Open its mouth and stick its foot in it as many times as it may, we need constantly remind this administration that the change we sought in the build up to the last general elections was one in which a more efficient economy was to run on freer choice made by a newly free people.
For a government that came in to office on the back of its “change” credentials, the Buhari administration is a pretty conservative animal. Its gut instincts are to keep the “status quo ante” unchanged. Nice, though, this comes across, it leaves unresolved the matter of which “ante”, however. For the “status quo”, which preceded the administration’s inauguration was one that was failing the country. It was as venal as it was incompetent.
Thus, it is safe to argue that the previous state, which the Buhari administration seeks to conserve, must be different from that which prevailed before its inauguration last year. An older one, perhaps? Mid-1980s, sans our current high level of corruption?
This is the only explanation for another characteristic of the administration. It scarcely is able to open its mouth without sticking its foot in it. Or how else do you describe this statement purportedly issued by Dr. Chris Ngige, the minister for labour and productivity: “Following spate of petitions and complaints from stakeholders in the banking, insurance and financial institutions, I hereby direct the suspension of the on-going retrenchment pending the outcome of the conciliatory meetings in the industry”?
The economy ails gravely. And as financial conduits, banks are likely to feel this the most. Businesses are not only unable to source foreign exchange to support their import needs, they have seen costs rise on the back of higher input prices. Sub-national governments are not paying staff salaries on time, so domestic consumption spending is down. Besieged at the supply end, businesses are also finding it difficult to pass higher costs onto the markets. Their profits thin.
As financial intermediaries, banks feel businesses’ pains through a variety of channels. Reduced borrowing means that banks may no longer create risk assets nor earn interest on this. But how about the old loans? Businesses’ poor operating environments mean a lot of these may start to go bad, requiring that banks up their provisioning. Rising portfolios of non-performing loans mean that the industry’s profits drop.
At the same time, the retail financial services segment where banks once made a killing from all manner of personal loans has shut down. Consumers are loth to spend. This new reluctance is as much the result of salaries not being paid, as it is the consequence of several other businesses (including in the fast moving consumer goods sector, and oil upstream) having laid off staff earlier. It is also because rapidly rising domestic prices have eroded the purchasing power of the man on the street.
…we need to become more efficient across all sectors. To ensure that the yield on all our activities, processes, and events is higher than the costs we carry to implement the latter. It is a challenge too, to distribute increasingly scarce resources amongst a litany of competing needs such that we get the best value for any monies we spend. It is, in other words, a requirement to discipline consumption.
Add to these, the burdens from the industry regulator. For one year now, the central bank (CBN) has plighted its troth to lowering domestic interest rates. At bottom, the goal is to push new lending to businesses whose increased capacity as a result then drives domestic output growth. The arguments in support of lower interest rates may be more nuanced than the CBN makes out, but by supporting banking sector liquidity and the lower rates that follow, this policy has eroded banks’ net interest margins (the difference between their borrowing and lending costs).
And how about banks’ public sector businesses? The Treasury Single Account (TSA) was advertised by this same government as having mopped up “idle funds” from the banking sector. What the banks did not say in reply was that these funds were far from idle, and supported a thriving public sector business on their books. Today personnel in the public sector departments of most banks are indeed idle; even though most banks have restructured to try to drive value from these assets.
Unable to grow traditional business lines, unable to open new ones, in an economy that daily contracts, and beholden to shareholders who expect returns on their investments (capital gains and or dividends), banks have sought to cut costs. And most have cut by focusing on performance indicators that follow the thinning cash trail.
In a sense, this is the collective challenge before managers of the domestic economy: we need to become more efficient across all sectors. To ensure that the yield on all our activities, processes, and events is higher than the costs we carry to implement the latter. It is a challenge too, to distribute increasingly scarce resources amongst a litany of competing needs such that we get the best value for any monies we spend. It is, in other words, a requirement to discipline consumption.
It is a challenge that some of us imagined as native to an administration that championed its “change” qualifications. Except that we now recall that the mid-1980s mind-set in the country was still proto-Soviet. A nanny state was to provide everything. And prices were but a “bourgeois” device to impoverish the masses. On Friday, last week, Dr. Ngige gave full flight to this statist vision.
Open its mouth and stick its foot in it as many times as it may, we need constantly remind this administration that the change we sought in the build up to the last general elections was one in which a more efficient economy was to run on freer choice made by a newly free people.
Ifeanyi Uddin, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
