In an economy as vibrant and fragile as Nigeria, financial team is pivotal to how the nation strike a balance between global and national economics, and use that as the basis for formulating both monetary and fiscal policies. This is something Nigeria’s financial team has failed to do since the global oil glut started.
When global oil prices plunged and erased over 70 percent of Nigeria’s foreign revenue. Instead of the central bank to allay national fear by formulating monetary policy to stimulate the economy from within and assure the nation of its readiness to do whatever it takes to ensure things does not deteriorate further like the Bank of England governor Mark Carney did immediately the Britons voted to leave the European Union on June 23, the institution spent the first two months of this administration denying the impact of the shortfall on the economy, only to banned manufacturers of 40-items from accessing forex at official rate on June 23, 2015 as a measure to rescue itself from lack of forex, but end up weakening the manufacturing sector as most manufacturers had to lay off when they couldn’t source for raw materials, leading to high unemployment rate and even higher foreign exchange rates.
Subsequently, this created unnecessary fear and alerted foreign investors to the level of their technical know-how, hence the capital flights that follows and the persistent pressure from both the International Monetary Fund and analysts to devalue the Naira so as to accommodate the difference created by a drop in global oil prices. Again, the federal government, central bank, ministry of finance and monetary policy committee (financial team) refuted all plead to devalue the Nigerian Naira and instead increased interest rates by 100 basis points to 12 percent to boost capital importation, ease the liquidity issue unfolding at the interbank market as at the time and reduce capital flight simultaneously. Not only does this monetary policy fail, but it further exposed their lack of experience in managing financial crisis.
However, one would think the Nigerian Monetary Policy Committee that had voted severally on rates since then would thought it necessary to lower interest rates and allow real investors access to cheaper loans to create jobs needed to attack high unemployment rate, increase consumer spending and fight economic gridlock, while the CBN concentrate on how to increase forex into the country by going after institutions like PayPal Inc., that bar Nigerians from withdrawing funds yet declared Nigeria as the third highest mobile shopper in the world. But no, the Monetary Policy Committee led by the Governor of the Central Bank of Nigeria Godwin Emefiele left rates unchanged.
Again, on June 20 when the institution exhausted its external reserves and was forced to introduce forex flexibility policy, the institution failed to take into consideration global economics “the U.K. and the European Union referendum of June 23”. Even though, Nigeria is a petrol-dollar economy and grossly depend on the outcome of the referendum like every crude oil dependent economies, the CBN neglected the obvious and roll out forex policy three days to the referendum to attract global investors that were perturbed by the high global uncertainty created by the referendum, and in fact forced the “BIG” US Federal Reserve to rescind on its rate decision pending the outcome of the vote.
As expected that too failed, with nothing left in its arsenal to attack the situation, the CBN resolved to a more radical move by increasing interest rates by 200 basis points to 14 percent in an economy with pervasive layoff, low consumer spending and weak manufacturing sector — all in an effort to lure same global investors that have refused to invest in Naira’s risky assets, especially when global risks and uncertainty heightened by Brexit jumped to the level last seen in 2009. This was even made worse in Nigeria with the recurrent militant attacks that has reduced oil production by more than 600,000 barrels per day, high unemployment rate (13.3%), high inflation rate (17.1) and negative economic growth rate (-2.06).
The question is why chasing foreign investors? Why not stimulate the economy domestically by lowering interest rates and ensure commercial banks pass the difference to customers, then go after corporations like PayPal Inc., to complement the 11 newly licensed international money transfer operators? Here is the logic, if the lack of liquidity in the forex market is as a result of low business confidence and high uncertainty associated with Naira assets, why not restore business confidence by addressing the nation and the world on the situation of things and the steps the central bank planned to take to resolve these issues going forward? This does not merely work for the U.K after Brexit but it has restored the economy to almost normalcy barely two months after the referendum. Both global and local investors need a clear cut policy to make informed investment decisions. The CBN will not lure investors without a blueprint. If this is done, it will not only boost business confidence but also help lower high foreign exchange rates and revamp the manufacturing sector.