Guardian

• Asobie lists ways to  growth, anti-graft campaign

AFTER an assessment of the nation’s double-digit Monetary Policy Rate (MPR), stakeholders in the financial and industrial sectors at the weekend reached this dismal verdict: The policy is doing more harm than good to the economy.

According to them, the MPR has created and sustained the plummeting of investment development profile of the country.

Besides, the immediate past chairman of the Nigeria Extractive Industries Transparency Initiative (NEITI), Prof Assisi Asobie, has blamed the rising cases of corruption, which have impeded the nation’s development on the absence of a transformational leadership.

An investigation by The Guardian has revealed that over 10 African countries are ahead of Nigeria in benchmark interest rates regime.

The countries are Kenya, seven per cent; Burkina Faso, 4.2 per cent; South Africa, five per cent; Rwanda, seven per cent; Egypt, 9.5 per cent; Central African Republic, Chad, and Equatorial Guinea, 5.8 per cent each; Democratic Republic of Congo, six per cent; Mali, Cote d’Ivoire, Niger, Togo, Senegal, and Libya, 4.25 per cent respectively, with Ghana trailing behind Nigeria’s 12 per cent at 15 per cent.

The benchmark interest rate is the rate at which a central bank lends to money deposit banks, which in turn determine how much individual borrowers pay for the use of money they borrow from lenders (banks).

Recently, one of the banks’ chief executive officers, said his bank had no pool of long-term funds, which were needed for long-term development projects. He, however, said the medium term funds available were subject to a high interest rate.

“If CBN could give us at 12 per cent, we will only lend it out at 15 per cent upwards, given the risks associated with credits in the country. But, I am still in doubt if the country can make it at this pace. Everybody should prevail on the CBN and government to do something.

“How can employment be generated without SMEs and subsequent industrial growth, coupled with infrastructural development? How can these be attained when borrowing costs are beyond reach? Even government that is preaching development is borrowing at the same high rate. Is this not counter-productive?

“The unemployment rate is high SMEs cannot be jumpstarted in this situation, while the existing ones risk going extinct. With the power problem still lingering, taxes and the prevailing interest rate, manufacturing is already discouraged. In fact, it will be foolhardy for someone to manufacture a product that can easily be imported into the country, well at cheaper price.

“No country develops without first developing its real sector and no real sector develops with the prevailing rates in the country. There should be a pool of fund specially for the real sector, at lower single digit rates, otherwise, we are heading no where,” the chief executive said.

An Abuja-based development consultant, Jide Ojo, said: “CBN’s MPR at 12 per cent has made nonsense of government’s effort at stimulating the real sector of the economy. Even the aviation, textile and entertainment intervention funds set aside by government to revitalise these ailing sectors have been difficult to access by the target beneficiaries.

“By the time deposit money banks charge their own lending rates to their prospective customers, it’s usually between 15 and 20 per cent and more. The banks, besides charging high interest rates on loans, also add all manner of administrative or miscellaneous charges, which make the burden of borrowing unbearable.

“What obtains in many other developing countries, even in many underdeveloped African countries, are low interest rates of between five and eight per cent with a moratorium. What cheap loans do for entrepreneurs is that it makes expansion of business relatively easy.

“With the cost of doing business reduced, they in turn will be able to provide cheaper services and goods. Invariably the consumers get a better deal from the producer.

“However, with the high interest rate, the mortality of small and medium enterprises becomes high, with attendant high cost of production, low capacity utilisation, staff rationalisation, low sales as consumers cannot afford the goods and services, default in loan repayment, and ultimately, business collapse. This is the case of the country.

“It is most unfortunate that many entrepreneurs still borrow at cut-throat interest rates from banks and other financial institutions, just to be in business, while many are still being owed by government after executing contracts for long. This is part of the World Bank’s yearly Investment Climate Assessment Report.

“In 2013, the entire lending process and procedures set by financial institutions need to be simplified and made investor friendly, if we are to forge ahead in the development plans.”

Another stakeholder from the manufacturing sector said: “The problem is that the regulators are focusing only on money supply (price stability), which is only one aspect of the macro-economic variables. Certain level of inflation is needed to drive economic activities. What is bad is high-level inflation.

“The monetary policy rate of the country and the growth projections are contradictory. If small-scale enterprises cannot get facilities at lower single digit rates, the development and growth projections are just mere talks.”

Interests rates are fundamental to a capitalist society and are normally expressed as a percentage rate over the period of one Gregorian year.
It is also a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment.

Interest rates are the main determinant of investment on a macroeconomic scale, that is to say, if interest rates increase across the board, then investment decreases, causing a fall in national income.

A government institution, usually a central bank, can lend money to financial institutions to influence their interest rates as the main tool of monetary policy. By altering interest rates, the government institution is able to affect the interest rates faced by everyone who wants to borrow money for economic investment. Investment can change rapidly in response to changes in interest rates and the total output.

Loans, bonds, and shares have some of the characteristics of money and are included in the broad money supply (M2). By setting it, the government institution can affect the markets to alter the total of loans, bonds and shares issued.

Last year, the Human Development Index report launched by the United Nations Development Programme (UNDP), placed Nigeria in the 142nd position out of 169 least prosperous countries in the world. In addition, the country was listed 15 among 42 countries considered to belong in the “ least human development” category.

The report categorised countries into groups of Very High Human Development, High Human Development, Medium Human Development, and Low Human Development, with Nigeria falling into the last.

Unlike previous years, the 2010 report entitled “The real wealth of nations: pathways to human development,” applied more robust indicators of quality of life and human development. It considered state of education, wealth, and life expectancy, all of which are further determined by level of poverty, inequality, and social exclusion, including gender. The report examined progress in health, education and income across countries in the last 40 years. Nigeria lagged behind in all.

Nigeria, the second largest economy in Africa has a per capita income of mere $1,224 compared to the largest economy, South Africa, with national income per head of about $9,812. Nigeria equally comes behind Kenya and Cameroun in terms of income per head. It is also behind Ghana, Benin Republic, Cameroun and Uganda on life expectancy.

In an interview with The Guardian in Abuja on the recently released Corruption Perception Index (CPI) by the Transparency International (TI), Asobie said that the non-existence of anti-corruption icons was responsible for the rising cases of corruption among the political elite.

His explanation: “The fight against corruption in Nigeria has not been very effective so far for five main reasons. First, contrary to section 15.5 of the 1999 Constitution of the Federal Republic of Nigeria, the fight against corruption in Nigeria is, largely, a federal (Anti-Corruption Agencies) affair and not a national endeavour. Second, the fight lacks political leadership: It is not led from the top of the Nigerian political mainstream. Third, it is not energized, at all levels, by the force of personal example, which is the hallmark of transformational leadership. Fourth, the constitutional provisions for the fight against corruption are not faithfully enforced; in fact, many of them are breached, often brazenly. Fifth, the approach adopted in the fight is not holistic, reflecting the integral perspective: Not surprisingly, there is no approved national strategic plan to combat corruption in Nigeria. Corruption in Nigeria is being fought ad hoc, and in an uncoordinated manner, primarily by the federal anti-corruption agencies. There is some action; but it is action without a holistic national plan.”

For the anti-corruption crusade to succeed, Asobie called for the evolution of responsible political leadership that has zero tolerance for corruption and one that is ready to invoke national participation to combat the menace.

“What is required to combat it, therefore, is not an incremental, ad hoc uncoordinated approach. It demands the application of the ‘BIG bang’ strategy that was used in Sweden in the 19th century. Also, the crusade has to be led from the top by the Nigerian political leadership, through the force of personal examples, as happened in Singapore in the 20th century. But the Nigerian people have to be practically and massively involved in the fight as well. We’ve had enough of rhetoric and effusion of hot air-especially from the top,” he stated.

While defending the methodology adopted by TI in determining the corrupt tendencies of a country, Asobie highlighted that opinions of businessmen, observers, and foreign and national experts, are more reliable method of comparing relative (perceived) corruption level across countries rather than data generated based on number of cases reported, ascertained, investigated or prosecuted.

Asobie maintained that disparaging the TI report was unnecessary, adding: “To say that the CPI is based on perception does not mean that the data it generates are not based on reality or that they are mere fiction. Perception or opinion may be wrong or right; but once strongly held, it does affect the behaviour of the perceiver towards the perceived. Thus, it is foolhardy to dismiss it as either irrelevant or inconsequential.”

He stressed that TI was not completely unaware of the insinuations expressed concerning its reports hence recent steps aimed at fine-tuning the methodology which included increasing the number and improving the quality of data sources and ensuring that they capture perceptions of corruption across multiple countries.

Indeed, according to Asobie, the government of Nigeria places a high premium on the TI report as indicated in the choice of CPI as a reliable corruption index measurement instrument.

To justify his position, he quoted the page 20 of the abridged version of the Vision 20:2020 document: “Nigeria is currently one of the most corrupt nations of the world with a ranking of 121 out of 180 countries on the Corruption Perception Index (CPI). NV20:2020 aims to stamp out corruption and improve Nigeria’s ranking on the CPI to 60 by 2015 and 40 by 2020. The Vision aims to minimise corruption by creating wealth and employment opportunities; reducing poverty and ensuring the social security of Nigerians. In fighting corruption, there will be political and financial freedom for anti-corruption agencies, severe punishment for corrupt officials, and promotion of transparency and accountability in the management of public finances.”