The issue that this raises however is of far greater importance than how much we sell or make from a barrel of oil. It has exposed the inability of successive governments in Nigeria to diversify the Nigerian economy, a once vibrant agricultural economy, from the mono-product, oil- dependent economy that it currently is.
Currently, Nigeria generates 80% of its revenue from oil exports and about 90% of its foreign exchange putting the country always at the mercy of crude oil price fluctuations. As the Nigerian economy again cycles down with falling oil prices, the need for the creation of more options for the economy comes to the fore with the government in need of more revenue, more employment for its people and better infrastructure.
Reviving the real sector of the economy, especially the manufacturing sector which serves as the industrial base of the economy and encouraging private enterprise remains a ready alternative for any attempt at diversifying the economy beyond oil exporting. Without any statistical backing it is obvious that real sector growth in Nigeria has been on the negative in the last two decades. Large, small and medium sized industries wind up almost daily. New entrants always find it difficult to survive and close doors as quickly as they opened them.
Various arguments have emerged as to who to blame for this poor showing that has made Nigeria the dumping ground for all kinds of foreign goods. Many would want to support the ‘How can banks be declaring billions of naira in profit when the real side of the economy is in a comatose?’ argument, putting the blame at the doorsteps of banks. The claim is that high interest rates make it impossible for businesses to source cheap funds with which they can run their operations. The managing director of a paint manufacturing company once affirmed this claim during his company’s recovery phase that, any industry that must stay afloat should look away from the banks when it comes to seeking funding in Nigeria.
The need for favourable rates has always therefore, been a source of concern since Nigeria’s oil wealth has been unable to tow the economy to paradise and government has remained inhospitable to entrepreneurship. So, financial regulators representing the government find it expedient to always seek ways of installing a regime of lower, more business friendly rates if Nigeria must again enjoy economic prosperity.
Since the current CBN governor, Chukwuma Soludo came into office in May 2004, he has never hidden his belief that lower inflation rates can play a huge part if banks must begin to lend at more reasonable rates. The inflation rate is the rate of increase in the prices of goods and services. If inflation is high definitely operational costs increase putting pressure on banks to push up rate also.
Apart from spirited attempt to cub inflation, the CBN also adjusts the monetary policy rate in a bid to aid banks’ ability to lend at lower rates. The monetary policy rate is the rate at which the CBN lends to banks. The MPR is also supposed to serve as a regulatory rate around which other rates will be determined. The lower this rate is the better for banks and the better it should be for customers.
The central bank has also, a number of times, tried the option of pegging the rates at which banks must lend to customers. Most times this measure continues to fail as banks have always lent well above stipulated rates.
But like many bankers, I would not also subscribe to the claim that high interest rates should be considered the monster that has consumed major businesses in Nigeria including Michelin which closed its factories in Nigeria a few years ago. Definitely, there must be more factors affecting the survival of businesses and even the operations of banks themselves and threatens the possibility of ever having rates that will favour business growth for economic buoyancy.
Firstly, the general state of infrastructure in Nigeria is not at all encouraging to businesses. Chief among these infrastructural deficits is the near inexistence of power supply in a country that hopes to be one of the top 20 economies globally by 2020. Power supply in Nigeria remains unreliable so businesses have to run on alternative power, in many cases generators, which are expensive to maintain and keep running. Security is also a major concern. These two major factors coupled with other factors such as the inflation must be taken into consideration before we can hope to bail out our economy.
Sanyaolu Taiwo writes from P.O.Box 9170, Shomolu, Lagos