THE World Bank’s latest assesment of the Nigerian economy claims the policies of the Federal Government and the Central Bank of Nigeria (CBN) have contributed in making more Nigerians poor.
The World Bank has severally warned Nigerian economic managers of what it maintained is the negative impact of the country’s multiple exchange rate regime, financing public deficit, and trade restrictions on the economy and people.
The multiple exchange policy has created distortions in the Nigerian economy, forcing businesses to get dollar from the parallel market as scarcity of foreign exchange worsens.
Informed analysts say sourcing of foreign exchange from the parallel market by manufacturers contributed to triggering production costs and the prevailing rising inflation rate of 17.78 per cent.
They argue that the CBN’s lending to the federal government to fund budget deficits to the tune of almost N19 trillion also fuels inflation.
In its latest document titled, ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual‘, the World Bank pointed out that CBN’s persistent intervention would cause weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance.
The report expressed worry that amid heightened risks, the government had kept a “business-as-usual” policy stance that hindered prospects for economic growth and job creation.
According to the World Bank, “Multiple exchange rates, trade restrictions, and financing of the public deficit by the Central Bank of Nigeria (CBN) continue to undermine the business environment. These policies augment long-standing weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance.”
The Bank said Nigeria lost a key moment that would have been prime for subsidy removal.
It stated, “Notably, during 2020 and 2021, when oil prices were much lower, the government lost an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for premium motor spirit – more commonly known as petrol — a subsidy that is unique, opaque, costly, unsustainable, harmful, and unfair.
“Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal time bomb.”
The World Bank also stated that the CBN’s low-interest loans undermined commercial banks lending on a risk-adjusted pricing basis.
Notably, under the CBN interventions, the 5 per cent per annum interest rate paid by the receivers of the loan is akin to a subsidy as the loans originally attract an interest rate of 9 per cent per annum. And even at 9 per cent, the rate is still a huge discount when compared to high rates charged by commercial banks.
On trade restrictions, the CBN had banned 44 import items from accessing foreign exchange. The items include rice, cement, margarine, fertiliser, milk and dairy products, maize/corn, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables/processed vegetable products and poultry chicken.
Experts’ concerns on World Bank’s report
Industry analysts have raised issues with credit to Nigerian farmers directly by the CBN. Already, there have been issues with repayment of such facility by the farmers, with the apex bank itself expressing worry about the borrowers’ unwillingness to repay.
“While the Anchor Borrowers’ Programme had recorded some level of success, the failure of farmers to repay the loans has, however, been a major setback,” a CBN Development Finance Officer in Ibadan, Sadeeq Ajayi, complained at an agribusiness clinic.
Analysts said the central bank could have issued the facility using the commercial banks.
“The direct lending to farmers by the CBN is causing distortions to the economy and crowding out the private sector. How can the central bank lend at a single digit interest rate to farmers, and complain of repayment? It means poor due diligence,” a financial expert and World Bank consultant, Henry Ademola Adigun, told THE ICIR.
Adigun said, “The lending itself directly distorts the economy. When you lend that way directly to farmers, it does not help the economy. It brings in variations in lending rates, which causes inflation. This, with the multiple exchange regime, is what causes inflation since we are leaa productive economy.
The president, Association of Business Development Professionals (ABDP), Franklyn Akinsoloye, told THE ICIR that the government needed to embark on bold and wholistic reforms to restore the economy.
“We need to embark on economic reforms that will restore our economy back to life. We must refine locally, ensure full deregulation to reap gains of global oil rise. We are not gaining from global oil rise because we don’t refine locally and we spend nearly all we get from sales in subsidy. This is crazy.
“The economic managers should look at how to improve export. Once they increase export, there will be more dollars and naira will fall.” he said.
Commenting on the World Bank report, a public sector governance expert, Victor Emejuwe, told The ICIR that the apex bank needed to do more than intervention.
Emejuwe said, “The report of the World Bank against the CBN intervention fund can be justified when there is poor implementation on the pay-back mechanisms attached to such funds. Also the unfavourable business environment in Nigeria occasioned by dollar scarcity, poor power supply and insecurity can hinder the progress of such intervention funds.
“With the growing budget deficits, where monies are borrowed to pay salaries, coupled with rising inflation, it is safe to conclude that Nigeria has slid into its third phase of economic recession. The agencies of government responsible for fiscal policies must adopt a collaborative response to Nigeria’s economic challenges.”
CBN and government flaws
It would be noted that in the last six years, the CBN, under Godwin Emefiele, has excluded some items from obtaining foreign exchange from the official market. This means that importers of those items cannot get dollars from the official market, which is often cheaper. The items include tomatoes, milk, roofing sheets, textiles, soaps and cosmetics.
The CBN began the ban with 41 items in 2015, but the number has since reached 45.
“For the avoidance of doubt, please note that these items are not banned, thus importers desirous of importing them shall do so using their own funds without any recourse to the Nigerian foreign exchange markets,” the Director of Trade and Exchange Department of the apex bank, Olakanmi Gbadamosi, had said on June 23, 2015, when the restriction began as a policy.
Once the apex bank restricts any item from the FX market, banks stop issuing the FX form known as ‘Form M’ to importers – a signal that the only way they can bring in the commodity is by seeking FX from the unpredictable and expensive parallel market.
Also, the Nigeria Customs Service sometimes follows it up with either a tariff increase or other forms of restriction.
CBN, expert defend key decisions
The CBN has not officially put out a statement of response to the issues raised with the World Bank, amid several calls put to its spokesperson, Osita Nwanisiobi, by the ICIR.
However, the CBN Governor, Godwin Emefiele, had, in a response to similar concerns by the World Bank earlier this year, maintained that the apex bank would continue to manage a float of the naira to avoid its further depreciation.
“They want us to free the exchange rate. And you do know that this has some impact on the exchange rate itself. When you allow that to happen, you will have an uncontrollable spiral on the naira. But what managed float means is that we have some measures in place to help control the spiral,” Emefiele said.
He added that the managed float, which allows the CBN to intervene in the market when there is a supply shock, would be in place as long as supply exceeds demand.
He said the CBN would ensure that the production of excluded items was deepened before the current policy, which “they do not like” is reversed.
A consultant to the CBN and economics professor, Ken Ifedi, told THE ICIR that beyond the concerns of the World Bank, Nigeria must identify an area of competitive advantage and build on it.
“In as much as we listen to the advice of the World Bank, we won’t take it hook, line and sinker. First, we need to re-engineer our economy into productivity, riding on digital economy. We need to do another rebasing of the economy to have a holistic view of where we can have a strategic and appropriate interventions,” Ifedi said.