CBN monetary policies working but…

After several months of trial and error, the Central Bank of Nigeria, CBN, is finally on the right track. Exchange rate is stabilising; the gap between official and parallel market rates has been closed.

For the first time in years, Nigeria is close to having a relatively stable exchange rate which will make planning possible. But, as Bismarck Rewane has, rightly, pointed out, the CBN has been supporting the Naira without saying so. It is unclear how long the CBN will be able to continue the support – without which the gains made so far might be temporary and the rates start moving up again.

Monetary policy alone, however sound, cannot sustain any economy. Just as sound fiscal policies must complement it for the gains made to be consolidated.

Central to fiscal policy is productivity growth. For the country’s Gross Domestic Product, GDP, to grow, Nigeria needs higher real productivity – not rebasing or other gimmicks which have now taken centre stage.

Four key areas requiring more output are: petroleum sector (upstream and downstream), agriculture, manufacturing and essential services – particularly, telecommunications, transportation, education, hospitality and health. Failure to significantly increase productivity in all these sectors will roll back the gains made by the CBN.

Lately, officials in the crude oil sector have been announcing that Nigeria now has the capacity to produce up to 2.24 million barrels per day, mbpd. That is political declaration not a realistic estimate. Potential is different from actual. Nigeria has had the capacity for this quantum of output in the past without achieving it. Even now, January 2025 output was far less than that; and it is unlikely that February production will reach 2mbpd. Cumulatively, the production for the first two months will record negative variance which might not be corrected this year.

At any rate, there is OPEC quota to consider – in addition to global demand for crude. The Organisation of Petroleum Exporting Countries has pegged Nigeria’s quota at 1.7mbpd – excluding condensates. Nigeria as the weakest member of the organisation cannot exceed the quota without inviting backlash which will drive down the price of crude. Global demand for crude is unstable at the moment; but, the long term trend is not favourable to producers. The world is literally driving away from fossil fuels; leaving Nigerian alone still clinging to crude oil for its economic survival. It is a defective economic model in the long term.

Agriculture appears promising. The FG and some states have increased spending on agriculture. Unfortunately, the responses have been traditional; not imaginative. Tractors from Belarus have arrived; but, not in numbers large enough to make a significant impact. Furthermore, tractors from foreign lands have always arrived in Nigeria; and the results have always been the same. Without trained operators and spare parts, each tractor is only useful until its first breakdown for any reason. Then it is abandoned, sometimes, in a farm far from the nearest town. The Nigerian landscape is littered with thousands of tractors which are now being cannibalised by scrap iron dealers.

Other inputs might create problems. From reliable sources close to farms, the cost of fertiliser has gone up; and farm workers are hard to find. Bandits have made farming perilous business. Still, there is hope.

Manufacturing is in a period of uncertainty. Members of the Manufacturers Association of Nigeria, MAN, want to increase capacity utilisation in order to drive down costs and reduce prices. Increased energy, power and communications tariffs, as well as high interest rates are defeating the objective.

Increased taxes and levies by government agencies continue to raise production costs and prices – resulting in declining demand. Consumer purchasing power continues to slide downwards and it is difficult to determine when the expected turnaround will occur.

Interest rates constitute a major determinant of long term investments and short-term borrowing. Manufacturers expected a reduction in interest rates after rebasing slashed 10 per cent from inflation rates. They were disappointed when the best they could get from CBN was no increase from existing rates. That means the heavy burden of high interest rates persists.

Essential services are also feeling the impact of low purchasing power. General Hospitals, hitherto the last hope of the masses, are enjoying diminishing patronage. Charges for laboratory tests, as well as the prices of drugs available in the pharmacy, have all gone up. Nigerians in droves are drifting to alternative health care providers.

“ICT growth drops to 5.42%, lowest since 2022 —NBS.

VAANGUARD, March 3, 2025.

The Information and Communications Technology sector is one of the largest in the economy; it is also one of the most infinitely elastic sectors. Consumers can use as much as they want. In 2022, the sector accounted for 9.76 per cent of the economy; in 2023, the percentage dropped to7.91%. In 2024, it was down to 5.2% — reflecting what everybody is experiencing. Calls have been drastically reduced and duration of chats slashed. ICT is no longer top priority. MTN’s result for the year 2024 – when a huge loss was recorded – says it all. The network is pressing for another upward review of charges; which will probably be granted eventually.

FG REVENUE: THE BIG ELEPHANT IN THE ROOM

Crude oil revenue still constitutes the backbone of the Nigerian national budget and economy. The FG has been unable to realise the revenue estimated from it in the last ten years. On account of the annual shortfall generated from that item, projected deficits were exceeded every year, debt increases annually and the percentage of revenue used to repay debt increases. Invariably, the first casualty of unrealistic crude revenue estimate is capital budget. Roads and infrastructures are under-funded; power supply remains poor, education and health services suffer and damns are not maintained until they collapse.

The pattern of failure is repeating itself right now. The FG, States and Local Governments (where they exist and are allowed to function) collect nominally more revenue allocation. In reality, all the three tiers of government are getting poorer; their abilities to redeem political promises have been impaired by inflation. Exchange rate is a double edged sword for governments. Publicly, they support the CBN’s effort to crash exchange rates. Privately, they are against it. Devaluation of the naira and high prices have driven up Value Added Tax, VAT, collection. Reversal will reduce the revenue allocated to each of them.

At the moment, the FG and some of its agencies are falling behind in their monthly payments. National Youth Service Corps, NYSC, is symptomatic of the problems several Federal Ministries, Departments and Agencies, MDAs are experiencing. Governments are finding it difficult to pay.

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