Recent interest rate hike by CBN unwarranted- Tella, varsity don

A distinguished scholar and renowned Professor of Economics, Sheriffdeen Tella, says the recent increase in interest rate by the Central Bank of Nigeria after the 296th meeting of the Monetary Policy Committee held on July 23, is unwarranted. In this interview with Anthony Otaru, the university don said the move is capable of further worsening the inflation rate, and increasing poverty, among other issues

The CBN recently raised the interest rate to 26.75 at its July MPC meeting, what is your comment on this?

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) at the last meeting again raised the Monetary Policy Rate [MPR] to 26.75 per cent from 24.75 per cent despite appeals, warnings, and suggestions on the need to reduce the rate and the process, reduce the cost of borrowing in the money market. I think this was unwarranted given the high inflation level we have in our hands and the cost of food, goods, and services, the economic managers seem to be living in advanced economies where high interest rates can be used to encourage savings and reduce money holding to bring down inflation according to the received economic theory. The CBN thinks there is too much money in the Nigerian economy and with the public. Their books might show a huge amount of money to the public but not the distribution of such money. The public is crying about lack of money while those who engage in bribery and corruption, the politicians who engage in buying foreign currencies from their excess emoluments, as well as forex speculators, are the ones hoarding the currency. No matter the hike in interest rates, they will not take the money to the banks, thus, instead of a high MPR reducing the money supply, it will fuel inflation through the high cost of credit for producers. The CBN’s action is conforming to the World Bank/IMF doctrine which has been the economic policy guidepost of this government and the source of economic woes we have been facing. Inflation in Nigeria is more of a structural than a monetary phenomenon, the only monetary element is the exchange rate which also has a root in structural factors. We saw how recent massive exchange rate depreciation of the currency when the CBN took appropriate action. Also, saving does not respond to the interest rate as it does with income in Nigeria, if we improve the income of citizens, savings will grow and taxes will grow as both are derivatives of income, more appropriately, the interest rate that is going up with the committee’s policy’s lending rate rather than the saving rate. The saving rate remains below 10 per cent. There is hardly any business you do in Nigeria today that will give you an annual profit of 20 per cent except forex speculation, but the lending rate in the country is over 30 per cent. The policy is killing all types of businesses and by extension, employment, personal income, and government revenues.

Do you think the President takes the advice of his Economic Team?

I suspect that the advice from the Economic Team of the President is not taken seriously at any time. My advice is that the economic managers should respect the opinions of the team, they will not wish the country bad, and we must strengthen the exchange rate by imposing some restrictions on capital flows reducing monetary policy rates, supporting domestic production of petrol and diesel through deliberate policy measures, people will then have opportunities to fend for themselves.

What are your thoughts about the ongoing controversy between the leaderships of the Dangote Refinery and Petrochemicals and the Nigerian National Petroleum Limited over refining Premium Motor Spirit?

The Dangote Refinery has said that they are ready to refine the Premium Motor Spirit (PMS) for sale to Nigerians, but the oil cabal wouldn’t allow that. The Dangote Refinery is buying crude oil abroad because the NNPCL cannot supply the required crude oil quantity. In that case, we should expect the refinery to sell its output abroad to recoup the money so far spent and also get foreign exchange to purchase future crude oil abroad if the sector must make progress. If a business is privatised and the management is left in the hands of public servants who were mismanaging it hitherto, you cannot expect success, this is the case of the NNPLC- a private sector-oriented management should have taken over immediately. Don’t forget, during the campaigns proceeding the 2023 elections, we had problems with cash and petrol availability caused by financial and oil mafia groups. When President Tinubu came in, he dislodged the financial mafia and left the oil mafia intact, and that is the more dangerous of the two. Since the conclusion of the elections and the beginning of the tenure of this government, the issue of fuel scarcity remains. When Dangote Refinery attempted to solve the problem of fuel supply via sales to the domestic market, the mafia group introduced all sorts of barriers so that they could continue to import fuel to be able to benefit from the implicit supply. This development in our oil sector is sad, we should not encourage it at all. After the elections and a new government was to assume office, the managers of the NNPCL went to sell our oil upfront without thinking of whether the new government would find other means of solving the financial problems at hand. Did anyone ask what the loans were used for? Was it for usual refinery maintenance? What is the outcome of that?

Would you suggest a probe on the loans collected?

There is a need to probe the actions and the need to legislate against the next borrowings being contemplated by the company. While OPEC can impose the volume of crude oil for exports to control price, I don’t think it controls total output from which you can have enough for domestic refineries. Despite privatization NNPCL remains inefficient and the management remains unchanged, whatever happens in the sector, the buck stops at the President’s table who is the de-facto Minister of Petroleum Resources, he should take decisive actions, let Dangote refine and let our modular refineries also pick up

The Federal Government has mulled merger plans for some Ministries, Departments, and Agencies (MDAs), in line with the Oransaye Report. Are you comfortable with the creation of the Livestock Development Ministry just announced by President Bola Tinubu’s government?

In line with the Oransaye report and the recent creation of the Livestock Development Ministry, we can say that it is part of the normal policy summersault witnessed over and over in Nigeria. Such a ministry will have its departments and heads with the usual personnel for the offices, a Permanent Secretary, and other bureaucracy structures with the usual cost implications. What would have happened is to have at most a department or an agency within the Ministry of Agriculture. Creating a full-fledged Ministry indicates that the government is not concerned about the high cost of governance, but more about political expediency in everything and every issue, despite general suggestions contrary to establishing the ministry. It is as if once the government has taken a decision, it stands.

The Academic Staff Union University (ASUU) is still proposing to go on strike asking the government to pay their outstanding salary arrears, don’t you think it will be one too many?

ASUU is still processing the nationwide protest and we know that Nigerian governments do not respond to threats until there’s an actual strike. Hopefully, this situation will be different, the government cannot continue to fight on all fronts, the important thing is that when lecturers stop teaching because of strikes, they will resume wherever they stopped they have to complete lectures before students can start their examinations or finish examination for the students to move to their next levels. So, in this case, they have resumed and completed the truncated semester or session. Some of the academic staff are also students in postgraduate programmes in these institutions and could be affected by any strike action. So also the children of the academic staff are affected by strikes just as the promotion of the academic staff will be upheld as no meeting would be held during strikes. In most cases, the strike demands are about improving the teaching and research environment or conditions rather than the paltry salaries that a professor receives in federal universities at the end of every month which is around N450,000. You can convert that to the dollar since universities are universal.

What are your suggestions to the government on the best ways to tackle food scarcity in Nigeria?

In my view, the best way to tackle food inflation in the country is to revive and give priority to agricultural production using the states to take responsibility since land is vested in the governors in line with the Land Use Decree Act. In the immediate run, the government is on the right part by massively importing common food items from wherever they are available but with the realization that those countries produce excess, that is why we can import from them. Therefore, we have to give priority and engage in massive production of the common food crops which are grown and harvested many times in the year. With improved seeds and seedlings, careful planning and continuous research, and output in farming, the country should overcome food shortages in less than three years. The issue of insecurity that leads to farmers and herders clashes need to be settled once and for all, we can also borrow technology from countries that have advanced in agriculture by jettisoning labour- the intensive method we’ve been using, this will go a long way to increase yields, quantity, and quality. Agricultural Mechanization is the answer.

The Federal Government recently sent truckloads of rice to states as palliatives, are you comfortable with these usual gifts to Nigerians, what is your take, sir?

Palliatives by definition are temporary measures to arrive at a destination. The palliatives’ in Nigeria have virtually become a prominent phenomenon that has come to stay to deceive Nigerians. This is so because such programmes were not planned and therefore, not executed sequentially. It has made some people richer by diverting the funds into personal use instead of the normal distribution, it has also made many lazy as such, some have continued to expect free money, and food items from governments considering and comparing how few governors execute palliatives in the past till present, it is clear that the programme has been largely mismanaged. It has yet to achieve the objectives within a short time as expected but has continued to increase poverty rates instead of reducing them, every year.