Smitten by a collective
guilt of underachievement arising from the continent’s no-show among global top
500 companies, some participants at Africa CEO Forum held in March in Geneva, Switzerland, sought solace in
the future. They hinged the building of African companies that could achieve
the feat over the next eight years on Nigeria’s big domestic market provided
government ensures good business environment for economic growth. (But why
should Africa CEO Forum be headquartered outside the continent in the first
place?) In 2016, the annual revenues of the world’s biggest companies were
US$482.1 billion for the first ranked and $20.9 billion for the 500th ranked
company.
At the forum, a participant
extolled three Nigerian banks as good prospects for the coveted prize. But that
provokes the question, why has the laurel proved elusive so far? Nigerian banks
have supplied many of the governors of the Central Bank of Nigeria. Even banks
that do not produce the governor club together in the so-called bankers’
committee and go in partnership with the CBN, but they have jointly worked
against initiating sound monetary practices necessary for actualising the
country’s economic potential.
Typically, risk-averse by
discouraging borrowing by businesses with high interest rates, the banks (many
of which have significant foreign stakes) are preoccupied in exploiting the
improper official handling of public sector forex. In this connection, they
siphon government revenue through double digit interest charges being doled on
a fake national domestic debt made up of mopped but non-investable excess
liquidity created by the mal-handling of government forex. Secondly, the banks
act as profiteering forex dealers where they should earn commission on
transactions and in the process, they undermine national economic
diversification and competitive domestic production.
Thirdly, they advance the fortunes of foreign economies by avidly financing importation of finished goods. The resulting persistently hostile production environment, non-inclusive growth, ever-rising unemployment level and poverty can only beget business outfits that are very distant from the ranks of global top 500 companies.
Incidentally, the first
half of the CEO’s prescribed time span for incubating Nigeria-propelled world
top 500 company(ies) coincides with the Buhari administration’s Economic
Recovery and Growth Plan (ERGP) 2017-2020. What is the outlook? The ERGP
document contains two different fiscal deficit level implementation options
with opposite economic outcomes. The options are represented in Table A by the
four year average inflation rate of 12.9 per cent and average fiscal deficit of
1.6 per cent of GDP as if they work in mutual agreement, but both do not.
The ERGP is predicated on
the high fiscal deficit implementation option, a wrong practice which has its
roots in the 1970s and which involves substituting apex bank deficit financing
for withheld Federation Account dollar allocations to the tiers of government.
Doubtless, the Ministry of Budget and National Planning is expected to generate
simulated economic data based on different fiscal deficit levels in order to
determine optimal fiscal deficit rate/inflation rate/interest rate/growth rate
combinations. Projected data obtained by adding the deficit rate in the
year-by-year budget assumptions and the percentage of expected oil receipts in
the estimated annual budget totals will largely approximate the ERGP data.
Therefore, based on fiscal
deficit levels in excess of three per cent of GDP, the ERGP data present dismal
indicators such as, firstly, average real GDP growth rate of 4.6 per cent
(which, given the population growth rate of 2.3 per cent, requires 60 years for
the current starvation-level GDP per capita to double); secondly, average
yearly federal capital expenditure that trails the servicing cost paid to banks
and bond holders and which signifies that the country’s infrastructure will be
in ruins perpetually; thirdly, net domestic credit as a proportion of GDP would
rise from 22.5 per cent in 2016 to 25.4 per cent over the plan period which
casts the banks as parasites with negligible contribution to national
development. (This indicator in 2014, for example, was 186 per cent for South
Africa and 374 per cent for Japan). So foreign financing (including public
sector forex corruptly transferred to individuals) is projected to take the
lead and leave the country as a bungling banana republic.
In retrospect, true
unbiased expectation, after over four decades of unbroken application, the
officially preferred high fiscal deficit implementation option successfully
stunted the economy and produced the widespread economic woes facing the
country. And from the above projected ERGP data, the high fiscal deficit
implementation option will lift the country’s economic fortunes during the
2017-20 plan period.
On the other hand, the sidelined low fiscal deficit implementation option will keep inflation within 0-3 per cent and make the economy work. (Note that this option is stipulated and approved for implementation under the budget assumptions contained in every Appropriation Act since the year 2000). Now, how will low inflation come about? The average exchange rate throughout the plan period is fixed at N305/$1. Through direct allocation of FA dollars in a secure form to beneficiaries, unlegislated substitution of CBN deficit financing for oil receipts vanishes.
Forex transactions, which
should fetch banks only commission, for the most part involves naira funds in
the economic system. Thus, with no destabilising addition to money supply,
there is no excess liquidity to fuel high inflation, instigate high interest
rates and there is no basis to create any fake domestic debt. Even when, based
on eligible import list, surplus dollars are sold to the CBN to accumulate
external reserves, the increase in money supply is minimal and absorbed through
expanding economic activity.
Alongside the low inflation
and set (stable) exchange rates, there will evolve internationally competitive
single digit (5-7 per cent) lending rates across the board. These props of
macroeconomic stability provide the yearned-for good business environment which
government is expected to put in place. In that ambience, other economic needs
including infrastructure fall into various categories of investment
opportunity, which government and private investors (big and small) may
undertake profitably by accessing the abundantly available cheap domestic bank
credit. That is what makes possible the high level of bank credit to the
economy as a proportion of GDP, which are obtainable in focused economies as
earlier noted.
Accompaniments? Employment
galore, enhanced purchasing power, rising prosperity, rapid and inclusive
economic growth and flourishing enterprises that in due course join the league
of global top 500 companies. (Guardian)
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