The current complicated nature of macroeconomic conditions in Nigeria is putting a lot of pressure on Nigeria’s growth prospects. Granting, the oil price decline is largely beyond Nigeria’s control, governance, and management crisis are deepening with the 2016 budget fiasco, the frequent Central Bank of Nigeria regulatory changes and the policy directions uncertainty.
These domestic “wrong moves” are avoidable. However, irrational and haphazard policy decisions are leaving foreign investors confused, and businesses struggling to survive in a volatile economic environment.
In times of economic vulnerabilities, it is normal that citizens are expecting their government to intervene with measurable and practical interventions ─ as the ability to maintain market stability becomes one of the things beyond government control in turbulent times. If there is anything economic uncertainties does not require is stringent interventions and market control. Notwithstanding, the current economic realities shows exactly the opposite is true in Nigeria. The government has become irrational, unreasonable and erratic with its monetary policy and stubborn of trying to control the inevitable; Naira devaluation.
To stabilize and avoid further mishap, policy-makers should be put under scrutiny as drastic experimentation with policy conundrum will carry a high risk for the rest of the year, with negative impact towards stabilization and further growth.
This is clearly displayed in the Central Bank of Nigeria’s daily experiment with FX restrictions, bans-unbans and bank charges. Inflation has persistently been on a soaring increase since October 2015. This has triggered stagnation and in most cases a collapse of small businesses, even multinationals companies are struggling to cope.
Despite having assumed office in May of 2015, President Muhammadu Buhari took over six months to appoint a cabinet, leaving the most important ministry in the country; finance ministry without a minister and opening doors for the CBN to assume using economic policies for trial and error re-runs. In October, President Buhari on the realization that the CBN was directionless and the Naira was left to its own device decides to do exact what he did as a military head of state over thirty years ago; controlling monetary policies and the market.
History is repeating itself; President Buhari has again gone back to what didn’t work; in turn lead to Naira overvaluation, job cuts, lower imports a and weakening economic growth. These uncertainties are seeing many foreign investors on the defense by becoming risk averse; sitting on the sidelines awaiting majors changes and clarity on policy directions.
Inducing artificially support to the Naira has attracted harsh criticism by two former CBN governors Charles Soludo and Sanusi Lamido Sanusi. Soludo noted in his interview on the subject matter that “for the better part of last year the external shocks to the economy had been complicated by the “tried and failed” command and control policy regime: a de facto fixed exchange rate; crude capital controls; veiled forms of import bans through a long list of “ineligible for foreign exchange” items; and the de facto scrapping of domiciliary accounts established by law”.
President Buhari’s priority on the war against corruption had sparked investor’s confidence earlier. However, when JP Morgan removed Nigeria from the emerging-market bond index, the inevitable became the obvious. Foreign investor’s perception of Nigeria has been negatively affected by policy makers, economic managements and Buhari’s lack of progressive economic reforms ─ interest rates reduction in an uprising inflation and the missing 2016 budget makes the situation worse. The MTN versus the Nigerian Communication Commission has increased global attention to the overall risk and volatility of the Nigerian business environment.
In the case of MTN, while such practices are globally defendable, the current conditions of a functional government in Nigeria have seen the abuse of penalties of the alleged wrongdoing. As the issue is as a result of a lacking uniformed agreement between various regulators. But in this crisis period, the government cannot afford to distract itself from real issues by focusing on fines and creating hostility in the Nigerian business environment. Perhaps, Nigeria is following the path towed by China since the Chinese stock market crash in July last year which wiped 30% off the Shanghai index.
As Nigeria is currently doing, the Chinese policy makers responded to the market shocks with drastic measures for market intervention. Such actions, however, inspired no tangible confidence but rather, had direct opposite effect by prompting a wave of shattering of local and foreign investors and panic selling. To create resistance to the current realities, policy makers should limit policy flexibility while paying attention to the external shocks already threatening stability and growth outlook.
Nigeria’s growth future is still very hopeful, if the president can hands-off economic policy and policy makers are independent enough to reduce avoidable mishaps. As economic tough times more often than not, require less policy tweaking and control and more of free markets practices, precision and support.