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Thursday, August 25, 2016

Buhari's management of Nigerian economy: Economics, Politics and Diplomacy


     Last week, in the course of Africa Central Banks Governors meeting in Abuja, President Buhari told the conference participants that his government would not bow to any pressure from IMF and World Bank in order to do their economic bidding in management of Nigerian Economy. He equally warned other African countries against accepting economic prescriptions from the two major financial institution or any other external pressure. This came amid growing concerns on the way his government is managing Nigerian economy. But, in a situation where you face serious domestic pressure on the economic front you are in no shape to issue economic advice to others; you first put your house in order. That way other countries will learn from your perceived economic management prowess, and rush to accept advices you offer. I do not see much difference between Buhari's current economic policies and what IMF-World bank are asking developing countries to do, may be except for his initial refusal to liberalize foreign exchange market and increase domestic price of fuel. Now that his government has done that, he looks like someone following IMF advice. Other lists of IMF-World Bank policies in this government programs include: this government refusal to subsidize fertilizer used by rural farmers despite earlier government call on people to go back to farm. After all, Buhari is not the socialist some people mistaken him for. He was never reported asking government officials to release (free of charge) foods kept in government stores around the country to Nigerian masses who came in large numbers to vote him last year.


     Buhari seem to be obsessed with foreign qualifications and first class graduates in his recent appointments, that notwithstanding, the CVs of his so called economic team are not that impressive. His finance minister is a Bachelor degree in Economics holder turn accountant, his recently sworn in economic adviser is low on highly needed working experiences to turn Nigerian economy around at this moment of crisis. His CBN governor is also low in academic experiences and qualifications, unlike his two predecessors. His only plus is in commercial banking experience with Zenith Bank plc. Hence, he is not suitable as crisis period governor which is what CBN needs at the moment. In an era when large economies (like Nigeria) are being managed by highly qualified economists, Buhari's team is an exception to the rule. The US lead the rest of the world in appointment of highly qualified professionals and academic economists to serve in its economic team. Past members of US economic teams were egg-heads who had distinguished themselves in their respective fields. They include past Nobel prize winners such as Samuelson, Friedman, and distinguish academics like Bernanke. I hope President Buhari will learn from countries such US, India, and China when next he is reshuffling his cabinet. From Boko Haram to economic crisis, Nigeria's problems look like they will never end. Last week, APC national chairman Mr Oyegun was quoted as saying that APC government was deceived by PDP government into believing that Nigeria's economic problems were not that severe. But on deeper look, according to him, they found out that the hole left by Jonathan government was deeper than it was portrayed in the handing over notes. Jonathan regime alone was estimated to have earned some 51 trillion Naira in it five and half year history. But must of it was wasted with nothing to show.


      Nigeria was recently overtaken by South Africa as Africa's largest economy. It is now second according to some estimates. It shall be noted that both the two largest economies in Africa witnessed reductions in their respective GDPs growth rates, but only that Nigeria's is a bit severe, hence it was overtaken by South Africa this month. While Nigeria was estimated to have slow down in it GDP of about 43%, South Africa's GDP dropped by about 15%. But, whether Nigeria's economy is bigger than South Africa's or the other way round, in term of real economic development South Africa is ahead of Nigeria. Economic development and upliftment of Nigerian poor out of poverty shall be the main concern of this government. An unprecedented moment call for unprecedented measures: just as recession continue to bite hard into Nigeria's people live, Buhari economic team is now waking up from it slumber by proposing to the President the idea of seeking emergency powers from the national assembly to deal with the current economic problems. It is just like what the US did after it was hit by financial crisis in 2007/2008 - using stimulus packages gear towards easing fiscal tensions and pumping money into the economy. Among measures proposed by the economic team includes, releasing trapped UBEC fund to state governments in order to boost education expenditures around the country; increasing government contract mobilization sum from 15% to 50%; increasing the nation competitiveness and ease of doing business by faster issuance of visas to foreigners; as well as leasing or selling of some government's assets to raise around $50 billions for financing government projects.


      Sometimes during the year President Buhari visited Beijing the capital of China, among items on his agenda was purported plan to exchange Chinese Yuan for Nigeria's Naira, what is called currency swap. His spokesmen told a press conference in Beijing that Nigeria and Chinese authorities had agreed on that plan. The plan would have help check foreign exchange crisis facing the government, by checkmating the influence of Dollar on Nigeria's foreign exchange transactions. But, immediately President Buhari returned to Abuja his government denied ever signing such a deal. What caused the denial? Curious observers noticed that a day before the denial, President Buhari met a powerful delegate from the United States government where they discussed many ranging issues. The conclusion people get from that allege meeting was simple, though Buhari desired to show the world that he was as tough as when he was military President, he was also very aware of few power blocs such as the US. But, this is not new in politics, even major world powers like the US play politics depending on the scenarios they found themselves. Double standard and hypocrisy is the norm in international diplomacy.The problem many Nigerians might have had with President Buhari was that long held perception of him as someone who dislike hypocrisy even if it was necessary.

Wednesday, August 10, 2016

Turbulent Time: Managing Inflation in Period of Rising Cost


    The last time i write about inflation here was on May 30th  2012, with title "INFLATION HISTORY IN NIGERIA, IMPENDING REMOVAL OF CBN AUTONOMY, AND OTHER ISSUES"; i am back again on the same inflation monster, looking at how time has changed since then. Today Nigerian inflation rate is hovering around 16.5% the highest in recent time and 8th highest in Africa according to some analysis. According to analysis from Trading Economics, it is forecast to reach 18.20% by end of this quarter. If one look at the trend since January, this year's inflation rate has increased month-after-month; looking at the condition of the economy we must worry about the near future.


     Inflation as most of us are aware is bad for business, and politician facing election shall be wary of it too. Around the world, Nigeria is not alone in this, most oil producing nations are passing through the same situation; the result of global decline in oil price, their main source of foreign earning - causing short falls in government budgets. But in the developed economies of the world, inflation is no longer a concern to policy makers; these economies have been operating with inflation rate of around 1.5%  over many years. If not for recent events, the main concern in the rich world is deflation.

     Numerous factors are to blame for the high inflation rate in Nigeria, and not least is the recent increase in interest rate which is expected to negatively affect the inflation rate in the short run.The CBN motive for increasing the rate is mainly to protect the value of Naira against Dollar and boost banking sector performance. In economic parlance we know that Central banks increase interest rate when they want to attract savers (not only from within the country but from abroad as well), that in return boost domestic currency as demand for it by investors increases. This mostly concern foreign exchange matters and how inflation is related to it. As a matter of fact for a country like Nigeria that is import-depended, inflation can be imported to the country, when there is inflation in our major trading partners' economies. It can also result from high cost of foreign exchange as we are passing through at the moment.


        The current CBN management is under intense pressure to find an end to Nigeria's foreign exchange crisis, adding inflation to the fire will make their case worst. As government borrow to finance this year budget, inflation will prove difficult to control; everywhere around the world, deficit budgeting is inflationary. The rising cost of food items, hike in fuel price and bottlenecks in the supply of other widely use things are also to blame for the inflation. As most analysts expect, the recent liberalization of Naira in the foreign exchange market is linked to inflation, at least in the short to medium term period. According to an IMF study (Nguyen, Dridi, Unsal and Williams, 2015), in the last 25 years, the main drivers of inflation in Africa have been domestic supply shocks and shocks to exchange rate and monetary variables. The study also observes that, in recent years, the contribution of these shocks to inflation has fallen; "domestic demand pressures as well as global shocks, and particularly shocks to output, however, have played a larger role in driving inflation over the last decade".

   Many previous empirical works have shown negative relationship between inflation and economic growth (Chimobi, 2010; Doguwa, 2013; Idih and Olu, 2015). This is particularly true in case of double digit inflation such as we are experiencing at the moment. Our rate of growth has been declining since January 2016, at the same time inflation was rising. Hence, the negative relationship between the two major economic variables. Though, there is much debate among academicians on the actual threshold from where negative relationship between inflation and economic growth set in, most studies agreed that inflation such as at our current level is harmful to growth. As our new government try to understand the Nigerian economy, we shall not expect a quick end to our inflationary condition.


       Nigerian government is introducing a lot of changes, some of which are not welcome by the private sector actors, who move (discretely) to undermine these reforms. Government economic team itself is not quite aware of methods to quickly find an end to the inflationary condition. We can safely say that some of them are learning on the job. As a recent IMF study of inflation across Sub Saharan Africa succinctly observes, "country characteristics matter—the extent of oil and food imports, vulnerability to weather shocks, economic importance of agriculture, trade openness and policy regime, among others, help in explaining the role of shocks" (Nguyen, Dridi, Unsal and Williams, 2015). Thus, our war against inflation is just starting. Finally, when you fight corruption, corruption too fight back; those persistent bottlenecks in key areas of the economy may be connected to this fact.


REF:

Chimobi, O. P. (2010), "Inflation and Economic Growth in Nigeria", Journal of Sustainable Development Vol. 3, No. 2; June 2010

Doguwa, S. I. (2013), "Inflation and Economic Growth in Nigeria: Detecting the Threshold Level",CBN Journal of Applied Statistics Vol.3 No.2

Idih, J. F. and Olu, E. O. (2015), "Inflation and economic growth in Nigeria", Journal of Economics and International Business Management Vol. 3(1), pp. 20-30

Nguyen, A.D., Dridi, J., Unsal, F. D. and Williams, O. H. (2015), "On the Drivers of Inflation in Sub-Saharan Africa", IMF Working Papers WP/15/189