Reactions to recent positive signals in Nigeria’s economy: Turning a blind eye
By Hafiz Bakare
The reactions of some of our compatriots to the rebound of the naira after the initial turbulence can be typified by the Yoruba saying: “Ajanaku koja mo ri nkan firi, t’a ba r’erin e je a pe a r’erin”. This is roughly translated as follows: “An elephant is too massive in size and majestic in strides for anyone to simply claim to have seen “something” fleetingly in a split second. If we have seen an elephant, let’s be honorable enough to admit that we have seen an elephant”!
There is obviously still a lot to be done in many areas but the skepticism of some of us is bewildering. The same people complaining some time ago are struggling to acknowledge clear progress when confronted with it, almost as if they never wanted a solution in the first place! And for most of them, that is the truth that is quite difficult to hide now given the reactions.
Even those who claim to be neutral as policy analysts have resorted to the clever point of view that there is nothing to acknowledge in a government correcting its mistakes because it was the policy and/or implementation missteps that worsened the economy significantly in the first place. Indeed, that it’s only when the exchange rate gets back to pre-May 2023 level of N700:$1 that they can accept that the government is just starting!
This argument refuses to put our situation in context. If a man has been able to take care of his family for a long time simply because he has been irresponsible in borrowing money all over the neighborhood and brazenly defaulting over the years, the family would be inconsiderate to expect that things must remain the same initially when he decides to stop living a false life and enhances the credibility of his family by meeting his obligations to his debtors. A counter narrative to this by some of our people is that he shouldn’t have done everything to clean the slate of his obligations all at once and should have sequenced implementation just like the observations made about the government.
But from events in the last couple of months, while there are always areas for improvement, it is obvious that the sequencing which has been much touted as a sure way to have lessened the pain might not really have changed the course of events. What we saw in reaction to the twin policies of fuel subsidy removal and floating of the currency was extreme opportunistic behavior by some of our citizens and in many cases outright sabotage riddled with malice as many refused to move on after the last election. This behaviour was pervasive among a number of citizens resident in Nigeria and abroad including collusion by institutions.
Sequencing would not necessarily have dealt with this and government perhaps in good faith initially underestimated the extent of opportunistic tendency of individuals and institutions (including some of the banks unfortunately) in both the private and public sector as well as the extreme malicious intent of those who would rather the country failed if their candidate was not in the saddle. Once government realized the extreme nature of the citizens’ reactions along these two dimensions of opportunism and malice/sabotage, decisive steps taken with ruthless efficiency have resulted in the progress we are experiencing. That is the context that should not be ignored!
When the CBN first started involving the EFCC and NSA after realizing what the country was up against with respect to Binance and BDCs as well as even banks, many of these analysts (naively or otherwise) and those citizens who knew that their game was about to end, criticized the involvement of law enforcement as a pointer to the “incompetence” and “cluelessness” of the CBN and the administration, wondering how law enforcement could be expected to play any role in matters that were perceived strictly in the realms of monetary policy!
We all know that virtually everything in Nigeria depends on the exchange rate which is what also drives domestic inflation. There was ample evidence that apart from the manipulation from BDCs and the Binance platform, pressure on the exchange rate was also driven considerably by many of our public officials who were taking the extra allocations they had been getting since the removal of subsidy (because the constitution compelled the Federal Government to share based on an agreed formula) to BDCs for dollar exchange at any rate available. Rather than the masses benefiting from the increased allocations since June 2023, the people felt little or no impact despite empirical evidence of significant increase in FAAC allocation to states and the Federal Government.
The relatively high increase in interest rate along with the scrutiny on BDCs and Binance was therefore meant to discourage the undue focus on fx by those with excess naira to “invest” and direct their attention to naira based investment. Since the rate hike, we’ve seen the effect as most investors have shifted to take advantage of high Treasury Bills rate in the local market, leading to over-subscription. The effect is also being felt in the stock market which has dipped considerably as investors continue to take advantage of high rates in the local money market. There is a disincentive to keep investing in dollars with the DSS, EFCC and NSA scrutiny on BDCs when you can lock in high rates in naira.
The cumulative effect of this has been the steady appreciation of the naira against the dollar and a much desired pause in the pervasive hopelessness before the rate hike and other co-ordinated policy measures from CBN including the collaboration with law enforcement. It would ultimately calm domestic inflation as we are gradually seeing signs of prices dropping here and there even though there is usually a lag period for optimal effect in terms of lower inflation numbers as well as reduced cost of living.
This wasn’t a result of “burning foreign exchange reserves to defend the Naira“ as some of our biased and ill-informed Nigerian writers in Bloomberg and similar organizations would have us believe, because the reserves were utilized mainly to clear fx backlogs with some debt service and very little channeled into the market.
Of course, high interest rates negatively affect the real sector from a borrowing perspective but the regulatory actions and the implications stated earlier will ultimately benefit the real sector. Notwithstanding, the CBN Governor has been very clear that in our drastic situation, it was necessary to take drastic steps to halt the slide and seeming hopelessness while trading off growth in the short term. When confidence gradually returns to the market, there would be a need to loosen things up a bit as the CBN and other stakeholders watch very closely.
Subsidy removal and floating of the exchange rate were never going to be easy decisions. This government understood very clearly from the beginning that while keeping the overall objectives in focus, there might be need for intervention in one way or the other if such became necessary. As early as two months into the administration in his 31st July 2023 address, the President was frontal in paragraph 38 stating that “We are also monitoring the effects of the exchange rate and inflation on gasoline prices. If and when necessary, we will intervene.”
That is what every responsible and responsive government should do but many of our compatriots were not listening only to gloat almost a year later that government has reversed its policies or is now moving to “managed float” or has brought back subsidy “through the back door” etc.
So, as indicated at the beginning of this long piece, there appears to be a tendency by some of our fellow citizens (including local commentators, formal and informal analysts as well as those who work in international media organizations) to put a subliminal downer to their reports/comments even when the overriding theme is meant to be about positive developments.
A further stretch to this is that some of our people have also chosen not to move on from the last election because their candidates lost and therefore continue to openly, subtly or even subconsciously wish ill for the country under this administration.
What is important is for government to keep focused on doing the right things so that it would be difficult not to acknowledge, even if grudgingly.
Hafiz Bakare, a renowned Banker and public policy analyst, is based in Lagos.
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