Charging Nigerians for Unused Electricity Wrong  – Ex-Finance Commissioner

An Economist and Former Commissioner for Finance and Economic Planning in Kwara State, Chief Lamidi Adesina Tolani speaks with Christie Doyin on the situation of Nigeria’s economy, and the monetary policy of the Central Bank, among other issues.

With the current economic situation, how well will you say the Central Bank of Nigeria is delivering on its mandate?

In the sphere of economics, the function of the Central Bank is mainly to supervise the amount of money that is in the economy which is always fixed. The CBN ensures that the changes are not so violent up or down and that the increase or decrease is not random. But most people always think that the CBN or the government can always access the money, but it is not. The money in an economy is fixed, and the CBN follows the policies and programmes. If the Central Bank wants less money to be in the economy, it will take certain actions under the monetary policy. So the Central Bank can increase the interest rate or depress it depending on what it wants. That relationship between the total money fixed and the total goods and services are at par. So that is why, if the Central Bank does not do its work well, it will not be at par. And then that is when you find that you have too much money in circulation. If there is too much money and too little goods, you have inflation, you have rising prices. That is why the Central Bank laid down monetary policies and followed them.  The Central Bank ensures changes are not drastic, maintaining a balance between money supply and economic wealth. The monetary policy rate, or interest rate, is one tool they use. Increasing this rate means less money in circulation, affecting the cost of borrowing and spending in the economy. If not managed well, it can lead to inflation, where too much money chases too few goods.

With the current monetary policy, what are the potential effects on the private sector? 

The CBN is an independent entity that works for both the government and the private sector. When it increases interest rates, it increases the operation cost of the private sector.  The private sector will not be able to get enough money to fund certain operations including production. And if it gets the money with a high-interest rate, it will produce but sell at a higher price. It has another reverse effect because as the economy is improving, the money will be rolling back to the CBN. However, the effect is always not too predictable because people may decide to buy more when the cost is high, which in the technical language is inelastic, and it does not change your interest because of the cost. Once there is an increase, people run away. The increase in the monetary policy rate means there will be less money in circulation, increasing the cost of borrowing for the private sector. This higher cost can lead to reduced production and higher prices for goods and services. It may also result in job losses as businesses cut costs to manage higher borrowing expenses. The effect is complex and can vary, sometimes causing unpredictable reactions in the market. The first effect will be, perhaps, the rise in prices. Also, the consumption pattern of individuals will be lowered. The business will reduce its production capacity. Some businesses will close down because they cannot meet the demand.

Don’t you think the CBN rate hike may likely worsen inflation and contribute to widespread job losses in Nigeria? What’s your take?

Yes, it will. It goes around to the private sector, there is a tendency for people to sack, and reduce the number of employees. Even governments may consider that if they can’t pay, then they share the employment load, something like that, and then inflation will be off. Inflation, by definition, is a rise in prices. Not in the price of a particular good, but it starts with the rise of a particular goods, then before it goes to the other goods. So inflation is the changes that occur slowly or violently in the price level of goods and services. Once this occurs, the individual in the economy; the value of that salary becomes useless. This means that the goods and services that that salary can purchase will be reduced. For instance, if you have to purchase 10 units of a commodity when the price has not risen you will buy less when the value of the money goes down.  Also because you are not eating much, you will have no money to devote to getting the 10 units that you normally need. So because factories do not like to have unsold goods, they will reduce production, which means fewer numbers in the absence of technology. Fewer numbers of people will have to be allowed. You have to do away with some people unless they are technologically relevant. Even if there is increased technology, you cannot produce and put it in the store. You will only produce to meet the demand.  So, Increased costs for the private sector can lead to higher prices for goods and services, reducing consumer purchasing power. This can slow down production and lead to job cuts, contributing to inflation and economic hardship for many

So, you are now saying it’s not feasible?

It’s not feasible at all. It’s not feasible at all unless you increase productivity. And then the workers should endeavour to say that our productivity has increased, so let us get a commensurate share out of our productivity.

How can productivity be achieved?

It’s not possible. The workers have no tradition of increasing productivity. We will not even be able to isolate, mathematically, that the workers’ productivity has increased.

Do you think the private sector will be able to accommodate such a significant increase?

They will not be able to accommodate it because it will affect a lot of things. It will affect the capacity of the private sector. They will have to reduce their capacity.

The Federal Government recently increased the electricity tariff. What is your take on this?

Power is very important to a productive facility. If there is no power, you cannot produce easily and efficiently. Efficiently and at a lower cost. So, the tariff that ought to be fixed for electricity should be determined by what you consume. The electricity demand should determine the price. If the demand is low, you cannot produce high. So, they have to produce something that will meet the demand so that they can get the price and equilibrium price where the demand and supply meet. One cannot say positively that the demand for electricity in Nigeria is higher than the supply. The electricity distribution companies must be able to also determine what they are giving out which should be aggregated into the pricing system. You cannot ask people to pay for what they are not consuming. Because we all know the supply of power in this country is not such that you can see. So many organisations and industries are shutting down.

About Correspondent

Check Also

Tinubu Pledges Overhaul of Amnesty Programme for N’Delta Beneficiaries

By Chuks Peter, DELTA President Bola Ahmed Tinubu has declared a comprehensive revamp of the …

Leave a Reply

Your email address will not be published. Required fields are marked *