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Driving The Economy Through Unorthodox Policies



As the International Monetary Policy gives a nod for countries adopting unorthrodox policies, BUKOLA IDOWU looks at unconventional steps that are being taken to drive the country back on the track of economic development

In recent times, countries are adopting a protectionism stance and are devising new ways of not getting left behind in the race towards the future. Just as advancement in technology brings about changes to the lifestyle of people, more countries are adopting new economic policies geared towards development. Nigeria is one of those countries that has taken steps to localise policies for economic purposes.

Central banks around the globe are taking the lead and the International Monetary Fund which serves as a global advisory board and a stickler to conventional policies is taking steps towards validating the unorthodox policies of central banks.

They (central banks) are armed with tools of monetary policy which include reserve requirements, open market operations, and the policy rate, amongst others. Various frameworks of monetary policy have been used including monetary targeting, exchange rate targeting and inflation targeting, etc. In recent times, unconventional (non-standard) monetary policy has been implemented to address substantial economic meltdown due to adverse global financial conditions.

The global financial crisis of 2008 – 2009, which was trigged by the housing price bubble in the United States, created considerable uncertainty in the global financial market and uncovered the weakness of many economies. It also exposed the inadequacies of conventional monetary policies in tackling the challenges that came as a result of the crisis.

The tenets of price stability as the sole and exclusive mandate of central banks were called to question as conventional monetary policy tools were not sufficient in dealing with the complexities resulting from the Crisis; such as debt overhang and stagnating economic growth.

Central Banks in the US and in the Euro Area had to utilize unconventional tools in their efforts to achieve their macroeconomic goals of output growth and price stability. The use of unconventional tools such as quantitative easing and forward guidance, led to a growth recovery in the US, as well as a reduction in the unemployment rate.

Back home, Nigeria is faced with the all too familiar economic challenges as the aftermath of the crisis lingered on. The global recession was further fueled by a downturn in the oil market, triggering a fresh economic downturn in Nigeria that required more than conventional policies to overcome.

Nigeria’s overdependence on crude oil for over 60 percent of fiscal revenue and over 90 percent of foreign exchange inflows, meant that shocks in the oil market were transmitted entirely to the economy via the forex markets as manufacturers and traders who required forex for input purchases were faced with dwindling supplies.

Foreign Exchange

Average monthly inflows of forex into the Central Bank of Nigeria (CBN) fell from over $3.4 billion in June 2014 to a low of $1.4 billion in September 2016. The decline in forex earnings was further complicated by the foreign capital flow reversals due to rising yields in the USA. These impacted the exchange rate at the parallel market which rose from about N200 to the dollar in August 2015 to N525 in February 2017. Inflation also rose from 9.6 percent in January 2016 to over 18.7 percent in January 2017, as external reserves fell from about $31 billion in April 2015 to $23 billion in October 2016, and activities in the industrial sector witnessed a lull as manufacturers struggled to get access to key inputs needed in the production process.

In the height of this economic turmoil, the CBN had issued several circulars in battling the foreign exchange crisis that saw the naira dive well below the N500 to the dollar mark. Amidst the several calls for a free float of the naira, the apex bank had come up with the Investors’ and Exporters’ window alongside its regular interventions in the forex market which finally addressed the supply gap in the market. The policy which has not been popular amongst many who had expected a float of the naira has so far seen a stability in the forex market with the naira converging at around N360 at the I&E, bureau de change, interbank and parallel markets.

To cut down on the country’s need for foreign exchange, the CBN had drawn up a list of 41 items which the country had comparative advantage on but were being imported. The highly controversial 41 Item list which has since been increased to 43 included products that are in abundance in the country such as rice, fish, meat, palm oil. According to the governor of the CBN, Godwin Emefiele, four of these items alone constitute over N1 trillion of Nigeria’s annual import bill.

 Development Financing

Speaking recently on “Up Against The Tide: Nigeria’s Heterodox Monetary Policy And The Bretton Woods Consensus” at a lecture in Ibadan, Emefiele noted that since the global financial crisis, many central banks have begun to promote structural transformation and economic growth, beyond the singular mandate of price stability, adopting policy toolkits that contain instruments that are aimed at developing the financial sector, engendering wider financial inclusion, and aligning financial policies with sustainable development and growth.

To spur growth the CBN had increased its lending to the agricultural and industrial sectors, through targeted intervention schemes such as the Anchor Borrowers Program, Commercial Agricultural Credit Scheme and the Real Sector Support Facility. In particular, it sought to improve domestic supply of rice, fish, sugar, and wheat, which consume about N1.3 trillion annually in Nigeria’s import bill.

The targeted focus on the agricultural and industrial sectors were driven by the vast opportunities for growth in these sectors given the country’s high population. It was also instrumental in taking Nigeria out of the recession. In 2017, over 50 percent of the contributions to GDP growth came from the agriculture and industrial sectors. These sectors have the ability to absorb the growing labor pool of eligible workers in our effort to meet the household consumption needs of the Nigerian populace. If efforts were made to improve productivity gains in these sectors, it will reduce our dependence on imported items that could be produced in Nigeria.

Emefiele’s argument was that improved productivity in the agriculture and manufacturing could help in reducing the country’s dependence on proceeds from crude oil. “In 2017, Nigeria’s total revenue from exports of crude oil was US$23 billion, relative to Indonesia, which earned close to US$22bn from the export of palm oil in 2017. Nigeria has vast amounts of arable land that can be put to good use in the cultivation of not only palm oil but also cotton, cocoa, tomatoes and rice to mention a few. Supporting growth in the agriculture and industrial sectors is critical in our efforts to create a diversified wealth base for the country.”

Asides the funding for the agriculture sector, the apex bank in collaboration with the Bankers Committee had instituted the Creative Industry Financing Initiative (CIFI), which allows individuals who are into the fashion, music, movies and software engineering and information technology to access between N3 million and N00 million at single digit interest rate. This sector is critical to up surging employment in the country which has a teeming number of youths focused on the creative sector.

Arguments for Unorthodox Measures

The CBN in recent times has been criticised for its unconventional polices  against the imposition of the FX restrictions, conventional Monetary Policy requires that to encourage domestic production, and impose higher tariffs and levies.  However, the experience in Nigeria has shown that this practice has never worked due to certain inefficiencies in attaining these objectives.

Emefiele noted that the development finance initiatives in growth driving and employment generating sectors have equally not gone down well with the proponents of conventional monetary policy tools. “While they acknowledged our measures have had a positive impact on output and employment, they assert that these tools constitute quasi-fiscal activities. They also maintain that implicit interest rate subsidies can have distortive effects on resource allocation.

“Our argument for the unconventional Monetary Policy approach has always been that just like fiscal, monetary Policy could, at a time when development challenges abound, complement the efforts of the fiscal in employment generation, wealth creation and attainment of other growth objectives. “

Though unorthrodox, there is no gainsaying the country is better off with polices that are engineered to suit the growth and development plans of the current administration. Unlike its peers which had dived into recession, Nigeria was able to exit recession in the second quarter of 2017 after five consecutive quarters of negative growth beginning in the first quarter of 2016.

The recovery had been driven largely by improved non-oil activities especially the agriculture sector which expanded consistently by about 3.5–4.3 percent reflecting efforts at diversifying the economy, although it was reinforced by the pickup in the oil sector as oil prices rallied in 2017.

Inflation too had trended downwards from 18.7 per cent in January 2017 and currently stands at 11.4 per cent as the industrial sector witnessed significant improvement between August 2016 and February 2019, as the Primary Manufacturing Index rose from a low of 42 percent in August 2016 to 57 percent in April 2019.

On his part, Professor Sam Olofin, noted that “Nigeria cannot go on a path pf orthodox policies if we want to grow as a country” as he noted that one of the country’s “problems is that we hesitate and refuse to see what other countries did to become what they are.”

Stating the need to not have undue reliance on conventional monetary policies, he said Malaysia went against the norm to become what it was despite the non-approval of  Bretton Woods institutions like the IMF and other world leaders. Economic recovery depends on people recovering confidence in the economy; but confidence cannot be recovered until lost jobs and productivity are recovered, unemployment drops.


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