Still on What Cardoso Cannot Do

By Okey Ikechukwu
Our people say that the man holding the rope with which a goat is being taken to the market often gets blamed if the goat fetches a low price at the sales. Some would accuse him of walking the goat so fast while going to the market that it lost much weight. Others would murmur that he did not allow the goat to feed or drink any water while they were on their way to the market.
It would not matter to the grumblers at such moments that a goat cannot gain enough weight to attract a markedly high price in the market just because you stopped to feed it while on your way to the market. No one will also remember at such moments that a sensible person will not stop on the way to the market to feed his goat or chicken, because to do so would be to miss the opportunity to make a good early morning bargain, or even to make any sales at all.
Bringing the foregoing around to what I consider the predicament of the Governor of the Central Bank of Nigeria (CBN) today, it must be said here that the man is not solely, or directly, responsible for the fate of the Naira today. He is no magician. Even if he is one, his magic can only work when fiscal and monetary policies find themselves backed up by improved national productivity. Thus magic, and the ability to perform miracles, won’t pass muster as viable tools for anyone who wants to be taken seriously in the banking industry. It is a job of records, of economic variables, of fluctuating indices and of policy-driven twists and turns.
Were we not all thoroughly alarmed when the Naira rose precipitously about a year ago? Were we not also excited when, inexplicably, it began to bounce back; and came as far as about 900 Naira to the US dollar? Many people cheered gleefully, even if somewhat apprehensively. And then, the national currency sneaked off when no one was looking (or were some people expecting it?) and headed downhill again.
Let us go back to a conversation that occurred on this page on February 10, this year, wherein it was said that the forces arrayed against Cardoso, his team and also the Naira include the following: “(1) A volatile economic and political environment, (2) Elite consumption patterns, (3) Overall low national productivity, (4) Limited public understanding of fiscal and monetary policy issues, (5) Incredibly high demand for the dollar and, very importantly, (6) The new-found use of the dollar as a major Store of Value, the way people used to buy houses under property speculation.”
In the above-mentioned piece, we went even further back to an earlier intervention of 15 November, 2021, titled “What the CBN Cannot Do”. The point made then, which is still so painfully relevant today, and which is partly responsible for the crises of the moment is this: “The CBN cannot do much about the value of the Naira, for as long as we produce very little to attract corresponding inflows, consume much that is not produced here and retain a monocultural economy”.
The point remains that only the diversification of the economy, redemption of our national road infrastructure, reversal of the current state of insecurity in the land, rescuing the power sector, making realistic and sustainable investments in education and health, among other critical interventions, can save the national currency, the national economy and the people. The decisions and interventions that would deliver all that cannot be tea party matters.
Without denying the impact of the floating of the Naira on our fortunes today, we must also frankly admit that the general insecurity and banditry of the last 15 years substantially undermined the nation’s massive investments in agriculture. With banditry laying waste massive farmlands, reducing farmers’ access to their farmlands and effectively reducing the overall availability of farm produce, only food scarcity would follow.
Added to the foregoing is the fact that large farming communities are displaced in many places. Thus, much of financial outflows into the agricultural sector in the last couple of years do not yield the expected returns. That is why it will take a while for the originally projected gains in terms of food availability, food security and forex earnings from food exports to materialize.
That is also why the conversation about diversification of the national economy, especially with agriculture in focus, must also simultaneously address insecurity and national social infrastructure. We must also note that investment in agriculture is not quite the same thing as the purchase of tractors and other agricultural equipment, no! Many states of the federation cheerfully mistake investments in health and education infrastructure for actual investments in “education” and “health services”. They do not consider that new buildings designated as health centres, new school buildings, new classroom blocks and massive stockpiling of teaching equipment are only the evidence of procurement contracts. Nothing more.
Such infrastructure, important as they are, cannot, on their own, give you health or educational services. You need doctors, teachers, etc., to make that happen. In other words, it takes capacitated human capital for development to take place. An investor who spends money setting up new baking ovens and launching them is not a baker. Bakeries need bakers who know about baking to produce and deliver edible bread.
When state governments and corporate Nigeria simply import furnishing materials for their new public and private facilities, they have no idea how much damage they are doing to the state resources, the national currency and the economy. And when misapplied funds are retired under the heading “investment in health” or “education and human capital development,” the people and Nigeria are swindled. But we are digressing again.
If today the value of the naira is not looking very impressive, it is not because someone’s “village people” have cast a spell on us all. If many big and small businesses have lost value and shut down, it is because of high replacement cost for goods sold out and their inability to obtain long-term facilities that would make sense in a Third World economy. If Cardoso cannot wave a magic wand to change the value of the Naira, it is not because he and his family are not buying from the same market as everyone else.
A weakened Naira means that the “replacement cost” for what you sold before the naira lost value will now cost you more if you wish to replace it. It also means that the same amount of money cannot buy you exactly the same quantity of goods you sold earlier and which you now wish to replace. So, your business shrinks and shrinks further. Whichever way you look at it, or whatever you decide to do, you really cannot get enough money to “replace” the same number of things you have sold. The result is reduced capacity utilization, job losses and much more; because your original business capital can only get you a fraction of what you have sold. You will then have plenty of redundant shop space, reduced workforce. It is as simple as that.
It was said here, back then: “A nation with a predominantly consumption-drive economy cannot suddenly catapult itself into the Neverland of foreign exchange El Dorado. You make money from what you produce and sell, or from what you can do and be paid for. You also buy with what you have earned from either goods or services. You get paid nothing when you produce nothing. You spend more than you earn when you produce and sell far less than you buy. The person who produces nothing and earns nothing, but buys a lot, must be getting the money for his purchases from somewhere…. And to borrow is to get credit for present needs, with payment deferred to a future date, right?
It is largely because we are consuming more than we are producing, and also buying more than we are selling, that the speculation for “phony money” and profits without productivity have overrun the land. Thus arises the predicament of nations and individuals with “unbalanced” market profile and appetites. Thus, also stands the crisis of the Nigerian state and economy today, in bold relief. It need not continue to be so. Increased productivity, ingenious monetary, fiscal and other regulatory mechanisms, in addition to significant increase in national productivity, will see us out of the woods; but not like first thing tomorrow morning.
Truth be told, our monocultural economy, or overdependence on one major source of foreign exchange revenue, is a drawback that can only be remedied by real diversification of the economy. We need to produce more, have more local abundance and export more, for increased social security and foreign earnings. We should worry about the impact of our energy problems on overall national productivity. We cannot expect sudden economic good fortune when the foreign exchange outflows for all sorts of things, including furniture and kitchen napkins, is continuously rising at the same time that foreign exchange inflows are shrinking steadily.
That is why it would take much more than Cardoso, or the CBN, to make the national currency look good. We are in turbulent waters, and the naira is in it with us. Our people say that the swimmer who finds himself in the midst of very turbulent currents, and who resolves to swim all day in order to prove his mettle should remember that he is not a fish. Even the fish usually finds its comfort zone in quieter sides of any fast flowing river.
QUOTE:
The forces arrayed against Cardoso, his team and also the Naira include the following: “(1) A volatile and economic political environment, (2) Elite consumption patterns, (3) Overall low national productivity, (4) Limited public understanding of fiscal and monetary policy issues, (5) Incredibly high demand for the dollar and, very importantly, (6) The new-found use of the dollar as a major Store of Value, the way people used to buy houses under property speculation.”