomes large could retard the growth of an economy due to frequent servicing. In cases where the amounts borrowed are not effectively utilized, then the citizens will suffer the burden of debts without corresponding benefits accruing to them. Debts usually are associated with conditionalities that are in most cases not favourable for economic progress. In cases where a country cannot pay its debts in time, interest do accumulates and worsen the total debt profile of the country and hence enslaving the country and making its economy more vulnerable and exposed to exploitation by the its creditors. To sum up all high external debt profile like that of Nigeria makes sustainable development a difficult task to be achieved.
Should we cut our Budgets?
Whether European countries cut their budgets or not, we should be able to understand that we have different socioeconomic setup with them and therefore need a different budgetary policy from their own. The demand for NLC for example is justified and desirable, looking at the inflationary pressure and high cost of living, we can see the necessity in raising the minimum wage to at least cater for the basic needs of the workers, by and large raising minimum wage will have a multiplier effects on the economy as workers spend more so also business men will sell more and get more profits. Unnecessary expenditures need to be cut to finance important issues. For example what is the economic rationale for spending huge amount of money on Nigeria’s 50 Years anniversary when key sectors like health, Education, security, Power and water are in crises? Why can’t the federal government divert the amount spend on the anniversary to transform one of the sectors identified above? Unnecessary expenditures need to deleted completely from our budgets, our budgets should be focused on priority areas that if transformed will uplift the total social welfare function of the citizens
Assessment of Economy under Jonathan
Well the Jonathan economic policies are too unripe to be assessed this is coupled with the fact that the global economic meltdown have hit the Nigerian Economy just as it had hit other countries of the world, more time is needed to ascertain rightly and appreciate the economic policies, however not much has been achieved and the economic policies are not clear and well defined. With regards to the intention of the present administration to borrow from the ICM, I would argue that it is unnecessary.
Suggestion to CBN on How to Improve Banking Sector Reform
My Suggestions are;
CBN should strictly monitor and regulate the way and manner in which loans were given to safe guard depositors’ money and prevent collapse of the Banking Sector.
There is the need for the CBN to through its policies make the existing Banks Improve their recapitalization so that more mergers will take place and the Banks become Mega and compete with their counterparts in other countries.
The Banking Sector reform needs to be structured to take care of the quality of human resources of the existing banks; in most cases the staffs employed do not have the necessary background of Banking. This is due to the serious competition facing the commercial banks in terms of acquiring deposits, in some cases banks gave employment to people who guarantee the transfer or the opening of a heavy account with them and in the long run such people mislead the bank as they lack professional background on banking issues.
There is also the need by the CBN to mediate on the exorbitant interests charged by some commercial Banks despite the fact that the monetary policy rate (MPR) of CBN is not too high and among the determinants of the cost of credit.
For the Banking reform to be effective the amount of money that is in the informal sector (outside the banking sector) need to be moved to the banking sector so that the financial system will improve, however this is only possible if depositors have confidence in the banking sector which the CBN needs to sensitize in order to attract more funds.
Should Nigeria Go ahead to Float the $500Bond at ICM
As I have earlier said and justified my answer is NO because it is unnecessary and the expected disadvantages far outweighed the expected advantages.
On Inflationary Rate and MPR of 6.25%
The Inflationary rate of 13% is normal for a developing country like Nigeria. My only query is that this 13% is a theoretical figure given by the CBN to justify its capacity to regulate prices, unfortunately, in reality, the inflation rate if far above 13%. Independent studies have confirmed this and therefore the CBN needs to do much through inflation Targeting and monetary policy to stabilize prices. On the 6.25% Monetary Policy Rate (MPR) one can say it is fair and encouraging especially in this time of financial crises and meltdown. However as I said earlier CBN needs to closely monitor and regulate the activities of commercial banks especially their high lending rates despite the 6.25% MPR, their activities is damaging and counter-productive to the economy.
Way Forward in Agriculture and Oil/gas Sectors
Let me start with the oil sector, the first step is to upgrade our refineries and make them standard, more refineries need to be constructed so that the crude oil will be refined and all the products that are obtained from it can be tapped. This has dual objective of saving unnecessary importation of refined oil at the same time creating employment to the teaming unemployed. For the gas sector i suggest the monetization of the gas for the internal use of the citizens. Monetization of gas sector is a concept coined which entails tapping and managing the flared and wasted gaseous resources to be sold either for domestic use or to external sources. The monetization of gas will help alleviate the scarcity of both the industrial and household energy demands and at the same time boost government revenue and create employment to the teaming unemployed.
The oil revenue should be use to transform the agricultural sector. At the beginning an agrarian reform that will revisit land tenure system and transform the rural sector is needed. Infrastructures should be provided to the rural areas to stop rural urban migration so that people can engage in agriculture. Off farm activities in the rural areas need to be re-activated to supplement farmers income. Farmers’ income need to be stabilized by the government through its policies. Finally to transform the agricultural sector government need to spend a lot on Biotechnology and extension services so as to educate farmers on new methods of production.
Return to Industrial path
Industrialization have long been considered as an engine for economic growth. For Nigeria to return to industrial path then a sustainable power supply is needed to at least kick start the industrial process. This is followed by provision of other infrastructures like roads, water and provision of capital at affordable rates. Government needs to protect the industries from competition with foreign goods (which are cheaper and more qualitative).
On Insurance Sector
The insurance sector performance in Nigeria is generally poor; many people are actually ignorant of the happenings in the sector. Much attention has been placed hitherto on the Banking sector at the expense of the Insurance sector. However the performance of the sector is worse in the Northern part of the country, this is due to the fact that in the north the awareness is low and the dominance of the informal sector activities. Another reason that accounts for its low performance is the cultural and religious setup of the area where in most cases it is believed to be unnecessary as whatever happens is considered to be ordained by God, while this is very true, one can say that the idea of insurance is about making provision for possible risk associated to any human endeavour. The issue of insurance is mostly misunderstood and misinterpreted. In Northern Nigeria the preoccupation of the citizens in most cases does not necessitate taking an insurance cover, this and the lack of confidence in the financial system contributed to its poor performance.
Micro Finance Banks and the Economy
Micro finance banks if well operated will surely contribute significantltly in gingering the economy, this is because they help in the provision of necessary credits to the grassroots, the artisans and other small scale based businesses operating in the informal sector of the economy. Microfinance banks if well operated can help in supplying credits to the poor in rural and semi-urban centres of the country. However, the rates charged by these banks is too high as it is up to 30% in some cases. This makes their credits to be very costly and beyond the reach of the targeted beneficiaries, where the loans are collected, the beneficiaries ended up creating money for the banks and not benefitting much from the Loans. The Central bank of Nigeria (CBN) therefore, should mediate on the rates charged by this banks with a view to make the loans cheaper and affordable to the grassroots.
The way forward
The way forward for the Nigerian Economy is;
There is the urgent need by the government to effectively utilize the oil revenue and diversify the economy as well as overhaul the non oil sectors especially the agricultural sector so that it will be made to perform its traditional functions of food provision and employment generation to the teaming populace. There is also the need for the government to effectively gear the huge oil revenue towards the development of infrastructural facilities in the country, especially power generation, roads, hospitals and municipal services). A rider to this recommendation is the need to properly utilize the oil revenue to acquire technological gadgets and equipments that could be used to transform the manufacturing sector of the economy so that it can employ more citizens at the same time contribute more to the GDP which will subsequently be beneficial to the country at large. The Education Sector of the Economy also need serious attention by the respective governments ( Local, State and Federal) so that the quality of human resources can be improved and subsequently the productive base of the economy be improved. Substantial amount should be budgeted to Education Sector because of its central importance in Development process; all the developed countries of today have attached a great importance to education. Therefore for Nigeria to develop the sector must be transformed.
The issue of corruption and insecurity also needs to be tackled with concerted effort by the government. Strong and effective punishment need to be enforced.
To achieve the above, a purposeful leadership is needed, a leadership that will be responsible and dedicated to the people. A purposeful leadership can only be achieved through voter participation and consciousness as we know the better people among ourselves and can bring them to govern us through the power of our votes and our ability to first of all change ourselves (since we are all party to the problems) and be determined to change the country.
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