Generally, nations of the world to a great extent rely on one another for their socio-economic and political positioning and transformation. As a result of globalization and integration of national economies, the world today is generally seen as a village. This implies that a problem that occurs in a major industrialized nation like Japan, Britain, and United State of America, Germany, France, and Canada etc. can be transmitted to other regions.
Currently, the global village is passing through severe economic and financial crises. There have been a lot of platitudes and complicated jargons being passed around as reasons for the downturn in major industrial countries which in turn has affected the world. These are largely deceptive. The economic crisis largely has its origin in the emphasis by these countries, particularly the USA, in building and maintaining large but economically unproductive and expensive military complexes with which they have waged needless and unjustified wars around the globe. In pursuit of this, they have had to sacrifice the productive and competitive sectors of their economies. As American lagged behind competitively in economic production, so also is the deficit in its trade with the rest of the world which has come to rely on American market and the American dollar.
For long the assumption was that being the most powerful economy in the world, America could print its way out of any economic problem. This hubris was given added fillip after the collapse of the Soviet Empire with a massive surge in American military production. Just as the America thought that it could print its way out of any economic deficit so also did the leadership think America could bomb its way out of dissenting views against its conduct in world affairs. For long, economists have cautioned about the overemphasis on military production at the expense of more productive sectors where it has competitive edge. This made America less and less able to produce and compete in the world trade and hence its ability to meet its financial and trade obligations to the rest of the world. It is the flipside of this dysfunctional economic emphasis that America and the rest of the world are experiencing today.
In Nigeria, the naira value is becoming uncontrollable. The Central Bank of Nigeria (CBN) is left to carry the can. A gap of at least N230 has emerged between the official rate and the more-accessible ‘parallel market’ rate. This is one of our worst nightmares – the worst – because the exchange rate is tied to inflation and perception.
It is evident that the demand for foreign exchange has continuously been on the rise in the past few years as a result of factors like dependence on imported finished products, reversal of capital flow by investors and speculative demand. These have caused uncertainty in the foreign exchange market which also is linked to increased demand for foreign exchange in the face of unstable supply.
The plunge in the oil revenues is piling pressure on the apex bank to devalue the naira as dwindling export revenue depletes foreign-exchange reserves, curbing the central bank’s ability to support the currency. The central bank’s reserves have fallen by 20 percent in the last two years, to the lowest level since November 2017, and may soon go below the $30 billion mark established by Governor Godwin Emefiele for the country’s to consider devaluation.
More importantly, inflation now stands at 18.6 per cent and the Central Bank’s Monetary Policy Committee (MPC) has raised the benchmark rate by 100 basis points. As much as rates are being raised – which should theoretically slow down inflation, the opposite has been the case. The higher the Monetary Policy Rate (MPR), the higher the inflation. My view is that our inflation is multi-dimensional. Some of our inflation comes from interventions for COVID-19, which meant that people were paid much money for doing nothing. This is what is happening in the rest of the world – free money inflation. Also, part of our inflation comes from importing inflation from all parts of the world. Lastly, producers, retailers and importers have to survive by marking up the cost to consumers since they now get their supplies at higher rates.
Also, Nigeria’s debt crisis manifests in the fiscal cliff, as we now spend all of our revenue servicing debts. This past quarter, we spent N1.94 trillion servicing debts, while our revenue was less than that figure by N300 billion, at N1.63 trillion. This is ridiculous.
Our national debt stock is about N41 trillion, close to $100 billion. This is about a quarter of our GDP. But when we add government borrowing from people’s pensions, the borrowing that was used in intervening in the bad bank, AMCON, and the federal government’s exposure to the Central Bank of Nigeria, perhaps we are looking at least another N35 to N40 trillion, taking our debt-to-GDP ratio to over 50 per cent. Of course, debt-to-GDP is a meaningless index. What about debt-to-revenue? That is where you find that our economy is legless.
In the short-run, Nigeria needs to devise means of promoting a sustainable debt management strategy and take full advantage of the opportunities of debt relief through prudent management of resources and effective co-ordination of all debt management related offices. Nigeria must also invest in entrepreneurial development to boost trade and investment not only in the continent, but also between it and the rest of the world. All these are possible where there is a system of governance that is democratic, efficient and development-oriented.
Above all, there is need to institute and strengthen a sustainable regime of good governance across the country. One is constrained to note that we are yet to see a clear economic strategy around to anchor rational expectations and mobilize vast resources and energies of our people. Our leaders have all but forgotten the onerous task of nation building. The simple truth is that we are not yet a nation and we are far from having that spiritual bond and values which the British political philosopher, Sir Ernest Baker regarded as the most critical factor in the building of a united and prosperous country. Clearly, we have enormous work to do and several steep mountains to climb. At the global level, we would need to work with others to hammer out a brave new world in which the demands for equity harmonize with the imperatives of international solidarity.
For us, the current economic upheaval provides an opportunity to re-invent the country and to consolidate the foundations of democracy that would enhance peaceful and just development for our long-suffering people. After a millennium of hopelessness, our country may at last be coming to its own. Its foundations must be built on a sound public management. But we daresay that will not rise to the occasion until we have transformed our national mind-set, reformed the way we do business and changed the structure of our politics and the very spirit of our constitution, leadership and nationhood.
- Oladeji writes from Lagos.