Bola Tinubu's Sermon on High Interest Rates
With the universities on strike, the politicians have taken over the pen and pencil works of educating the citizens on economic policies and mechanisms. Prof C.C. Soludo dropped his own; he has gotten his wish, the economy is now opened. Former Vice President Atiku postulated on economic diversification, and APC reminded him that he was a former Vice President and could have worked to make those things happen. I saw one today from former President Jonathan Foundation, but did not bother to read it: the heading discouraged me - “Good governance in Africa needed…..”. You get the idea. Now the man Lord Lugard handed over Lagos when he left; yes, Bola Tinubu. He has a sermon on interest rates.
Read the full piece here.
High interest rates are a fundamental drag on national economic growth. Only our unreliable power supply may loom as a bigger impediment to national prosperity.
Lower rates will spur domestic investment and production. This creates both jobs and wealth. High rates serve only to suppress these vital factors. Lower rates will have some negative short-term impact on inflation and the exchange rate. However, in a twist of irony, the economic dislocations caused by the coronavirus serve to mitigate those temporary negative consequences. If there is a time to reduce interest rates, that time is now.
But Tinubu hasn't resigned as APC leader, so why is he sounding like an outsider? When people closer to power begin to sound like this, you now wonder what ordinary people would say.
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His piece has some merits, but again, what rate do we consider as good rate: 4%, 5% or 3%? If so, what determines interest rate benchmarking? Is it just discretionary, whereby the CBN can just announce: ehmm, we are changing interest rate to 1%, thank you for listening!? We seem to think Nigeria is a hermit kingdom, and completely disconnected from the outside world.
Again, at let's say 3% rate, what happens when loan applications far exceed money supply, what do we do: put on the printing machines and print more naira? If these are so straightforward, I am not sure there will still be poor countries on the face of earth.
The manufacturing sector still import a lot of ingredients as input, with foreign investment door essentially shut as a of result of unattractive rate, how do they source dollars for import? If we want to purchase something like aircraft, can we print enough to get dollars to buy one?
Yes, the naira is overvalued, but what is our productivity level, and how does it reflect on our cashflow as a nation?
Plenty things.