THE LATEST CBN BOMBSHELL

In an eloquent speech that we have come to expect from Sanusi Lamido our maverick CBN governor, project cure, the new currency regime to bring sanity into the financial system, reduce cost of currency maintenance and transaction was announced. The CBN GOVERNOR has always been a controversial figure, but on this given day he was set to avoid any. This all turned into a pipe dream when he declared, “It is our pleasure to inform you that a new high denomination will be introduced, it is the 5,000 note.” This as expected has generated concern in polity, many afraid of inflationary pressures and corruption, citing the crises of Germany and the Ghana re-denomination. Many have argued that the policy will also make the Naira valueless but I beg to differ and I will get to that in a moment.

First is the issue of corruption. I do not subscribe to the opinion that corruption will increase in Nigeria because of a 5,000 Naira banknote. A corrupt person is a corrupt person. The greed inherent in them will always find ways to manifest itself. The medium will always be found to transact- after all what the Farouk Lawan scandal has shown is that now bribery transactions are handled in the almighty dollar, creating a dollarization of our economy. In the fight against corruption, what we should concern ourselves with is the reform of the criminal prosecution process and the transparency in government operations.

The German crisis of the 1920’s was caused by the lack of wealth generation in the economy when Germany had to pay war reparations in gold and hard currency. This adversely affected the value of their currency and with no more gold reserves to back up the exchange rate the Whur government had to print higher denominations of banknotes to create wealth in the economy, to pay it’s workers. This scenario bears no relation to the current Nigerian situation. First, the CBN has a reasonable large foreign reserve to keep the Naira’s exchange rates within current margins. Second, there isn’t a lack of money in the system. A 5,000 Naira note is not being printed to fill a lack of wealth in the system but to represent the true value of daily transactions. We always like to compare ourselves with the US, UK and other European countries, so let us compare.  

Some have said that the US has only a 100 Dollar bill as its highest denomination. That is true, but a $100 bill= 16*1000 Naira bills. To put things in context, I can walk into Best Buy to purchase a printer for $100. To buy the same model of printer in Nigeria I will spend between 14,000-16,000 Naira, which requires 14-16 pieces of our highest denomination. Lets look at it from another angle. Will the fact that there is a 5,000 Naira note make MTN and GLO make their 1,500 and 1,000 Naira recharge card now cost 5,500 and 5,000 Naira? Or will it make it that I can no longer walk into Chicken Republic and come out smiling after spending 5,000 Naira? The true value of 5,000 Naira does not change with the introduction of a single banknote to cover the said amount.

It has been argued that this policy is against the cashless policy in operation. I beg to differ. The introduction of the cashless policy was because of the high cost of currency management in the country- put in excess of 190 billion Naira per annum. A 5,000 Naira note will simply allow banks to represent a larger amount of money while holding fewer banknotes. This helps the cashless policy because it reduces the amount involved in managing currency and the fact that if the comprehensive implementation of the policy continues then we will have fewer needs to hold 5,000 Naira notes. But in the mean time if someone wishes to transfer 20 million Naira by withdrawal and then deposit, he pays for the cost of his transaction and the bank will issue him bills in 5,000 note because this bill reduces the amount of time spent counting, vaults needed and cost of management. There is a difference between printing more money and printing a higher denomination to represent current monetary value.

I further argue that a higher banknote represents already existing economic realities. It does not represent a medium for inflation to increase in the system.

Another argument has been that we should re-denominate our currency instead of printing higher bank notes. This argument makes sense through the prism that we are an importer of goods and services and as a result we would want to make imports cheaper. This negates the long-term prospects of our economy. Nigeria should be a net exporter of foodstuff, manufactured goods and even petroleum products. It serves our economy better to have a low currency exchange rate to make our exports cheaper thus creating more employment at home. Unfortunately the policies to create this kind of economy do not fall under the purview of the CBN (see how China has made its currency artificially low...... No wonder countries are filled with Chinese products).

I further argue that the comparison with Ghana does not hold water, as their inflation rate was over 100% (ours 12%) at the time of re-domination and their exchange rate about 9900 Cedi-1 Dollar. Their economy was on its way to full dollarization at the time (note one of the objectives of the 5,000 is to reduce the rate of dollarization in the economy).

However, I hold some fears over the CBN policy as it affects the introduction of coins. My view is this: the introduction of new denominations in coin and their elimination in banknotes poses a higher risk to inflation. These small denominations are what majority of working class Nigerians use to carry out their transactions on a daily basis. If the common business people reject the coins this will inflate the cost of basic goods and transportation, causing harm to the bank account of the poor masses. 

However, I also believe that, since this time the banknotes will be withdrawn, i.e. 20 Naira and below, the chances of the coins being used are higher. The lack of banknote equivalents will force people to use the coins. This is only if Nigerians resist the almost certain attempt by transporters and petty traders to crank up prices of common goods. 

A friend asked me this: “In a scenario whereby people still reject the coins, does that mean that inflation will increase? E.g. price of pure water from 10 Naira to 50?” And I replied:

“Yes, inflation will increase in that scenario. But I think it is unlikely because when we had the 50kobo, 1 Naira and 2 Naira coins introduced, there wasn’t much in existence in daily transactions that those coins could singularly cover. As a result, their adoption was bound to fail but with the 5, 10 and 20 Naira coins, their values represent daily transactional needs of Nigerians. As a result the coins will be more adopted and seeing that their note equivalent will be withdrawn, this will force the use of the coins. 

For example from the bus stop I use to school, it costs 80 Naira by taxi to the school campus. This amount is usually paid with 100 or 200 Naira notes, making the usual change 20 or 120 Naira. I don't think students will keep quiet if taxi drivers increase this to 100 Naira just because they don't want to accept coins. So the rejection of the coins by petty traders and the likes will only be in existence if people don't stand against this in which case inflation will result.

Retuning to the 5,000 Naira note, it is worthy to note that Singapore, Germany and Japan have high denomination banknotes that are of higher value when compared to the dollar with their inflation rate low, with 2.8, 1.1 and -0.7% respectively. The highest denominations are 10,000 SGD, €500 and yen10, 000 respectively. (See inflation.eu)

It is pertinent to note that the US had large currencies of 1,000, 5,000 and others in circulation and were withdrawn when their need no longer existed. With our cashless policy, we are well on our way but in the mean time, a need must be covered.

The use of coins has been argued to not be in the culture of Nigerians. Through the decades of our existence we have polluted our culture with many things against the ways of our ancestors. Surely, we can be pragmatic enough to finally indulge ourselves in some good; coins are better for the environment, last longer and as a result reduce the cost of currency management.

A selective issuance process for the 5,000 Naira banknote should be implemented. It makes no sense for majority of banknotes in circulation in a small rural town to be large denominations while in urban and commercial cities for low denominations to be majorly issued.

I am not a student of economics and the opinions shared in this piece are plainly my uneducated opinion. As such I welcome all clarifications and corrections, please forward to haleemmahmood@yahoo.com. I am a student of the world and eager to learn from you.

All views are strictly personal.

P.S. You can find a copy of the Governor's speech here.

Haleem,

ILORIN-NIGERIA

26, AUGUST 2012

my concern for nigeria

Who we are and where we are heading to (PART 1)

Listening to my father tell stories of the Nigeria he grew up in, I wonder at times if he is talking about the country I call home; visualize a Nigerian where immediately after a heavy downpour, local government officials will come out to spray any stagnate water, to prevent reproduction of mosquitoes, he put it plainly “while growing up I didn’t know about mosquito”.

He is full of stories of his travels, leaving our home town of Bauchi to go all the way to cross river to rare cattle; believing that the climate and greens of the Obubu cattle ranch area, will give cattle that has tender meat. You will find him full of stories of his love for Enugu where he served during his NYSC, regretting that he never made roots in the lovely city; you will always find him remorseful over how he never got his dream retirement which he planned to spend in Jos, his eyes brighten and his voice raises with passion as he describes in great detail the reasons he fell in love with the beautiful city, many Nigerians you will find with stories about this great and beautiful Nigerian treasure, Jos.

In the Nigeria I grew up in, I never met the place my father talks about, what I know about Jos is that people are being killed unnecessary, traveling back to Abuja from Bauchi we always make several calls and never fail to watch the news the night before to ascertain whether Jos is on fire or safe for passage. I have distant memories of traveling through as a kid, stopping to buy carrot and roasted chicken, now we drive as fast as we can through the city.

I recall as a Js1 student sitting with a group of friends newly admitted into secondary school and already we were sharing stories about our future aspirations, one after the other we all declared wanting to be Engineers and lawyers, Doctors and Bankers, a friend of ours however had a different idea, he wanted to return home and work in his fathers textile company, my friend finishes school in November and will graduate as an Economist but the company he dreamt of working shut down production before we even finished secondary school, this is a common Nigerian industry story, many of our companies have shut down due to unavailability of power and other infrastructure that government has failed to provide.

The weekend before I came to University of Ilorin I was in kano, when I told my aunty that I was coming to school in ilorin, she said  I should stop at Queen Elizabeth school, l her alma mater and wave hello for her. She inquired how about I will be going, I told her by car and she described how she journeyed by train to Ilroin as a student, buying fruits and roasted plantain at stations along the way. Today is takes me about 10-11 hours by road to get to ILorin, this is a journey that should take no longer than 6 hours through Bida but the road is beyond spoilt, it is a death trap that results in loss of man hour, reducing productivity and increasing cost of business. To get to ilorin in comfort and good time, I need to travel by air at the exorbitant cost of 25,000 naira, this again a result of government neglect. With raising fuel prices, high levies and taxes, one cannot  blame  the airlines for the high cost of air tickets.

Everywhere I turn I see neglect and incompetence that has resulted in the suffering of the common Nigerian. It pains to hear stories of the former giant of Africa from people who lived to see our country at her greatest; it angers to hear these stories from people who had the opportunity to help our society progress but left it as it is or worst.

From the declining secondary schools to the declined; from the over populated universities  to those lying in a comatose state, our education sector is in shambles. Producing students that have little or no ability in self learning, raring inarticulate leaders, unschooled in the value of proper process and organization. Great minds that can be engaged in research lay waste in our higher institutions, with students that can be best descried as geniuses left to learn in conditions that does not allow their full potential to be used for national development.

The state of the nations security is beyond alarming, from north to south lives and property are not safe, living the common man in a great state of anxiety.

Our industries are shut down, our labs unequipped, our airports a glory to heat and hoodlums, our roads a death trap. From east to west; north to south, natural resources lay to waste, while the Nigerian on the street remains hungry. In big Nigerian cities, members of the elite live in great wealth enjoying the most from our national wealth while the rural man is left unattended to, with no school, electricity or clean water.

Many of our hospitals are best described as storage centres, many with obsolete or unmaintained equipment, the few that are equip are under staffed, leaving them unable to serve the large number of those needing medical care.

This is the condition of our country Nigeria, this is the gift that our generation of leaders are handing over to my generation and if the tide not stopped this is the county that my generation will pass over to generations to come.

All hope is not lost, there are immediate and long term things that can be done to stem the tide of underdevelopment and set our country on a path of progress but the government of the day must revisit current policies, take stock of progress made and announce a major  change in  how the work of government is being tackled.

The national assembly must wake up from its slumber and realize that its job is not to pander to sentiment or the passion on the streets, they must realize that leadership is greater than giving eloquent speeches, that their responsibility is beyond accumulating power for themselves that indeed some of our institutions are best left out of politics.

The Jonathan administration has clearly stated that the criticism by the opposition is biased and based on incorrect data and facts; I understand clearly their point and challenge the administration to be a 21st century administration, the government should maintain a website where all activities of the president will be documented; including but not limited to speeches/remarks, agreements and treaties signed, contracts awarded, laws assented to, those vetoed and the ones waiting to be assented to. It makes no sense that in the age of blackberry and iPhones the government is not finding ways to directly communicate with its citizens.

The president should not yearly but at least once a month, hold a live press conference or interview(s) and answer questions from the representatives of all major Newspapers and major television stations. The media aide to the president should answers questions at least twice a week from the press, this should be broadcasted live to the public. Mr president needs to create the most transparent administration in the history of Nigeria, with that he will advance the democracy of the nation and simultaneously fight back the lies which he says his critics are using against him.

The greatest challenge to our country in my opinion excluding Energy and security is education. I have great admiration for the current Minister of Education, she has done well but I believe she has reached the limit of her contribution, the president needs to appoint a minister that comes fresh from the education sector, one with an excellent track record of changing over institution(s) that he/she has worked, someone who comes to mind is the outgoing VC of the University of Ilorin; immediately after this appointment, the national policy on education must be written, clear cost implications drawn up and the private sector brought in to help fund this. More powers must be given to universities and schools. The administrations of secondary and primary educations needs to be decentralized.

Mr president needs to declare a hiring freeze in government, all ministries must present a clear long term strategy to achieving their goals and targets, the National planning commission should merge these into a national development plan and yearly budgets drawn up strictly according to this document, roles of departments clearly defined and staff strength requirements assessed. Staff should be transferred from Ministries that have a staff strength over their needs to other government agencies and staff close to retirement allowed to voluntary go with full severance packages paid. The office of the minister of state in all ministries should be abolished; between the minister, permanent secretary every ministry should be effectively managed. Ministries that at best should be departments or agencies must go, the Ministry of information and communication has no place in our government; each government agency should handle its own communication.

The national security council should forward a bill to the national assembly addressing the responsibilities, functions and chain of command of our security agencies. Which agency is in charge of policing? Which agency is in charge of protecting national and state leaders, which leaders qualify for protection and what level of protection do they qualify for? Which agency is responsible for security at national events? Who handles security at universities and airports? The bill should address these questions and more.

The national assembly should consider an electoral reform law, all persons campaigning for public office most declare the source of their campaign funds with INEC and this information made immediately available to the public. While not currently feasible, the ban on electoral voting should be removed and the position of primary elections in our country made clear, is it compulsory for parties to conduct elections or can they choose their candidates through whatever means?

The judiciary reform bill should be passed but I believe to create continuity, eliminate conflicting judgments and reduce the high turn over of Justices, the age limit on Justices of the supreme court should be abolished, their numbers reduced to 12. This will enable legal precedent to be created and stop lawyers from taking frivolous cases to the court. A full court should listen to every case.

Our country’s national wealth is being made the personal treasure of a few, our safety not assured, the value of life made cheap, every arm of government must take immediate and long term decisions to end the current plight of the Nigerian man; but the challenge of a greater Nigeria does not belong with those in government alone. 

The opposition parties must put their act together, they should realize that without joining forces they will remain press statement centres. They must dream to be like the ruling party, they are a group of committed individuals, strong and united in their mandate to rule Nigeria, their reasons for wanting to rule is a subject for another day. The opposition must show this determination to lead Nigeria, let them remember the timeless adage “divided we fall, united we stand ”.

Private individuals especially those that have benefitted the most from our common wealth should raise up to the challenges of our time and contribute the big and little they can to our society. Certainly in the field of education and health, prosperous citizens can contribute a great deal. Many of the world best universities were started up by private individuals and many more today are being sustained through endowments and contributions of wealthy individuals, alumni and ordinary citizens. We need more independent press organizations and those who can should set them up; for it’s a national service, few things are greater than service to one’s country.

I was once a student leader, I am fully aware that ideas are easier said than done, I know leadership is hard and challenging, the choices are not always in black and white, the decisions never easy but that cannot be an excuse we  use to forgive our leaders, for they voluntarily submitted themselves for election and won, some even forced their way into office, since this is not a Kingdom where they became leaders by accident of birth, the choice to perform is not open for them, the excuse of difficulty not at their luxury.

Our country has many challenges some not addressed in this article, their solutions many, we must lift the level of our national discourse and broaden our horizons, we must push aside the frustrations that allow us step back into our shoes of tribal and religious affiliations, the looters of our common wealth are united as one in their despicable acts, we must step forward into the future as one people determined to overcome the challenges of our time.

Blessed we are in our diversity for it is our strength, we should be proud of our heritage and have faith in our future, they are many talents in this great nation, many an honest people, if we all stand and contribute in whatever little way we can Nigeria will see better days ahead.

I am but a boy and this is my dream for my country, a place where we all stand up and fight for our better tomorrow.