04 Jun 2009 |
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Too Many Cooks Samuel Akinyele Caulcrick In a society were everybody, mostly adults, is an expert on national issues, too many cooks tend to spoil the broth. The writer is one of those most culpable. For a layman to constantly comment on issues in which he is not an “expert” must be nauseating to the sensibilities of renowned experts, at least. Majority of this writer’s comments in the past on national issues are most times in variance with popular thinking, and surprisingly without an apology. As I listened to the new Central Bank Governor during his Senate Confirmation Hearing on how to strengthen the diminishing Naira, the urge to make a comment could not be resisted. I stubbornly disagree with the school of thought that prevails in the informed circles of our bankers and our economists yet again. So, with due respect, I once more foray into the forest that I am not entitled to enter. My uninformed guts, nevertheless, keep telling me that we are still chasing shadows. The brilliant new apex bank governor’s road to our economic recovery leaves me with little choice, but to put up an argument that does not conform to the experts’ theory. What is incontrovertible as many will agree, however, is that the Naira remains the symbol of our wealth. The other irrefutable fact is that the national currency, the naira, is under immense pressure. But, what are the sources of this otherwise relievable pressure? First, there are factors that affect the value of any currency. To really appreciate these factors one should realise that the world has not moved much away from the principle of trade-by-barter as it were. The prehistoric exchange of goods before currency was invented remains till this day the brass tags of commerce, even now with currencies in use. The introduction of government in communal living brought about the easing of the business of trade-by-barter through the invention of money. The government or its appointed agent like our Central Bank is legislatively charged with the task of providing and monitoring the currency. Government as it is generally accepted needs to function smoothly in all spheres of common interest and in doing so; members of the community are levied (taxed) in an agreed formula to fund government activities. Since government serves the common interests of the community only through the award of contracts and payment of salaries of its staff and only in the local currency, the process by itself exerts a most sizeable amount of pressure on the local currency to fund its constitutional functions. This is one angle that our experts have downplayed and which could be the key out of the economic woods. Arguably, even if the majority agrees that the activities of government are some major factors that affect the pressure being exerted on the naira, there will still be controversies. My money will be on disagreement on which aspect of government activities. Would it be government spending or would it be the funding of government treasury that is faulty or is it both. Many Nigerians, I bet, will argue that it is the government excessive spending that is wasteful. And what will be classified under government wasteful spending would most likely be corruption through inflated contracts and embezzlement to say the least. Conversely, what will be grouped under the methods to fund government treasury would likely be taxation and, in our peculiar case, the auctioning of foreign money, this time by the Central Bank. Which of these really exerts the most damaging pressure on the naira? The merits and demerits of each of the above – spending versus earning - must be appreciated. The omission of the activity of government on the value of the naira by a new governor of the apex bank, in his submission to the lawmakers, is worrying. Traditionally, government treasury ought to be funded through levies (taxes) in an agreed manner or formula. A system whereby government treasure is funded mainly through a system of Russian roulette by auctioning of the petrodollar is most damaging to the growth of the Nigerian economy. Our experts (bankers and economists) are never short of dreaming about a stable exchange rate, but nothing can be more stable than a fixed rate. It is the most predictive. However, a fixed exchange rate requires a lot of work and mental capacity to deal with. That is where I think the general fear is. Do we possess the mental capacity in government to address the pitfalls of a fixed exchange rate to the dollar (the popular currency of trading)? If our experience in the past 23 years of deregulated exchange rate is anything to go by, our economic growth had, in real term, been in a decline. In that period, oil has remained more than 95% of our exportable domestic product – thanks in part to the auctioning of the petrodollar to the highest bidder. But oil seems the only commodity we exchange for goods and products with the outside world and it is already priced in dollars and not in naira. What then is the basis for a deregulated exchange rate in this type of economy? The only merit one can see of this system is the ease of funding government treasury through auctioning of the petrodollar to the highest bidder. Taxation that ought to be the main source of funding has been greatly deemphasised. This is a lazy way to fund public treasury and its consequences are most damaging to the growth of the Nigerian economy. There was a conception in the mid 80s that auctioning of our scarce forex would accelerate our economic growth - brilliant idea at the time. Unfortunately, we chose to auction on the basis of affordability of the forex rather than on the platform of additional wealth creation through access to the forex. Had that been, we could have multiplied our oil receipts in real terms. As it were, elements within the society that had access to cheap naira became the beneficiary of direct access to the petrodollar and conquered it. The economy thus became captive to the whims and caprices of these elements. That drove the remaining helpless populace to continue to pray to God to soften the minds of the conquerors of the petrodollars. The above is in a lighter mood. What this translated into is that potential wealth creators (educational institutions, farmers and factories) are denied direct access to the petrodollars on the basis of affordability in order to procure tools and raw materials for further wealth creation. In the days of import licensing, politics, corruption and nepotism strangulated the economy no doubt. In our haste to purify the system, the baby was thrown away with the bathwater. In the years preceding the introduction of deregulated exchange rate, Nigeria witnessed economic quantum growth in the private sector, but the lack of effective tax regime almost made the government insolvent. So, the problem was actually the funding of the public sector. The wealth ended up in the pockets of the citizens but the government was not adequately levying the citizen accordingly through taxation. That ought to be looked into. The regional governments in those days went after everybody to collect tax – from loaders in the market to elite in the cities. What they were able to achieve even without access to free oil money was gigantic. Unfortunately also, those that have direct access to the petrodollar (traders and those with cheap naira) are also the least employers of labour. Little wonder, therefore, that Nigerians continue to roam the streets in search of jobs since the potential job creators are starved of forex due to affordability. Government’s social responsibility is to create enabling environment for job creation. With the key to the access to the petrodollar, government could use it as a weapon for those wanting to access the petrodollar. Allocation of forex could, among other indices, be based on the number and quality of jobs to be created. In addition, it is a win-win situation for government because as the number of labour increases, so also will government revenue multiply. All these can only be achieved if the government is not desperate for funding, which is why I, uninformed, think that the economy will remain in the doldrums until we embark on a tax reform. Capt. Samuel Akinyele Caulcrick, Head of Flying School, Nigerian College of Aviation Technology, Zaria.
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