By Monsuru Olowoopejo
The national leader of the All Progressives Congress (APC), Bola Tinubu, has disclosed that the Nigerian economy would wade across the COVID-19 waters with ease if the Federal Government review the interest rate to encourage indigenous investors towards competing with foreign businesses that currently occupy a sizeable chunk of the country’s economy.
Tinubu added that for the country to have any positive economic prospect during the present coronavirus outbreak, then it should be noted that Nigeria used the present challenges to drive down interest rates and give the economy a better opportunity to balance.
The former governor, in a lengthy communique made available to newsmen on Sunday, urged the Federal Government to embrace tax reliefs strategy to assist financial institutions in the country to reduce their interest rates.
In his statement, the elder statesman noted that by doing this, the government will save the nation from a monumental drag on national economic growth and Nigeria economy would compete favourably with other superpower economies that were run on credit.
According to him, lower rates will increase domestic investment and production, as well as create jobs that could accommodate several unemployed youths in the country.
While noting that lower rates may have some negative short-term impact on inflation and the exchange rate, the former governor of Lagos argued that the economic dislocations caused by the coronavirus will serve to mitigate those temporary negative consequences.
“The undue rates penalize domestic investment and consumer borrowing. This reduces both aggregate domestic supply and, to a lesser degree, aggregate domestic demand. The chronic gap between domestic supply and demand has been filled by bloated levels of imports and encouraged an overvalued exchange rate that the high interests have helped produce. In normal times, the high-interest rates also attract significant foreign financial speculation, the ever-ominous hot money.
“While in the short-term, the foreign speculation boosts financial inflows. Over time, as compound interest payments become due on these foreign investments, the nation will lose an ever-increasing amount of money to satisfy foreign debt obligations. In the short run, high rates seem to attract foreign capital and spur the economy while giving it discipline against inflation.
“In the longer-term, all of this is untrue. High rates give us the worst of both worlds. They stifle domestic investment and incomes while pushing up inflation and exposing an ever-increasing share of our financial system to foreign manipulation and dependence. Put another way, if you take a single picture early in the process, the high-interest rate policy looks good at that moment in time. However, if you view the entire movie, you will see an ending that is both painful and unnecessary”, he added.
The APC national leader argued that the strategy would save the country from wasting funds on different impossible programmes launched by the Central bank of Nigeria (CBN) that have failed to lead the country to its desired destination.
“This complex CBN rear-guard action does not serve a greater purpose. It merely prolongs the inevitable: We must retreat from high-interest rates if we want investment borrowing to attain levels that actually increase private-sector growth and job creation.
“This point bears repetition. If the financial sector functioned properly, servicing the needs of the economy in general, there would be no need to constantly resort to specialised sectoral plans (one for this industry, another for that industry, and so on) for concessionary lending below regularly available rates of interest.
“Each such scheme is evidence that the overall financial system is fragmented in a manner that artificially reduces investment and the positive consequences increased investment has on growth, production, and employment. The schemes are akin to a homeowner who, confronted with severe structural damage, commissions a fresh coat of paint to obscure the obvious structural flaws. Just as the homeowner should focus on fixing the core problem to prevent the house from crumbling, the Bank should do the one great thing it can do to free the economy from an unpayable burden. It should reduce interest rates.
“The modern global economy is built on credit. Prosperous nations have built success based on the sustained ability to use credit to generate high levels of domestic investment as well as allow for significant consumer financing. Unlike two centuries ago, most business investment is not derived from the self-generated funds of the businessman or investor.
“Investments come mainly from bank loans. However, the current rate of interest in Nigeria prohibits most normal business investment. Thus, the productive sector stagnates as innovation and creative endeavour are discouraged. Employment and aggregate demand are dragged down. The economy becomes a slave to a negative, impoverishing dynamic”.