A former Deputy Governor of the Central Bank of Nigeria (CBN), Dr Obadiah Mailafia, in this interview, discusses economic policies of the apex bank and the state of the nation, among sundry other issues.
Nigeria is confronted with some gloomy statistics – inflation rate of over 17 per cent, unemployment rate of 33.3 per cent, etc. What, in your view, is the government doing wrong?
Yes, the recent figures for both inflation and unemployment are worrisome. One feels a tinge of nostalgia for paradise lost – for when we were able to get inflation to single-digit levels between 2006 and 2015. Gone are those glory days. The figures for unemployment, at 33.3 per cent, look particularly bleak.
At the height of the 1930s Great Depression in the United States, when unemployment reached an unprecedented height of 24 per cent, Americans thought the world had come to an end. There were many suicides. It was not uncommon for people to jump out of the window of their upper-storey buildings. Nigerians are a highly resilient people. When you combine inflation with economic recession and high unemployment and novel coronavirus, you get a fatal cocktail of social misery – anomie.
Traditional coping mechanisms are collapsing. The social networks of kinship and organic solidarity that held communities and families together are breaking down. The worst affected are the youths. While general unemployment trails 33.3 per cent, youth unemployment averages around 40 per cent nationally. However, in the North-West and the North-East, youth unemployment hovers above the 65 per cent mark. It is therefore no surprise that armed robbery, kidnapping, nihilistic violence and lawlessness have become the order of the day.
Every year, millions of young people are being churned out of our rickety and ramshackle education system. Many of our so-called “graduates” are barely literate. Most are virtually unemployable. Global firms operating in our country will tell you they despair about finding qualified candidates for available jobs. Much of the curriculum is also irrelevant to market needs. Much of the emphasis is on the humanities and liberal arts, instead of the STEM disciplines of science, technology, engineering and mathematics. And much of the pedagogy emphasises rote-learning, not practical skills.
Another dimension of the problem is that not enough jobs are being created. You could say that a graduate of Mechanical Engineering who is riding an okada (commercial motorcycle) has a job. But it is clear that he is seriously under-employed, because riding an okada is not the best use of all the skills he learned in the university or polytechnic. My position is that we can only frontally address the unemployment crisis through a mass-based agro-industrial revolution. Without mass industrialisation, we have no hope of absorbing this rising army of unemployed youths.
Bringing down inflation requires a multifarious strategy. Controlling monetary aggregates is essential, in addition to taming rises in factor costs. Boosting production and exports will also tend to have a salutary impact on the exchange rate, which, in our own situation as an import-dependent rentier economy, will tend to dampen prices. Reducing geopolitical uncertainty will also help, in addition to boosting confidence and ensuring a long-term macroeconomic equilibrium. For the rest, I might have to send you a consultancy invoice!
The value of the naira has been in consistent decline, particularly in the last five years. What would it take to reverse the trend?
At its peak in the 70s, the naira exchanged 1:1 with the British pound sterling and 1:2 against the American dollar. Today, the naira exchanges at 421.05 to the dollar in the parallel market and at 680 for pound sterling. I am a keen student of international monetary political economy. I do know that several factors affect the value of a currency. They include such things as: the inflation rate; the structure of interest rates; persistent deficits in the current account balance; the rising levels of the national debt; the falling terms of trade; economic recession; financial speculation; overall macroeconomic performance; and political instability. At a general level, the exchange rate is determined by the demand for it – by the value traders and business people place on that currency. It is also shaped by the dominance of a country in international trade, the volume of its reserves and the confidence national and international economic actors repose in the currency. When you look at all these factors, you can see why the naira has been in the doldrums all these years.
My experience as a practical economist leads me to the view that bad government and bad policies depress national currencies. Consider, for example, the problem of multiple exchange rates. I have always believed that the market rate – the clearing rate – is the right exchange rate. Anything below or above the market rate is a pursuit of illusions. Multiple exchange rates have always been the bane of the economy. Our military tyrants of yesteryears thrived on it.
During our time at the CBN, we can proudly say that, for the first time in decades, we achieved a unified exchange rate. And it was a great boon for the economy. The current administration has operated as many as a dozen exchange rates, although they have now been reduced to a few. But we are not yet there. Multiple rates are bad because they create distortions and open up opportunities for rent-seeking. They are open sesame for corruption. They even encourage capture of our financial institutions.
As far as I am concerned, the CBN’s autonomy is currently in name only, not in reality and not in fact. That venerable institution has been captured by vested political interests. Imagine this game-theoretic scenario: Because of the multiple exchange rates, a member of the cabal can sit in the comfort of his home and order any amount of forex at the favourable to be delivered to them. They would then call a Mallam from one of the forex bureaus to come and buy at the higher rate. Sitting in the comfort of their homes, they have made a big killing for doing absolutely no work whatsoever. All they have is connection and access. It is a vast cesspool of iniquity.
A single rate as determined by the market is the best we can hope for. It leads to greater transparency and it leads to a more efficient allocation of forex. It reduces corruption, which is toxic for the financial system and corrosive to business relations and public morals in general. When you operate a central bank fit for a banana republic, your currency will inevitably be bastardised.
Would it be daydreaming to hope for the return of the era when the naira was on a par with the dollar?
Well, I am afraid that is hardly a target worth fighting for. From the 1944 Bretton Woods Conference by the Allied powers, it was agreed that the dollar would become the world’s reserve currency. The dollar was convertible into gold at the fixed rate of four ounces to the dollar. The Bretton Woods gold-dollar standard continued until its repudiation in the summer of 1971 by President Richard Nixon. The dollar itself has had its own challenges. With the rise of the euro and the Chinese renminbi, the primacy of the dollar is increasingly being challenged.
Of course, we could achieve that magic feat of parity by knocking off a few zeros as Ghana did some years ago. But that would not change the underlying structural problems. What we need is serious currency reforms linked to structural reforms to get the economy back on track. These reforms will enhance the value of the naira. I would love to see a strong naira that gradually attains the status of a semi-convertible international currency.
What are the short- and long-term effects of the recent CBN ‘Naira-4-Dollar’ policy on Nigeria’s economy?
Some of us were rather intrigued that the CBN recently introduced a kind of “promo” – or “sweetener” if you like – for diaspora dollar remitters by announcing the payment of N4 for every US$1 that is collected. On the positive side, we see it as a means of encouraging more remittance inflows from our diaspora. It is also a means of reducing the high transactional costs of remittances through the licences of International Money Transfer Operators. At some stage, these costs were as high as 20 per cent of the transferred funds, which can be a great discouragement. The new directive could also help in boosting our rapidly-depleting external reserves, which at the end of January stood at $36.5bn.
On the negative side, however, it could be seen as a one per cent devaluation of the naira. We hear that countries such as Pakistan and Bangladesh have done such promos in the past. Nigeria currently ranks seventh in terms of receipts of global remittances. The top three being India, with a whopping $78.8bn; China, with $67.4bn; and Mexico, with $35.8bn. Our remittances are currently around $24bn, according to the CBN. Overall, we expect the new directive to boost more inflows of remittances, particularly against the background of negative impact of the novel coronavirus crisis.
The Economic and Financial Crimes Commission says it will, from June, make bankers declare their assets. What are your thoughts about this?
I think it is a bad idea. Our constitution outlaws discrimination of any kind. Why should a government agency – even an anti-corruption one at that – target members of a particular trade for this kind of discriminatory investigation? Why just bankers and not also lawyers, accountants, doctors and engineers? Some of us are beginning to feel that this government somehow wants to systematically destroy the banking system.
Somebody recently complained that no Fulani man owns a bank. We could also turn the logic on its head and say that hardly any banker owns a cow! I fail to see the reasoning behind this EFCC policy objective, beyond being an ethnically-motivated witch-hunt. Of course, if a specific banker is suspected of having used their position to fleece depositors and investors, then the usual machinery should be set in motion. There are no saints in the professions, not least among the bankers. But to single out the bankers for asset declaration is a bad policy.
Several northern leaders have attested to the massive under-education problem in the North. What do you think must be done to promote education in the region?
The impression I get is that the feudal ruling elite in the North have a vested interest in denying millions of children access to education. They hope to preserve a reserve army of beggars that will ensure a perpetuation of their own class privileges. I see no other plausible explanation. The danger is that many of the kidnappers and so-called “bandits” that have imposed their stranglehold in the North today derive from this class of unschooled, unemployed and unemployable youths.
Nobody can help the North but the North itself. I rather like what Governor Nasir El-Rufai is doing in my own home-state of Kaduna. He has outlawed Almajiranchi and has made parents criminally liable if they fail to send their children to school. In civilised federal systems, depressed regions are given special funding to address the most critical social challenges. Perhaps there is a need to set up an education commission to address the educational disadvantages of the North. It should cover such things as remedial schools, scholarships and the rest of it.
The worst thing to do is to impose differential cut-off points that favour northern pupils. For example, out of a maximum of 300 possible points, the cut-off mark for Anambra candidates is 139, Imo, 138, Enugu, 134, Delta,131, Lagos, 133, and Ogun State, 131. This contrasts with Kebbi, where the cut-off mark is nine (for) males and 20 for females and in Zamfara, where it is four for males and two for females. I do not know any country in the world that practises such discrimination. It is not only a recipe for chaos; it is quite harmful for the self-esteem of those whose cut-off marks are lowered. France, for example, does not joke with its Bacalauréat. It is their universal gold standard. Same is true of the German Abitur. Nobody tampers with it. In those countries, no marks are lowered for any child whatsoever for the purpose of entry into any higher institution.
What are your thoughts on the increasing attacks on schools in the North?
There are no words in the English language that can fully express my anguish, my distress, aversion, odium, disgust, loathing, distaste and abhorrence for such evil! Of the many girls taken away, many have been turned into sex-slaves. We hear our beloved Leah Sharibu is having her third child for the bastards. It is not about sex-slavery; it is about rapine, exploitation, murder and death. Those who escape are likely to suffer a lifetime of trauma. The entire future of a generation of young people is being wiped away. This nightmare has put our country outside the pale of civilisation.
What are your thoughts on the ongoing farmer-herdsman clashes down South?
I beg to disagree, there are no “farmers-herdsmen clashes” anywhere. When peasants and their families are trying to eke out a living in their rural farms and aliens with AK-47 and in military uniforms descend on them, you cannot call that a “clash”. Not too long ago, we drew the world’s attention to the fact that some wicked people in our country had imported heavily armed mercenaries who were occupying strategic places in the rainforest. The hyenas descended on us. They tried to pour ridicule upon my person. They spread lies that my testimonies are “always unsubstantiated”.
Time has been my vindication. In December 2019, my wife and I were driven from Benin to Uromi for a university convocation lecture that I was to deliver. The driver went on that bad road at breakneck speed. He told us that much of the forest had been taken over by armed herdsmen and that most of the indigenes had become landless peasants. A few days after our return, Jerome Boluwaji Elusiyan, a celebrated surgeon and professor of medicine from Ile-Ife, was butchered on that same road. He was returning from Ekpoma where he was an external examiner for medical students. Frictions between farmers and herders have existed in our traditional communities since time immemorial. Our people always had peaceful and very fair mechanisms for handling such disputes. What we are facing today is a different ball game – it is genocide and terrorism.
Some have pointed out a disparity in the Federal Government’s treatment of Sheikh Ahmad Gumi, who has been negotiating with the bandits and has publicly shown sympathy to them, and the likes of Sunday Igboho, an emerging voice in the South-West. Do you agree with this notion?
Yes, you are right. There is a patent discriminatory treatment on the part of the authorities. You would recall how they treated some of us when we dared to speak out. Even as I speak, I am not yet a free man. Sheikh Gumi is one of the royal sons of the caliphate. He is a respected cleric. And he has been rather fair to me as a person. He was recently quoted as saying, “Mailafia was right”. But it was a delphic pronouncement. His obiter about “Christian soldiers” was unfortunate. He may not be an altogether honest broker. The circumstances around which he was allegedly deported from Saudi Arabia show that there is more to the man than meets the eye.
I take rather strong exception when people keep referring to certified terrorists as “bandits”. These people are murderous terrorists who deserve no mercy whatsoever. Most of them are mercenaries from distant lands of which we know nothing.
The reptiles we face today are soldiers of fortune waging an undeclared war against an unarmed and defenceless people. In such circumstances, those at the receiving end reserve a right to protect themselves. Our constitution, our statutes, municipal and international law – indeed all the sacrosanct precepts of natural justice, equity and universal global ethics – prescribe the right to self-defence in those circumstances. Self-help is both legally and morally imperative when government is unable and/or unwilling to protect communities that face an existential threat to their very survival. Our government appears to be in cahoots with the terrorists. The northern elite are in silent complicity. Nobody, except people of a twisted and jaundiced mind, can say the Eastern Security Network, Amotekun and Sunday Igboho should not defend their people. – Culled from Punch.