CBN’s New Policy Thrust, My Views -By Uddin Ifeanyi

Since 1960, successive Nigerian governments (except for the Ibrahim Babangida and Olusegun Obasanjo administrations) have set up stall in the populist camp of the “economic development debate”. In part, a sense of national exceptionalism (a narrative that continues to excuse appalling levels of governance) has been mixed with the bogey of malevolent external designs on our independence and potential wealth to support the rejection of “Bretton Woods” and “Washington Consensus” solutions to the national malaise.

An awareness by the ruling class that a market solution to the country’s problems, along with the design and implementation of a regulatory framework necessary for the conduct of a market economy, would create new centres of power and influence (that may not conduce to current rent-seeking) has complemented the insularity that our governments’ populism is based on. In consequence, every administration prefers to create faux-businessmen, whose successes depend on governments’ many forbearances, and who are thus guaranteed to lend their financial muscle to the government as at when needed; rather than see emerge an independent business class, more competent and far likelier to put forward a competing thesis for good governance.

It has helped that, over the years, we have been able to sell crude oil at prices far higher than it cost to extract the stuff from the earth in the Niger Delta region. With that money, government has supported its “poor and vulnerable” rhetoric. It has undermined institutions of the state through a clientelist populism that has beneficiaries of government largesse attributing their good fortune to the goodwill of the incumbent. And, it created a small coterie of “biddable bourgeoisie”, who are regularly paraded to general applause as evidence of the economy’s continuing ability to create value domestically, in the face of the “West’s” ceaseless attempts to do us in.

The problem with this idyll is not that it was never real. It is that on its back, a cargo-cult mentality has developed amongst the people. “It is well” has become the refrain with which the people respond to growing hardship, persuaded as they are that some benevolent “spirit” — a pro-people leader, the all-kind “god” advertised by the “general overseer”, etc. — will continue to bring us new “cargo”, or ensure that the current one (crude oil extraction) remains a bottomless pit. Accordingly, population numbers continue to grow, i.e. unsupported by economic activity, even as the price of our main export begins to compete with its cost of production, domestically, and healthier alternatives, globally.

Denied access to the levels of oil export earnings (and price) consistent with the growing size of its grateful populace, government is increasingly in hock to all manner of lenders — domestic banks, foreign portfolio investors, and holders of its sovereign debt. At some point, the economy will tank, thus burdened. Neither net exports, nor government spending will be in a position any longer to provide the sustenance that they once did. Nor will the pass-through from government spending be able to support levels of household expenditure that might see businesses invest in new production lines and/or factories.

Lest this happens on its watch, the Central Bank of Nigeria (CBN) recently issued directives to banks designed to break this vicious cycle. By demanding that banks lend 60 per cent of their deposits (on the sufferance of severe penalties in the event of a breach), the CBN, at least, understands how important business investment is for domestic growth. And by threatening to block off banks’ access to government short-term debts, it may be acknowledging how unhealthy governments’ continued borrowing is for the long-term health of the economy.

Nonetheless, by so barefacedly usurping the fiscal side of government business, the CBN has unwittingly added to the confusion around policy. Especially, in a way that, over the years, has seen most businesses interested in the Nigerian economy prefer to keep their gunpowder dry. The burden of policy uncertainty aside, as a policy that invites considerable effort to dimension its implications for the economy, the CBN’s latest manoeuvre ranks about as high as questions over why it is taking the central government an eternity to put its cabinet together after four years in office, and even when it confesses to consternation over the poor state of the economy.

Beyond all these though is the question of how the CBN’s recent intervention plays with long-standing concerns about the conditions of doing business in the country. Indifferent to the needs of a market economy, successive governments have held off from developing both the infrastructure — roads, bridges, railways, electricity from the mains, pipe borne water, etc. — without which private businesses will find setting up shop in any economy a slog. Worse, the domestic focus on physical infrastructure and the let they constitute to would-be businessmen has meant that our governments have completely ignored another type of infrastructure, one no less important to improving local business conditions.

Without improving the criminal justice system and transiting from a structure where regulators currently function like racketeer-influenced organisations, to one in which they understand that their primary function is to drive competition in their respective industries to the consumer’s advantage, our chances of driving growth via the private sector will remain one huge joke. No wonder that in conversation with a friend, last week, he believed that the one add-on that was missing from the central bank’s recent policy intervention is an increase in its appetite for how much non-performing loans domestic banks can carry going forward.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.