The President of Nigeria and State Governors last week celebrated May Day with organized Labour (NLC), with the usual spectacle of march-pasts and copious speeches! Labour, on one hand, demanded for positive results in the areas of employment, security and corruption, so that the Nigerian economy can thrive and soar from the impact of such good Governance.
On his own part, President Jonathan surprisingly indicted his Economic Management Team, when he decried our touted economic growth without attendant job creation, and noted that “I agree totally that until we create jobs, until Nigerians can find food to eat, until Nigerians who are sick can walk to the hospitals and get treatment, the economic indices are meaningless to them”.
Labour continues to reserve its traditional strike weapon primarily to instigate higher wages for its members and press its demands for reduced fuel prices. Regrettably, however, the value of the modest wage increases has always been quickly wiped away by unbridled double-digit rate of inflation over the years, as too much money immediately chase less goods. Ironically, success with Labour’s demand for reduced fuel prices also inadvertently induce bloated subsidy payments in place of real infrastructural enhancement.
Consequently, an appropriate question is whether or not increasing purchasing power of incomes and low fuel prices are possible without the anti-social excess baggage of inflation and subsidy. Indeed, purchasing power of incomes can be enhanced simultaneously with lower fuel prices, if Labour’s strategy recognizes that a relentlessly ‘cash surplus’ economy is the fundamental reason why the N18,000 minimum wage currently purchases less than half of the goods and services that were possible a few years ago for the same amount.
Similarly, Labour’s demands must recognise that a manipulated naira exchange rate is also the root cause of continuously rising fuel prices and the related wasteful subsidy component. Although some Nigerians believe that fuel prices would tumble if government built new refineries, this will not necessarily be so; our national experience is indicative that we do not run public corporations with the required discipline.
However, Organised Labour’s demands in this year’s May Day celebration, relates to the need for increasing employment opportunities and the control of insecurity and corruption in governance!
Incidentally, the major factors that drive employment include stable or increasingly stronger purchasing values, so that workers have access to a wider range of ‘cheaper goods’; thus, rising consumer demand would consequently motivate existing entrepreneurs to expand production and also attract new investors into the market, with increasing job opportunities in tow!
Nonetheless, increasing income values may, however, still fail to promote employment opportunities, if double-digit interest rates (high cost of funds) discourage investments. Instructively, both high inflation and interest rates are the results of poor management of the amount of cash or liquidity in the economy; for example, while inflation is the product of too much money chasing fewer goods, high cost of funds is instigated by the high Monetary Policy (control) Rate (MPR) that CBN imposes to cage inflation by restraining access to the perceived high cash volumes in the system.
Clearly, however, the link between rising unemployment levels and increasing insecurity is already well established in public consciousness, particularly as unemployment amongst the “youth population, has assumed a very negative dimension with serious consequences for national peace and progress”.
Corruption which Labour also identified as a causative factor of bad governance is equally facilitated by weak sanctions and the availability of excessive supply of easy cash in the system. Thus, instructively, surplus cash availability turns out to be the major root cause of low purchasing power of incomes, and high cost of funds. Excess liquidity also facilitates corruption and rising unemployment, which inevitably also promotes insecurity!
Incidentally, the continuous existence of ‘surplus cash’ in the system is also responsible for rising fuel prices and the wastage of over N2tn subsidy payment annually. In essence, the relentless substitution of monthly naira allocations for dollar-derived revenue instigates a continuous horrendous supply of naira in the market and predicates excess cash supply in the hands of the banks.
Thus, CBN’s misguided payments arrangement pitches increasing surplus naira revenue in the system against the rationed weekly dollar auctions of the apex bank; the resultant market imbalance ultimately weakens the naira rate of exchange and inadvertently pumps up fuel prices with increasing subsidy values as collateral.
From the above analysis, it would be clear, therefore, that CBN’s monopoly of the foreign exchange market is the common cause of ‘excessively’ surplus cash as well as the major determinant of low purchasing power of wages and consumer demand; furthermore, high cost of funds, unemployment and insecurity, are also proxy products of excess liquidity; so also is weaker naira exchange rate, which in turn instigates high fuel prices and the related astronomical subsidy values.
Consequently, our seemingly intractable problems would be cut to size if CBN effectively manages the source and reduces the prevalent systemic cash flush by adopting the instrument of dollar certificates for payment of monthly allocations of dollar-derived revenue.
The oppressive ghost of excess cash will disappear and the impediments to low inflation and interest rates would be removed; naira exchange rate will become stronger and increase the purchasing power of wages, while domestic petrol prices will fall below the current price of N97/litre and make subsidy payments of over N2tn annually unnecessary!
Furthermore, the realisation of low cost of funds and increasing demand will expand industrial production as well as job opportunities. Ultimately, Labour Union membership will increase, while government tax revenue will rapidly swell from the prevailing bourgeoning commercial and industrial landscape.
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