ENTREPRENEURSHIP
Banks should be weaned from surplus money – Boyo
make N10. The question is, where does it get the N9? When people come to borrow the additional N9, it goes to the Central Bank to get it at a cheaper rate of interest so it can lend at a higher rate of interest.
One naira in the hands of the banks is N10, so N160 billion in the hands of a bank is a credit facility of N1,600 billion, 10 times in value of dollar that created the N160 billion in the first place.
It would seem you were a strong critic of virtually all the policies formulated by suspended CBN governor, Sanusi Lamido Sanusi. Why?
From what I have been explaining, you should know what I am talking about. So which policy of his do you want me to ring the bell about?
Even when he jacked up the CRR?
I oppose the deceit of saying you are increasing government deposit to 75 per cent because I know that it is deception. I say it confidently without any iota of doubt in my mind.
He was giving Nigerians’ money to the banks at zero per cent interest and Nigerians then borrow it back from the banks at 11, 12 per cent interest. What a wonderful business model for the banks.
But Sanusi was saying he had to do all that to make the naira stronger. What alternatives would you propose?
It should be obvious to you from what I have said so far that the CBN cannot be said to be defending the naira, because they are actually the one killing the naira. After killing the naira, they then say they want to rectify it. At the end of the month, the same process is re-enacted; they convert 80 per cent dollar revenue to naira and put the naira under pressure.
How can this be properly tackled?
The acting CBN governor is unlikely to do anything radical even if she knows this in and out, and the incoming CBN governor, what is his constituency? He is coming in as a managing director of a bank. Do you think when he gets there, he will do anything that will affect his primary constituency? So long as they come from that background of banking where they are used to celebrating the fantastic growth in banks mainly from government’s gift to them in terms of the round-tripping of borrowng money from the CBN at zero per cent and lending it back at 12 or 13 per cent, nothing drastic will happen.
When that free money is taken away, all banks will sit up and work, and look for the real sector to work with.
How do we stop excess liquidity from coming into the system?
First of all, we have to wean them (banks) from the surplus money that they have been enjoying. It is from the excess liquidity that happens that high interest rate begins, low exchange rate begins, unemployment begins, fuel subsidy begins, increase in debts of government also begins, all starting from excess liquidity created by the CBN conversion or substitution of dollar for naira.
The best way to stop excess liquidity is to tell the CBN that the Constitution does not give you the mandate to substitute naira allocations for dollar revenue.
Are you saying, based on your explanation, that the CBN has a hand in unemployment?
They are the cause of unemployment. There is no reason to have $4 billion in reserve and you have four months imports’ cover. And at a period we had these indices in 1996, we had an exchange rate of N80 to $1.
About two years ago, we had $60 billion reserve and between 16 and 20 months imports’ cover. When you have an extended import cover, you are not supposed to have an exchange rate of about N160 to $1 double of what we had in 1996. It is not commensurate.
It is a result of a deliberate manipulation of the exchange rate of the naira.
It is inappropriate to have an exchange rate of N160 when we have an extended import cover. It means that the more that you earn the poorer you become.
One of the main drivers of poverty in Nigeria is the exchange rate. The exchange rate should not be more than N80 to $1. The government is creating excess liquidity and that is the driver of high interest rate.
What rebasing?
Rebasing is a revaluation. In terms of benefits, it gives you a brighter output figure; it shows that you have a larger economy and also dresses you up to be acceptable to foreign investors.
When you assume that you will be acceptable to foreign investors, you must not forget to recognize certain things. One of the things you must not forget to recognize is that foreign investors are not a
is
the
essence
of charity organisation; they are here to look for profit.
With the repositioning in status, there will be a lot of investors whose attention would be directed at us, people who have never taken a second look at us before now. But don’t forget these people are looking for profit and are hoping to get it with minimal risk. The less the risk, the happier they are; the higher the profit, the happier they are.
In real terms, high risk goes with high profit, low risk goes with low profit. In our peculiar case, the government is ready to pay 13, 14, 15 per cent for its borrowing in what is an outrageously benevolent cost of fund. In Europe or America where the economies are more successful, the real cost of fund, the monetary policy rate is below 2 per cent. Ours is 12 per cent and we are willing to borrow at 15 per cent. That’s why I said when these new investors see how voluptuously endowed we are, they will consider coming to Nigeria to set up industries.
I do not celebrate any increase in that index. As long as you cannot compare the performance of your economy with those of other successful countries and as far as
An optical comparison of the social welfare, level of investments
and level of infrastructure that is currently in South Africa will make you question the validity of the claim that “we are better off than South Africa.” Yes we may be bigger, like a giant, but we certainly are not very effective in the utilisation and
management of the resources that are at our disposal
critical indices of your economy do not reflect those of successful economies elsewhere, you are a failure.
Inflation rate is never more than 1.5 or 2.0 per cent in successful economies. When it goes above 2.0 per cent you are in crisis. Unemployment never reaches the height of 23 per cent or more.
An optical comparison of the social welfare, level of investments and level of infrastructure that is currently in South Africa will make you question the validity of the claim that “we are better off than South Africa.”
Yes we may be bigger, like a giant, but we certainly are not very effective in the utilisation and management of the resources that are at our disposal.
Are there any benefits for Nigeria from the rebasing?
Investors are not charitable organizations. They are not interested in putting Nigerians to work. What they are after is profit and there are many countries they can go to and earn better profits than in Nigeria.
As a result of the rebasing, people could see Nigeria as a giant in terms of its potential, but it does not say more than that because if you want to look at it in terms of performance, the Minister of Finance will agree that it cannot be credible performance for us to have the level of unemployment we have and inflation at 7 or 8 per cent.
An inflation rate of seven or eight per cent means that a worker should be getting a salary increase of about 7 to 8 per cent every year. But this is not true in Nigeria and that implies that you lose 28 to 30 per cent of your salary every four years. It is attractive for an investor to see these figures.
Industrialists are complaining about the high interest rate which they believe has a negative impact on their business. But the capital market is a viable alternative to raise funds. Why aren’t industrialists looking at this option?
People run away from the capital market because of the cost of enlisting. Meanwhile not everybody can have the money to go to the capital market to enlist. How many small and medium scale companies can go to the capital market? What is appropriate for an SME to do is to have access to bank money to borrow. But the banks that are supposed to provide money for the SMEs have been colonised.
If you are a businessman you will know that whatever they have done is no value to SMEs. If it is good for them, they will jump into it.
Is it not the same stock market where the price is manipulated to make it look like an epitome of the right action?