Rice will hit N700,000 with N615,000 minimum wage – Economist, Alaje

Amidst the current economic challenges facing the country, Chief Economist of SPM Professionals, MR PAUL ALAJE (PhD), talks to Joseph Oluwatobi about monetary policy, the national minimum wage, and the Economic and Financial Crimes Commission’s crackdown on cryptocurrency, among other pressing issues.

The Central Bank of Nigeria recently increased the Nigerian monetary policy rates. What are the potential effects on the private sector?
Increasing the MPR (Money Policy Rate) is the effect that the Central Bank wants to tame inflation. That is what economic theory taught. In taming inflation, there are many methods or tools at the disposal of the Central Bank of Nigeria. So, in increasing it, we hope that inflation will relax. Unfortunately, Nigeria is battling with an all-time stubborn inflation that is induced by excess money supply as a result of many reasons. One is because of ways and means that were bastardised under the previous regime. I cannot guarantee you that that is not even going on right now. Secondly, there is an increase in food inflation which remains the major driver. It occupies the driver’s seat of inflation in our country as food inflation is now over 40%. We have not had such a hard time in a very long time in our history. Thirdly, in the urban center, prices of prices continue to show face from one product to the other and that is why the theater of this inflation is at the urban center. All of these account for the continuous, galloping, growing, consistent energy that inflation has had over the years. Now, will monetary tools alone solve this problem? The answer is no. Central Bank has used different tools within the monetary coffers, which include adjustment of liquidity ratio, and monetary policy rate. Most importantly, the Central Bank has also adjusted CRR (Cash Reserve Ratio). Rather than inflation rebating, it has remained stubborn because of another major factor. Nigeria is highly import-dependent in consumption and pricing is a function of purchase for consumption. Now, because we have a highly volatile, highly susceptible exchange rate in Nigeria, Naira, No matter what you do, if you don’t stabilise your currency, the country will bleed with high inflation.

What do you mean?
The government says the subsidy is gone. They forgot that when you devalue with a subsidy, you find yourself in a roller coaster effect because you want to gain more money for government revenue, but you have now said, let’s vote. So, all government purchases that are imported, we also have to pay more. So, government expenditure would increase without necessarily increasing the value. This is what I mean. Now, all of these are going on. So, I have shown you the effort the Central Bank made, but the effort did not yield so much result. Not because the Central Bank intended to not yield results, but because I don’t think they have looked at all sides of the policy. What therefore happened? We now have what we call the trade-off effect. Now, what is the effect? The effect here is that while you do that, it will generate several trade-offs. Because you are increasing MPR, the private sector will be crowded out. Banks that are supposed to lend to the private sector will prefer to give the money to the government or prefer to buy bonds instead of giving money to the private sector to invest. That means that we crowd out investments. If there is no investment, what happens to unemployment, poverty, and hunger? They will grow. What happens to the supply side? It will reduce. What happens to inflation? It will increase. Do you see where we came from? It was not properly connected. When you now do that and continue to increase MPR, banks will write those who have borrowed from them before, that their rates will now be higher. They will now be faced with the challenge of laying off staff because they need to pay for their interest for them to remain in business. When they lay off staff, we go back to the cycle of poverty increasing, hunger increasing, inflation increasing, and supply side reducing, which will now lead to high inflation again. That is why we are chasing our tail using some of this policy. The Central Bank interest rate hike to combat inflation is tantamount to the endless chase of one’s tail. A dog wants to pick his tail and is running after his tail. It will soon fall. For the first time in recent history, the central bank adjusted its belief that inflation should be between 6% to 9% to about 26%. How do you reconcile this? It is because we are engaging in a case of our tale endlessly.

Considering the nation’s current economic challenges, is the demand by Organised Labour for a new national minimum wage of N615,000 feasible and what is your take on it?
For me, labour people have the right to make a demand for a new minimum wage. But if you demand 600,000, a bag of rice will be 700,000. Don’t believe me, Try it. I told this nation that this year, this economy may be on its knees. You will be faced with various economic challenges, some of which we are seeing. High unemployment, poverty, and crime rates, all over. People snatching food on trailers, and it’s not endSARS. Hunger to its heights. Labour, I strongly advise should request a new minimum wage but should stay within the boundary of $100 to $200. It is not because labour doesn’t have rights. It is because the economy cannot sustain it. If labour demands 615,000 and is paid, it will become a money illusion. Money illusion is not a payment in the real sense of it. My strong advice to governments and labour leaders is to consider an amount between $100 to $250. And if the dollar stabilises around 1,000, If it does not stabilise around 1,000, they should be looking for N150,000. It is insane that anybody still pays 30,000, 50,000, or 70,000 today. In a nation where the cost of transportation has increased. How much is a litre of PMS and a bag of rice? Labour should demand between N150,000 to N300,000 but this is the challenge; the gains that we have made from subsidies, even if you pay N100,000, will all disappear. At least half of the 36 states of the Federation will find their treasury empty if they pay. At least 10 to 15 states will not be able to pay anything above 70,000. You can check what they are currently sharing and check the labour in their state. Assume 30% or 40% of their labour force is on minimum wage which is for level one. Most of the big people in government have level eight graduates, level nine, as they progress to level 15 or level 14 as the case may be. Check how much they will be paid. When you look at that, with what they earn, and the state’s IGR that is very small, you would see that they cannot afford it. So we have gotten ourselves to. We are back at chasing our tail.

Amid the economic hardship, the Federal Government increased the electricity tariff. What is your take on this?
Electricity is a very important part of every economy and I am not saying that because the minister, you know, was one-sided when he said 20 hours, 16 hours, and he used hours to measure electricity. He shows that he is not so very knowledgeable about electricity. I will not speak to you now just as an economist. I will also speak to you as a manufacturer. Even if you have a 24-hour power supply, the quality of electricity in Nigeria today is down to damaged equipment. It has damaged most of our equipment because the quality is very poor. And that is even in an industrial area. To increase the price or tariff of what is destroying equipment with poor quality, I think is hypocrisy. No matter the plan, it shows a higher level of insensitivity for a monopolistic product organised with the involvement of the state. How do you say that you want to classify electricity into bands? Most lower bands don’t have access to electricity again because we have turned it into a commercial. We show that band A will give money, therefore, those who are in other bands, are voiceless, people don’t hear them, and people don’t see them. We no longer supply electricity to them and we are paying with our bands. Now, congratulations to those in band A. How many hours have they been getting? Have they been getting up to 20 hours? And I mentioned in an interview I granted that they increased the price by over 200%. Even if it’s over 1,000%, we are not paying to have more electricity. No. We are paying for the devaluation of the Naira. Do you know why? How much was gas before? How much is gas today? That exchange rate that got devalued is what we are now paying for. So we are not paying for an increase in output. No. We are not paying for an increase in anything other than that. They want to be compensated for what they have lost before the devaluation.

The Economic and Financial Crimes Commission began a crackdown on currency speculators and cryptocurrency platforms. Do you think this will have a positive impact on the Nigerian economy?
I am a Nigerian. I don’t have any other passports. Everything that we make our currency stabilise, I will stay with it. And it is within the ambit of the law. I have told people doing cryptocurrency, I have never done any cryptocurrency. I will never do any cryptocurrency. I am not saying crypto is bad. I am not saying crypto is good. I have maintained an indifferent position to crypto. From the first time I heard about it in 2009 to date. If EFCC says it’s cracking down on them, my question to the government is can it be transparent? Can EFCC, SEC (Securities and Exchange Commission), and Central Bank request that the process be transparent? Because we don’t want to throw away the baby and the bathwater. How can we also get inflow in Nigeria? I saw the Central Bank try to compete with cryptocurrency by bringing the E-naira. I was very vocal in saying that we head in oblivion because whether it is digital Naira or physical Naira, whatever affects the value of digital will affect the value of physical. It doesn’t make sense. Today, who talks about E-Naira again? With billions of Naira, we’ve wasted on it. So, my advice to EFCC is that, yes, clamp down on currency speculators, but do it within the ambit of the law.

What policy could the Federal Government implement to ensure that the cryptocurrency platform operates to the benefit of the Nigerian economy?
The government should have a policy of transparency. For instance, if somebody says he has a cryptocurrency, or digital currency platform and is trading, do you have the money? So, A is trading with B. A says he sends digital currency worth $20,000. No problem. Where is the vote? Can we see the movement happen? We don’t want to know who buys what, but with your vote, can we see something physical defending that movement? If nothing is defending the movement, then we are at risk. Our citizens will be giving you money, but we cannot access your votes. American votes will publish what they have. Nigeria, we publish what they have. What does crypto have? All the banks are publishing what they have in their vote. You know the central bank is having that record. Cryptocurrency owners, where are they publishing? So, if they make their report available to the governments of the countries where they operate, it’s fine. That also helps the government with appropriate taxes. Some of the persons that have speculated, put their money in crypto. If they put their money in crypto, what happens? So, they are converting, hurting our economy, which is in the eye of the government. So, they take that money to the digital platform. Honestly, if I were in government, I would not say don’t trade, but I would say I want to see your votes. I want to see the movement. And I will take a sample of participants at a time and I will be able to check. And that is why it is dangerous to put people without digital skills to lead us. It will be like men with eyes being led by a blind man. We must look for people with digital skills. We cannot avoid it. Men with digital skills must lead us. And if they don’t have, they have to hire men with strong digital backgrounds to investigate what is going on the other side of the world.

Also, the Federal Government has given POS operators till July 7th to register with CAC. Don’t you think a clampdown on those who could not afford to register before the deadline would affect currency circulation?
I have seen that report by the Corporate Affairs Commission, and that those who could not should register. I think what the Corporate Affairs Commission wants to do is to also see, some transactions that happen on POS machines. We really may not know who is responsible for what. I am somebody who supports transparency a lot, but in doing that, I think CAC should also consider an extension for those who may not be able to afford it now. It might be a short-term or medium-term extension for those people who cannot afford it. So, at the end of the day, what we are interested in is to see how many people we have been able to bring to the cover.

How can Nigeria prevent its economy from slipping to fourth place in Africa, as forecasted by the International Monetary Fund, following currency devaluations?
Nigeria needs to boost its GDP by making its currency stable. It’s not that we pack out all the wealth in Nigeria to South Africa or Egypt. No, what we did was that our economy got devalued and we are compared in dollar terms. If our currency gets back to 500 Naira with the dollar today, we will be back in the first position. So, without doing anything, President Bola Ahmed Tinubu does not need to do anything. Can that currency go back to 500? Nigeria will maintain a strong economy. But to do that, you have to do exports, your manufacturing sector must go up, you have to grow your finances, your market will have to be very strong, and quite a lot of other work. Are we doing the work? It’s obvious for all to see.

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