EKECHUKWU: SUBDUING INSECURITY, CORRUPTION WILL SPUR ECONOMICGROWTH
adversely the exchange rate because when there is so much access to funds locally, there’ll be so much demand for exchange rate and for foreign currency and when that happens it puts the foreign reserves and exchange rate under serious challenge.
You’ll see that many times, the tools of monetary policy work against themselves, many times. As you are trying to focus on a particular one, it’s affecting the other one adversely. All that is necessary for the CBN to do is to concentrate on the particular one they want to achieve. So, right now we are talking about interest rate being low, they’re not bothered whether inflation rate is very high because even if they do everything they can do within the monetary policy, there are other factors affecting the high inflation rate. So it is good for them to concentrate on what the interest rate is, as low as it is today. But I am still not satisfied on how the CBN has handled the interest rate regime because I expect that if deposit rates are as low as we’ve seen today, I expect that CBN should put a cap on lending rates to the extent that there shouldn’t be more than three per cent spread between deposit and lending rates. If that is done, you will see that a bank that accepts deposit at the rate of say five per cent per annum, should not give out facility beyond eight per cent per annum if there’s a cap.
But CBN has allowed the lending rate to be floating and to that extent, what they have achieved in deposit rate is not giving us the desired results in lending rates. So, I do not know why they allowed it to float, they obviously have their reasons but the actual result would come when there’s a cap to what lending rate would be based on what the deposit rate is. When we achieve that, then we know that rates are forced down by regulation by the regulation of the CBN.
Do you see inflation moderating in the near future?
Only few things can either stabilise inflation rate or bring it down. Of course, you know the uptick in the food inflation is what is affecting the headline inflation adversely. So, once we identify that one that is causing the uptick, which is the food inflation, it will obviously bring the average down so the headline is going to be minimal. What is even causing the food inflation is the same insecurity we talked about, it’s the same difficulty in moving goods from one place to another. Many farmers have left their farms, many products rotten in bushes and are destroyed in various farms and so it becomes difficult for us to have enough to go round the country.
The only way right now to solve that problem is to open our borders to importation of these food items and once we open our borders to importation of food items to the extent that thing would come in and force the local prices down so when the demand and supply of these goods are competing with themselves, you will see that these prices would go down and that would force the food inflation down. Once the food inflation goes down, the headline inflation will also go down. I am thinking that if we have shortfall in supply of food items, we need to open our borders for food to be imported in order to force the prices down and that’ll bring down the inflation rate.
What is your opinion on the current foreign exchange regime?
The issue with the exchange rate in Nigeria is also an issue with demand and supply of the foreign currency. The exchange rate is as high as it is just because there’s short supply of same. If we have so much supply of foreign currency in the country, you will see that people who stockpile will even bring out the ones they have and everybody will have it. And because our revenue base is limited, and export sector is not doing so well, we do not have the size of foreign inflows that we expect to have. If we had it, the country would have been awashed with foreign currencies and of course, everybody will have access to it. Because we don’t have enough of it, there’s scarcity and that’s what is making the demand to rise. I expect that whenever oil prices rise and we sell up to our installed capacity, then we are going to be having these rates come down. I also expect that any particular period we stop importation of petroleum products, the biggest consumer of foreign currency, any particular year we stop the importation of petroleum products, that particularly year, we will start having improvement in the rates. So until that happens, we are not likely to have improvements in that rate and except the price of crude oil rises so much that we are going to have enough revenue to supply enough into the market, it will still remain so. It has not much to do with the management of foreign exchange regime, but has to do with the demand and supply of it. Once we have enough, we are going to have enough to go round and vis-a-vis.
Unemployment remains a challenge to the present administration. As an investment and finance expert, what recommendations would you put forward to policy makers?
The mistakes that various successive governments and politician make is to think that when they say they will create employment, they are going to be employing people in different departments of government. That’s a very big mistake. Now, what the system actually needs is an enabling environment for the private sector to thrive; if today the government builds a rail system from the west to the north, there will be a lot of employment opportunities that would be created not just by the government but by all the services that have been rendered right from the start of the journey to the end. Even as we are talking about food scarcity today, if we have every state government decide to have a greenhouse farm to the extent that you make sure that every empty land is converted to a greenhouse farm, you will see that we are going to have food sufficiency so much that nobody will be moving food from north to south as the case may be. So, when you have all state governments for example having their greenhouse farm producing the peppers, tomatoes, okro... you will see that jobs are created everywhere.
Now, if we ensure that the things that are making factories to shut down are corrected, that’s just the way to create employment because the more the factories are shut down, the more banks are shutting down, the more the unemployment rate increases. So, we need to identify those things that are making these factories to shut down and solve them and make frantic efforts to say this period, we are going to concentrate on why factories in textile industry shut down and you address all their problems and make them all functional again. You go from sector to sector. You will see that by the time 10 different factories that has closed down say in Kaduna, start working again, the number of jobs that would be created will be massive. Michelin Nigeria Limited was where I did my youth services. Michelin notified government about the problems they were going through, but government didn’t listen to them and the company shut down and well over 3,000 staff were laid off. And the same thing happened to Dunlop tyres in this country. So, once we identified the problems why these companies are shutting, we solve the problems and then employment will start rising sector by sector, that is the way to grow employment not by announcing that you are going to create jobs- how are you going to create jobs when there’s no private sector driven efforts being made. You don’t create jobs by creating new ministries and parastatals because you can’t afford to pay them as a government.