Macroeconomic Stability, by Boniface Chizea

We have all heard that macroeconomic stability is crucial to a country’s growth and development prospects, especially in the Nigerian context. Businessmen can manage risks but they cannot manage the uncertainty that macroeconomic instability portends..

But the urgency of this concept has never been more apparent to us than it is now, during this time of unprecedented economic trauma.

I was just doing some repairs at home and was talking to a plumber about the high prices of goods. This of course is aptly reflected in the inflation rate index for the economy which the Office for National Statistics estimates at 33.69% as of April 2024. This is the highest inflation rate for over 20 years. Records show that the highest inflation rate so far was in 1995 (72%) and the lowest in 2007 (5.38%). We lamented the struggles people in the market have in determining prices for the goods they sell. My artisan particularly pointed out the difficulties caused by the fluctuations and volatility of exchange rates and how it has become a nightmare for marketers.

Marketers are faced with the dilemma of having to decide what price to put on their goods as no one knows what the rate will be when it is time to replenish. Thus, as a result, most marketers have refused to import and are adopting a wait-and-see attitude, which is now fraught with the risk of shortages. The responsibility of maintaining price stability in the economy is often wrongly assigned to the central bank. Indeed, the central bank’s core responsibility is maintaining price stability, yet the CBN cannot do it alone. It needs complementarity with the fiscal authorities to have any chance of success. For example, fiscal authorities cannot pursue an expansionary fiscal policy as is the case in Nigeria, hoping that the central bank can pull out a magic wand and maintain price stability. However, the reality today is that the focus is on achieving a sustainable exchange rate and not incurring the kind of disruptions that have already begun to happen and may yet occur as it is not yet safe. Common sense, as many would agree, is that the only credible strategy to support an exchange rate is a productive economy, which is certainly not going to happen overnight, even in the short term.

The issue of instability in Nigeria was very much on everyone’s minds at the recent African CEOs Conference in Kigali, the capital of Rwanda. During an interactive discussion program featuring our very own Aliko Dangote (Africa’s richest man) and Total Energies CEO Patrick Pouyanne, the MD revealed to everyone’s dismay that the company decided to invest a whopping $6 billion in Angola instead of Nigeria, the richest region for oil exploration around the Niger Delta, due to issues regarding policy instability. He explained that Total Energies has not done any oil exploration in Nigeria for the last 12 years due to this issue of lack of policy stability. He asserted that in Nigeria, they are constantly debating policy changes and tinkering with policies without taking the time to frame the policy environment, creating a veritable nightmare for investors.

What is rather worrying is the recent spate of knee-jerk policy announcements as the first anniversary celebrations of this administration draw near. Looking at the latest composition of the boards of governors of higher education institutions, there are complaints that boards that have already expired have also been dissolved, which is clearly in violation of the laws governing the administration of these institutions and will undoubtedly lead to a review of the composition of the boards. We have already discussed the recent changes to the electricity tariff policy. In that regard, I listened closely to Atedo Peterside’s excellent suggestion that tariffs should be increased in line with the increase in consumption rates. Naturally, the consumption rates of the poor who do not handle high consumption appliances can be captured and catered for, with tariffs being set in a tiered manner based on consumption rates.

But what I think needs urgent attention is the fluctuation of exchange rates. Every day, almost every hour, social media is flooded with reports on exchange rate trends. And as I said above, what is currently happening has a beneficial effect in the sense that it influences market sentiment where before it was risk-free to bet on exchange rate trends, but with the current developments, that is no longer the case. And that certainly creates a dilemma for speculators. There is no doubt that some speculators have been hurt by recent developments. But the situation is never favorable for marketers, as it becomes impossible to deal with when plans get out of hand.

And what is surprising is that monetary authorities seem oblivious to this challenge in the way they go about their business. Take, for example, the issue of the rates to be adopted for calculating import duties at ports. The authorities seem to be in a celebratory mood as they frequently submit and change the rates used by customs officials to calculate duties. There seems to be an urge to please the crowd, to give the appearance of full acceptance of the illusory free market. But in reality, they are preventing stakeholders from grasping the reality of the situation.

It is also important to highlight that the Monetary Policy Committee has increased the base rate by 750% in three meetings, with interest rates now reaching an unprecedented high of 26.25%, and banks being mandated to maintain a cash reserve requirement of 45% and liquidity ratio of 30%. This has made it difficult for businesses to access funds and be able to bear the cost of credit. This is especially true for MSMEs, which are the engine of growth and development of the Nigerian economy. This is therefore, clearly, a major drawback of this policy initiative, and not beneficial, as it will increase the misery in the country as businesses go out of business, unemployment increases and purchasing power plummets.

We seem to be too focused on demand management at present. It is time to complement it with a policy push that also caters to the supply side. Food inflation has soared by 40% year-on-year. What policy measures have been taken to counter insecurity so that farmers can return to their farms? Farm-to-market transportation costs are highly dependent on diesel prices. We believe diesel prices are currently coming down due to supplies from Dangote refinery. Following the recent electricity tariff hike, there are reports that some businesses have gone out of business as they cannot afford to pay the tariff! It is important that the recently announced tariff regime is revisited and reduced to a more realistic level. Because no policy can have such adverse effects. There is no doubt that such a development is dangerous and unsustainable. The key thing for the authorities to keep in mind is that policies must have a human touch because the welfare of the people must remain the foremost objective of policies. Otherwise, we may reap the harvest of protests that go against political peace, stability, development and overall good governance.