Ifeanyi Uddin
Is Nigeria “broke”? “No! It is not!” “Yes! It is!” The ruckus from counter-claims in response to this question is as unhelpful for resolving the quandary, as it is unkind to the listening ear. In part, this is because the question itself is framed wrongly. A sovereign does not become “broke” in the same way that its citizens (or subjects) go out of pocket. Its ability to print its own currency, for one, ensures that it will always have money to spend.
The problem, though, is that as the currency presses run ahead of domestic economic activity, people everywhere begin to lose faith in the utility of the currency. Once I am convinced that my national currency will buy less tomorrow than it did yesterday and today, and there is doubt as to how much less it will buy, it makes sense to look for other stores of value — gold, foreign currencies, property, etc.
This failure as “store of value” is not just a problem for local residents. On the face of it, it means foreigners can increasingly pick up domestic assets for a song. But remember that the domestic currency’s initial woe arose on the back of a divergence between its plenitude and shrinking domestic productivity. Therefore, invariably, foreign investors will soon come up hard against those brakes, to growth and to return on their investments, which local residents flee from. But this is a smaller worry compared with the fact that a currency fast losing value makes uncertain how much of the yield on investments may be profitably repatriated from an economy. A fast and loose currency is, in this sense, just as big a disincentive to inward investment as it is to local economic activity.
How does all this square with the facts on the ground for our economy? Inflation is subdued, and “dying”. It has been in the psychologically important single digit range for far longer than at any other time in recent memory. According to the communiqué from the September meeting of the Central Bank of Nigeria’s (CBN) rate-setting committee, “headline inflation has remained below 10.% for eight (8) straight months and represented the lowest level achieved over the past 5 years, the longest such stretch since 2008”.
Backed by the CBN’s policy of intervening “to improve supply conditions, and the very tight monetary conditions” maintained by the apex bank, the exchange rate has stayed stable over the last nine months. It has breached its official band a few times (most recently when mention of a possible date for the commencement of “tapering” in the US spooked emerging and developing markets the world over). But these exceptions have only proved the rule. The CBN has done “well” with the currency.
There is concern, however, over output numbers. The CBN reports “a slowdown in the growth rate of real Gross Domestic Product (GDP) in Q1 and Q2 2013 relative to Q4 2012”. The National Bureau of Statistics records GDP as growing at 6.18% in Q2, down from 6.56% in Q1, 2013. Nonetheless, the estimate for this year is for overall GDP growth of 6.91% as against 6.58% last year. So, even here, we can see a “silver lining”.
Except that, the cloud is dark, widespread, and menacing. The nation has ceased to account for its major revenue earner. We have always had problems with the numbers from the oil and gas sector, our blushes in this regard only spared by the fact that as internationally traded commodities, prices are available (and transparently so)! Otherwise, we do not know how much of our oil and gas we extract daily, or how much of this we manage to sell. Before I am directed to the official numbers for this sector, it helps to keep in mind the ongoing spat between the central government and sub-national governments over revenue allocation shortfalls.
We cannot wish this under the carpet! Something unusual is wrong with this country. And this is sad! Since, ordinarily, our hydrocarbon exports are the greatest insurance against the country being “broke”! And now we do not know what state the sector is in. Or do we?
In the last four years, the Central Bank of Nigeria’s policies have been useful proxies for the state of the nation. This, in truth is a tongue-in-cheek acknowledgement that in this period, only the monetary leg of the economy has put anything on the table. And last week, the CBN released a circular titled “Developments in the Foreign Exchange Market”, ostensibly targeted at resolving possible money laundering concerns, but whose provisions may also betoken worries over “non-import related demand” for the dollar. Nigerians (who can afford to do so) may have started voting on the health of the country with their pockets.
Without the CBN’s new fiat measures (the switch from the Wholesale Dutch Auction System for trading foreign exchange to the Retail Dutch Auction System, which now allows the CBN to disqualify “suspect” bids; payments to recipients of foreign money transfers only in naira, etc.) any of several things will happen if the CBN insists on keeping the naira exchange rate within band. The biggest of this, is that in the absence of a corresponding inflow of dollars (this is where the poor oil sector accounting shows up at its most bothersome) we would soon run down our external reserves.
Again, is Nigeria broke? Or breaking?