29042019 - Economy bleeds as power system collapses

26 — Vanguard, MONDAY, APRIL 29, 2019
(08052201997)
NIGERIANS know too
well, that sinking
feeling when all items on the
household shopping list cannot
be covered by the usual
monthly budget. The options
invariably become whether to
cut down or do without some
basic items, or alternatively
make do with less preferred
but cheaper substitutes. The
depressive impact of a
continuous price spiral on the
average family’s welfare is,
therefore, a very familiar
theme.
Even though the distortional
impact of Inflation is
boundless, it is also recognized
that a little rise in price level
may sometimes be necessary to
stimulate economic growth; it
however, becomes an albatross
when the general price level
remains above five per cent
annually! In progressive
economies, the Authorities
target inflation rates below two
per cent to stabilize purchasing
power of income earners and
preserve social welfare and the
value of pension
funds. Disturbingly, however,
the price level in our case has
often remained above 10 per
cent annually, while inflation
rates for food items have
generally been much higher!
Nonetheless, wherever
prices of goods and services
rise above 10 per cent annually,
a static nominal income of
N100,000, for example, may be
just enough to purchase goods
that just N10,000 bought
barely ten years earlier;
consequently, a family’s
income must also grow by at
least 10 per cent annually in
order to maintain their usual
lifestyle. Indeed, in
progressive economies, the
general wage structure is
intrinsically tied to prevailing
inflation rates, so as to sustain
consumer demand and prevent
an oppressive meltdown of
citizen’s welfare.
Conversely, Nigeria’s
inflation rates often outstrips
static incomes for several years
INFLATION: The invisible super terrorist
before any attempt to remediate
the disparity. Evidently, the net
product of this mismatch is
grinding poverty; for example,
the N200/month (over $150)
minimum wage in the 1980s
commanded much more value
than the latest increase to
N18,000, or $100 in 2011.
The pertinent question,
however, is why Nigeria’s
inflation rate has become a
primary instigator of
deepening poverty, such that,
despite fortuitously increasing
export revenue and best-ever
external reserves for several
years, Nigeria is now listed
amongst the world’s poorest
nations. Instructively, the
classical definition for inflation
is ‘too much money chasing
fewer and fewer goods and
services’. Thus, inflation is an
expression of the market
dynamics of Product/service
supply and the available
spendable cash.
Unfortunately, the general
notion, is that Nigeria’s high
inflation rate is caused by lack
of productivity; i.e. we do not
produce enough goods and
services, while the supply
shortfall is simultaneously
confronted with surplus funds
in the money market. It is
clearly not appropriate to
suggest that less and less
goods are produced now than
25 years ago, but, it will be
more correct to admit that the
increasing output falls below
the rate of expansion in money
supply. So, the problem is
really that of money supply
always outstripping
production!!
The critical question,
therefore, relates to the major
cause of increasing money
supply, such that so much
money is, seemingly
unavoidably, always available
to chase more, but relatively
fewer goods? The Nigerian
Monetary Authorities
invariably are mischievous,
when their answer to the
challenge of inflation is that
the three tiers of government
are spending too much money;
instructively, nonetheless, best
practice antidote to flagging
consumer demand, rising
unemployment, and industrial
contraction is in contrast, fiscal
expansion i.e. increased
government spending!
However, our monetary
authorities, inexplicably,
impulsively, resolve to hold
back inflation by discouraging
access to the increased money
supply allegedly induced by
expansion in government
spending.
In its attempt to reduce the
inflationary threat of excess
It is obvious that the
potential increase in
bank credit
expansion instigated
by monthly deposits
of billions of Naira
allocations, also
induces a supply
and demand
relationship
money supply, CBN would
deliberately, increase domestic
cost of borrowing with
Monetary Policy Rates that
restrain bank from aggressively
extending credit. Ultimately,
as readily admitted, in CBN’s
Monetary Policy Committee
Communiqué No. 76 of 24/05/
2011, Government, therefore,
becomes the major customer of
banks and unexpectedly,
borrows and sterilizes trillions
of Naira from public or private
use annually, in order to avert
the threat of inflation.
Disturbingly, nonetheless, over
N500bn has been earmarked
for servicing such
counterproductive, and idle
government loans in
2011. Ultimately, a reduction
in aggregate demand,
industrial contraction,
increasing unemployment all
of which deepen poverty, will
unfortunately become the
horrid collaterals of such forced
credit restriction with higher
cost of loans for the
Government, CBN and the
private sector.
Consequently, the anomaly of
the perennial claim of too much
money (Excess) liquidity,
despite the real sectors’ poor
access to cheap funds will,
evolve. A little sincerity will,
however, reveal that CBN’s
eternal lamentation of
oppressive systemic cash
surplus, usually follows the
payment of bloated monthly
allocations to the three tiers of
government; sadly, the same
CBN, would inexplicably
proceed, soon after, these
allocations, to borrow back and
sterilize a large chunk of the
distributed funds, in order to
reduce the threat of surplus
cash and inflation.
Consequently, the greater the
size of monthly revenue
allocations, the greater also
would be the threat of inflation,
and a rising national debt with
related oppressive service
charges; ultimately our
industrial subsector would
sadly also become more
challenged and uncompetitive.
Furthermore, it is obvious
that the potential increase in
bank credit expansion
instigated by monthly deposits
of billions of Naira allocations,
also induces a supply and
demand relationship, that
ensures that the dollar will
always emerge stronger in the
in the forex market; worse still,
CBN’s subsequent auctions of
dollar rations, inadvertently,
creates a seeming dollar
scarcity vis-a-vis the subsisting
huge Naira surplus and the
related expanded credit
capacity of banks! Ultimately,
the increasing Naira ‘surplus’
will, compulsively also induce
higher and uncompetitive
production costs, even when
comparatively less goods and
services are on offer.
But, the table can be turned
on the dollar and the
destructive cycle of persistent
excess liquidity and inflation,
if government musters the will
to change the demand and
supply relationship between
Naira and dollar earnings, by
stopping CBN’s hoarding and
monopoly of dollar sales.
Arguably, the Naira will,
conversely become favored, if
dollar component of
distributable monthly revenue
is paid with negotiable dollar
certificates rather than the
current practice in which dollar
revenue is, first, substituted
with Naira allocations by
CBN. Predictably, with such
reform, the erstwhile everpresent
ghost of excess
liquidity will disappear;
furthermore, government’s
debt and service charges will
significantly also reduce;
interest rates will also fall to
single-digit, so that industries
will borrow and expand and,
thereby drastically reduce
unemployment, while the
deadly plague of inflation, and
weak consumer demand will
become tamed to induce
significant improvement in
mass social welfare.”
POSTSCRIPT 2019: The
above article was first
published on 13/06/2011, as
“Inflation: The Silent Plague”
when the inflation rate
averaged 10%.
Inflation has, however,
receded from about 18% to
11.25% lately; nonetheless, the
Naira rate has distressfully
collapsed, despite celebrated
increases in foreign reserves,
and we have since ultimately
become the World’s Poverty
Capital; tragically, the worst is
yet to come!!
FINANCIAL VANGUARD
Heritage Bank, Magodo residents promote cultural diversity
HERITAGE Bank Plc has
partnered with Magodo
Residents Association, MRA, to
promote cultural diversity and
ensure the success of the maiden
edition of Magodo Cultural Day
2019.
The two-day event held between
Friday and Saturday with a
Business Dinner held at Radisson
Blu Hotel, Ikeja, Lagos.
Addressing the organizers at the
dinner, Abiodun Agbaje, Regional
Head, Lagos Island, Heritage
Bank, said his management was
impressed with the response and
participation of the residents and
others in the cultural exhibition and
celebrations.
Agbaje disclosed that, at
inception, the Heritage Bank
management opted to focus at
those areas that other banks had
neglected with a view to making a
difference and impacting positively
on the financial needs of its
prospective customers and the
society. His words: “Things that
are difficult for bigger banks,
Heritage Bank has done it
successfully. We are open to
assisting any investor that share
vision and mission with us.”
He said that in line with its
mission to create, preserve and
transfer wealth across generations,
Heritage Bank decided to support
this year’s Magodo Cultural Day
with the belief that a diverse
community promotes creativity,
networking and success.
Agbaje, therefore, assured the
audience at the event that as long
as the MRA members were ready
to patronize Heritage Bank, his
management would be glad to
support the cause again next year
and beyond.
Impressed by the success of the
outing, Jade Niboro, Chairman,
MRA, noted that for the first time,
residents were able to come
together and to connect, adding
that the cultural exposition created
the avenue for different families
living in the estate to publicly
interface with diverse cultures.
His words: “Our culture outlines
our identity and influences our
behaviour. Celebrating our
cultural diversity will better make
us acknowledge, incorporate and
relate with others in the estate. We
used the recently concluded
ECONOMY
Cultural Day event to embrace our
diversity. With this celebration, our
interaction level will increase,
there would be more exchange of
ideas, beliefs and cultural traits et
al. We are extending an open arm
to other cultures and encouraging
a healthy exchange of cultures and
our residents. We are learning to
understand our beliefs and values
better.”
Niboro disclosed that the MRA
had concluded plans to make the
event more elaborate next year, as
residents from other estates like
Banana, Magodo Phase 1 and
others would be invited to grace
the occasion.