Imagine yourself sitting in the driving seat of a car with your feet on the pedals and your hands on the steering wheel. You have just realised that each command you give to the steering wheel and to the pedals are not translated to the vehicular movement of the car – someone else, somewhere, has hijacked controls of both speed and direction of the car. Don’t just assume this is a driverless car: it is our Nigerian economy, where the Central Bank of Nigeria (CBN), fully and beautifully seated in the driver’s seat, seems to have lost control of the economic movement of the country to other forces outside its command.
It has been a long time since the CBN’s interest rate tool did anything to inflation in Nigeria’s economy. In fact, while the CBN kept a closed range of the interest rate, from 12 per cent to a maximum 19 per cent, both inflation and unemployment kept skyrocketing beyond the predictability of the varying interest rates implemented by the CBN. Thus in 2022, the CBN “discovered” the anomaly: that money (naira) supply had been abused extremely to points out of its control. CBN then initiated a gruesome mop up of the physical naira from economic circulation with the naira redesign policy, which failed woefully, and also birthed unwanted and unwarranted consequences of hardship and uncertainty on the economy and its citizens.
While the anomaly in the too much supply of the naira created a wild growth of inflation of goods and services, the CBN is yet to discover that the same type of supply of money is found in its supply of the US dollar. The 100-dollar bills are swimming from beneath bedroom pillows to sacks and cartons in office spaces in Nigeria – God save us, if pits on farmlands are not harbouring the golden dollar. There is no way the CBN can control the dollar-naira exchange rate if it does not have control of the volume, flow and current of the US dollar in the Nigerian economic space, and indeed other such foreign currencies, which have massively displaced our naira from free circulation. In other words, there is an oversupply of the US dollar against the naira in our economy.
One may argue that if the US dollar is oversupplied, then its value should fall against the naira. This is rational in the field of demand and supply. But an unconventional process has befallen the system, which makes this rational convention untenable: the US dollar, in the Nigerian market, has used the parallel market window to reach its money saturation point in the currency exchange market, with a large uncontrollable excess converting itself from currency into economic product. It is the product aspect of the US dollar that is causing massive distortion in the system through stressing the naira to search for it from economic hoarding and smuggling. This is one principal cause of the weakness of the naira – the other reason being the unproductiveness and inefficient productivity of the naira through non-market priority alignment (producing low valued and low demand products).
Thus, do we have a CBN without administrative powers on the economy? It has become powerless in both money supply and inflation control through the use of conventional interest rates. The administrative framework of the economy (CBN) has been put to heavy task, and has also been put to question. In the world of computer systems operations, this is like having a complete and beautiful computer system, with a running Operating System (OS), but which lacks suitable drivers for its various parts – an utter nonsense edifice, this is!
The announced replacements of CBN governor and four deputy governors are just about taking their driving seats. Thus, the world is in the dark about Nigeria’s next monetary policies. It is likely going to take a while before a fully functional CBN is back in place.
While the current status and actions of the CBN manifest an administrative structural framework problem of Nigeria’s economy, there also exists an operational structural framework problem of the economy: structural gap as well as inefficiency in the products of the economy. There are two main reasons for the operational gap in the structural framework of Nigeria’s economy: first is that the economy is highly dependent and reliant on the crude minerals and services sectors of the economy. There are four main sectors of every economy: crude minerals, services, processing and then the manufacturing sectors. The crude minerals and services sectors are highly volatile, coupled with the fact that they employ less of labour; in fact, even in the labour these two sectors employ, they employ less of entrepreneurial and skilled labour. This is a very major drawback on the GDP of an economy hinged on these two sectors.
The second issue concerning the gap in the operational framework of Nigeria’s economy is the fact that the economy presents to the global market non-priority products – low valued products and products with low demand in the market. Today’s vibrant global markets are mainly concerned with products from manufacturing and processing industries – semiconductors and their products, machines and equipment (smart phones and devices, cars, aeroplanes, health services equipment, educational equipment, etc). This is the very realm Nigeria is missing in. Nigeria is mainly concerned with the crude minerals sector (crude oil exports) which is very volatile, and also the financial services sector, which is also very volatile, in addition to its inefficiency when employed alone (without robust products of manufacturing).
Thus, Nigeria’s current macroeconomic structural framework is very weak, looking at target GDPs of a trillion dollars and above; currently, Nigeria’s GDP is in the $440bn range. The administrative framework got lost when CBN could not control the monetary aspect of the economy using the tools available to it. Then, the operational problem of what to produce for the global market is festering in the economy, with Nigeria heavily reliant on what is less important to the global economic market. Until these two main framework problems are solved, there is no magic that the CBN will apply to shoot Nigeria’s economy into the comfort zone.
Dahiru sent this piece from Abuja. [email protected]
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