John Omachonu
Political activities have started in full swing in Africa’s largest economy, and concerns for economy are no longer as important to the politicians as in winning the elections.
Current measures by the Central Bank of Nigeria, (CBN) to rein in inflation as well as efforts at saving the dwindling value of the local currency may be hampered by the alleged dollar and naira rains trailing the political activities in recent times.
Worried by the negative impact of the distortions in the economy, occasioned by insecurity, propensity for foreign goods consumption and investments in foreign currencies by politicians and elite in the society, as well as imported factors, inflation has been witnessing rising trend, with CBN sticking to its unorthodox measures and refusing to act.
However, at the last meeting of the Monetary Policy Committee, CBN seems to be favourably disposed to ditching the unorthodox monetary policy, after 70 months, decided to hike the MPR by 150 basis points
Although these measures could distort efficient markets, with fiscal multiplier of the various interventions by CBN in the economy, estimated at N6trn, they should be able to generate reasonable returns for the enhancement of the Real Gross Domestic Products, (RGDP).
These measures are expected to kick in a change in the market structure of interest rates, effective use of the Open Market Operations (OMO), with the attendant upward movement of the rates by over 100 basis points, according to some analysts.
Under the unorthodox or heterodox, CBN is opened to OMO, moral suasion, among others.
The fear among market watchers and analysts, however, is that the long stretch of electioneering and holding of assets in foreign currencies may whittle down the efficacy of the new measures by the CBN, no matter how late.
Therefore, using the framework of monetary policy to achieve explicit inflation targeting, must be complemented by disciplined fiscal measures.
CBN’s target range is between 6%-9%, and reality has continued to show that inflation has consistently surpassed the inflation target, as the value of naira is becoming worthless on daily basis, because of the various distortions in the economy.
Specifically, good as the electoral Act as amended is, some of the provisions have created loopholes whereby politicians are capitalizing to distort some of the measures being adopted by CBN.
Before the new Electoral Act, the lag between post-convention politics and election used to be within the average of 90 days, but this time, it is likely to be 250 days
Some analysts say, with the alleged exchange of dollars and naira at the convention of the opposition Peoples Democratic Part, (PDP) and as well as alleged similar incidences at the convention of the ruling All Progressives Congress, (APC), consumers should be ready for harder times ahead.
The implication, according to them is that these ‘currency’ rains would continue, with the attendant negative consequences on the economy.
More worrisome is the fact that CBN and some anti-corruption agencies seem helpless or at worst seem to be looking at the other side while these activities are going on.
“What happens to CBN’s cashless policy, government’s money laundering decree, or are Nigerians to believe now that CBN and these agencies, like the Economic and Financial Crimes Commission, (EFCC) are tired or have become so partisan that they can compromise now?,” asks Friday Ameh, Lagos based analyst.
Bismarck Rewane, in the current document from the LBS Executive Breakfast Session, for June, said, “As Nigeria goes into election season, the long knives are out and the cloak and dagger business has gone into overdrive.
This time around the lag between post-convention politics and election is dangerously long. The average cycle since 1999 was approximately 90 days.
“This time around it is likely to be 250 days. The time lag is long enough for meaningful debates, dredging up scandals, fake news and misinformation.”
According to Ameh, “This period is enough for politicians to run the economy aground as prices of items, particularly, food would skyrocket and, only God knows, how the poor people would survive in this country.”
For instance, the just concluded APC convention that produced Bola Tinubu as the winner and its presidential candidate, and like, what allegedly happened at the PDP’s event, Nigerians were startled by the abysmal use of dollar by the politicians in enticing the delegates to vote for them, in the run-up to the 2023 elections.
“For investors, the most important observation is that no matter what the election outcome, the policy trajectory will change fundamentally. The Nigerian economic philosophy of an investment led strategy as its path to economic takeoff will be reinforced. The protectionist policies of the last decade are likely to be discarded. They will be replaced with a more proactive package of economic policies,” Rewane further added.
Further investigations show that money has become a major factor in outwitting one another by politicians.
This was manifested, first, from the outrageous N100m charged by APC for forms, an action crticised by most Nigerians who regarded it as ‘official corruption,’ as yearly accumulated official salaries of most government appointees who were the majority of politicians that collected the forms, are far less than the amount.
In fact, some of them would need to save their official salaries for between three to four years before being able to reach the amount, which, they all paid, almost immediately.
Now that the fortunes of Naira has been nose-diving, politicians and elites have found ready alternative in the US dollar as their monetary assets are denominated in foreign currencies to hedge against inflation.
For instance, the dollar at the official window, as at Wednesday, was exchanging for N415, while the parallel market was between N610/15/$.
It is this wider margin between the official and black market that is encouraging politicians and some civil servants to have their assets in foreign currencies either for round tripping and/or for safety.
Consequently, corruption will continue to strive and on a new scale, continued fragility of the foreign exchange market and more money pumped into the market by CBN to continually save the naira, while the foreign reserves continue to deplete.
According to Rewane, total intervention so far is estimated at N6.8trn, 3.9 percent of the nation’s Gross Domestic Products, (GDP).
However, he observed that this has limited investment multiplier effect because of government’s sub-optimality.
Some analysts see CBN reducing its interventions, which may mark the beginning of a crawling peg in the forex market.
Nigeria, according to Rewane, is ‘No longer an Economic Marverick’ because Central banks are mostly aligned, particularly, in the area rising rates and inflation with our trading partners, such As US, UK, India, China and Indonesia, among others.
