By Adetutu Folasade-Koyi and Adewale Sanyaolu
President Muhammadu Buhari’s economic policy received hard knocks from Bloomberg, the influential United States of America-based financial software, data and media company.
Bloomberg said, yesterday, that Buhari’s rigid leadership style is making Nigeria’s economic problems harder for his government to solve.
In an editorial, titled: Nigeria’s economic policy needs visionary leadership, yesterday, Bloomberg gave more hard knocks for the All Prograssive Congress-led Federal Government for arresting foreign currency black market operators and attempting to manipulate the country’s foreign exchange rate, after devaluing the naira, five months ago.
The media outfit also faulted the Central Bank of Nigeria (CBN) for pandering to the federal government in regulating foreign exchange rate.
“Africa and the world cannot afford a failing economy in the continent’s most populous nation. Yet, that is exactly what Nigeria might be getting: Its economy is on track to shrink by 1.7 percent this year, the official unemployment rate has more than doubled over the last two years, and inflation is at an 11-year high.
“One concrete step president Buhari could take to address the crisis would be to eliminate the country’s disastrous foreign exchange controls. Instead, Buhari has made no secret of his desire to defend Nigeria’s currency.
“And, the CBN has mostly gone along. Despite allowing the devaluation of the naira in June, it is continuing to manipulate the exchange rate-discouraging foreign investors, creating a crippling shortage of dollars for businesses that need to import, and feeding a currency black market. To keep down the street price of vanishing dollars, Buhari’s government has arrested informal money-changers. More capital controls are in the works.
“Dismantling Nigeria’s foreign exchange controls will, doubtless, cause at least, a short-term rise in inflation. Yet, doing so will not only draw foreign investment and make the economy more productive and competitive, but, also, cut off a conduit for corruption. Buhari can cushion the blow for Nigeria’s poor through targeted cash payments- an approach Nigeria has used in electronically delivering subsidies to poor farmers. That same mechanism could also shield the poor from the regressive impact of an increase in Nigeria’s value-added tax — which is relatively low but a potentially valuable source of additional government revenue.
“There are other ways to stimulate the economy, of course. But, Nigeria’s Senate rejected Buhari’s three-year spending blueprint and an ambitious campaign to borrow $30 billion abroad because they lacked details. Meanwhile, his reluctance to sell off state-owned assets has undermined other efforts to raise revenue.”
In a conciliatory tone, Bloomberg acknowledged that Buhari took over an almost-failing economy in May 2015, worsened by plunging global oil price but insisted the president must be flexible in his economic policies if he is to pull Nigeria out of the woods.
“To be sure, Buhari faced ugly circumstances when he took office in May 2015. The plunge in oil prices had left the economy reeling and government coffers bare, and attacks by Boko Haram were ravaging the country. Yet, while some progress has been made fighting both terrorism and corruption, Buhari’s rigid leadership style has made the country’s economic problems harder to solve.
“Buhari’s election and pledges of good governance rightfully raised expectations across Africa. To fulfill those hopes, however, he will have to demonstrate more flexibility.
Local economists, however, see it differently.
In his reaction, Director, Centre for Petroleum, Energy Economics and Law at the University of Ibadan, Prof. Adeola Adenikinju, said the CBN’s flexible exchange rate policy defies the law of demand and supply.
He regretted that, rather than the policy to provide a buffer, the economy is the worst for it, with only a few enriching themselves with the policy, adding that the policy has a lot of defects working against the economy.
Adenikinju said Nigeria has about three levels of foreign exchange markets, which he said has segmented the market and, as such, makes it difficult for investors and Nigerians abroad who need to remit money.
He also said the policy allows for rounding tripping, “so much that it allows people to move foreign exchange from one foreign exchange market to another as a result of giving priority to some sector above others.” The implication of this, he said, is being witnessed with “rent-seeking vendors, who, as a result of close links to government, get foreign exchange based on priority and subsequently divert same to the parallel market, rather than engage in productive venture for the the fund was meant to serve. This move is tantamount to what economists call command economy. Command economy can only work in an environment where there is proper monitoring. So, if foreign exchange requests are granted for a particular purpose are diverted, such could be easily detected. But, the reverse is the case with Nigeria.
“Under this kind of situation, government is not encouraging productivity, but rent-seeking because it encourages laziness. When, as a businessman, I know I can make so much from rounding tripping by getting foreign exchange at a lower rate from government or interbank and sell same at the parallel market and make so money. So, why would I want to go into manufacturing?” he queried. Prof. Adenikinju also explained that the genesis of the foreign exchange crisis started shortly after CBN banned on 41 items from accessing the foreign exchange window. He added that, in a bid for manufacturers to survive and continue to be in business, they resorted to the parallel market, leading to acute shortage and high foreign exchange rate.
On his part, Chief Executive Officer of Financial Derivatives Limited, Mr. Bismarck Rewane admitted that though there is illiquidity in the foreign exchange market, he differed with Bloomberg’s gloomy outlook on Nigeria.
‘‘The issue here is that, we either have a flexible foreign exchange rate or we have none or fixed exchange rate. What Nigeria is practising at the moment is a managed floating rate. But, the managed floating rate should be allowed to float. A managed floating rate is different from a managed, fixed rate. So, what Bloomberg is suggesting is that, we are practising a managed, fixed rate, rather than a managed, floating rate. Now, I think that we have to move from a managed, fixed rate to a managed floating rate.
“But, I don’t think this country has been plunged into the current crisis as a result of that alone. There are so many other factors responsible, including oil production, oil price and mixed signals.”
On the 41 items barred from accessing foreign exchange at the official rate, Rewane said the aggregate demand for foreign exchange has not changed, adding that aggregate demand is far in excess of supply because of a fixed price regime which has created a supply gap.
Bloomberg is owned by Michael Bloomberg, the sixth richest man in the world.