AN ANALYTICAL APPROACH WHY YAHOO, CRYPTOCURRENCIES INVESTMENT AND PARIS CLUB FUND WILL SINK NIGERIA ECONOMY IN THE NEAREST FUTURE.
MORNING DIET: LET’S THINK ECONOMICAL
By; Gabriel Oghenevwayerhe David
Key economic indicators are those factors which can be used as proxy variables to measure economic performance to ascertain whether or not the economy of any country is growing.
The fact that the Nigerian Gross Domestic Product is growing or not, is dependent on these key economic explanatory variables. They include;
Gross Domestic Product (GDP which is always the dependent variable): The total monetary value of goods produced within the boundary of a country in a fiscal year.
Interest Rate( Bank Lending Rates): The price rate at which Deposit Money Banks lend funds to borrowers/investors.
Exchange Rate :The value of Naira to foreign currencies.
Market Capitalisation: The current market price of a company’s shares multiplied by it’s outstanding shares. In other words, it is the current value of a company.
Inflation Rate: The rate of general rise in price of goods and services.
Per Capita Income: The average amount of income as earned by every individual in a country, which is used to measure the poverty level and standard of living in any country.
Stock Exchange Rate and other stock market indices.
The Nigerian economy according to the bereau of statistics, tend to have risen by some percentage above recession but we fail to understand that, it has not yet risen to a significant and sustainable level.
It is quite appalling that in this critical time of the Nigerian economy, where various economic manipulating agencies such as the Central Bank of Nigeria, The Nigerian Stock Exchange, the Deposit Money Banks(DMBs also called commercial Banks) are on their toes to ensure the country forster a stable and sustainable economy above recession, a high level of factors are playing towards its downfall unknowingly.
These factors can be referred in economic terms as SHORT MONEY.
Short money are a kind of intervention funds injected into an economy which only have a temporary positive impact on the shortrun but a negative effect on the long run.
In that regard, the Paris club intervention fund, Proceeds from Yahoo, Cryptocurrency investment and all forms of looming can be described as forms of short monies, and they would in no distant future sink the economy in the following sense;
1. The Paris Club Intervention Fund which was injected into Nigerian has somehow, tend to have raised the nostrils of Nigerian economy above recession but the bitter economic fact is that, the growth will not be sustainable in a longrun trend because most of the funds alloted to various states of federation were only used for the payment of baglog of salaries arrears which are only meant for immediate consumption (transactional motive).
It is pitiable that only a few out of the lot, used a little percentage of the funds for economic viable capital projects which would sustain the economy in the longrun.
It is even more excruciating that some governors were using these funds to build sculptures and non-economic edifies for vain glory without considering the consequences on the economy in on the long run.
On the other hand, workers who received the money as salaries must have been yearning to undertake some personal transactions in other to aide survival.
Therefore, a greater percentage of their salaries is used for consumption. And most of the products they are buying are imported which indirectly returns the money back abroad.
Moreover, since lots of the funds are going for immediate consumption and not for precautionary and or speculative motive, Deposit Money Banks will tend to loose deposits thereby leading to a rise in interest rate, which will discourage potential borrowers and investors which will consequently lead to a drop in the production of local products causing a decline in the GDP on the long run.
While I was writing my project in the university on THE EFFECT OF BANK CREDIT ON MANUFACTURING SECTOR PERFORMANCE IN NIGERIA, where I used Gross Domestic Product Manufacturing ( The contribution of the Nigerian manufacturing Sector to the Nation’s GDP) as a dependent variable, Bank lending Rate and Interest Rate as explanatory variables.
I discovered that for the 30 years period under the study (1986-2016),Commercial Bank Loan and Advances have a positive impact on the dependent variable Gross Domestic Product Manufacturing. which implies that a unit increase increase in Bank credit will lead to an increase of Gross Domestic Product Manufacturing by only 2.8% and vice versa.
This means that, a percentage rise in Interest Rate will be tantamount to 2.8% decrease in manufacturing. This heavily played out between 2015 and 2016.
In a practical scenario, since more of the Paris fund went for immediate consumption, it prompted low savings leading to high interest rate which will consequently lead to low manufacturing performance, all bending on the GDP.
2. The money gotten from Yahoo fraud are received in foreign currencies as such, our youths no longer pray for an equilibrium exchange rates, what they crave for is increase in dollar or other foreign currencies in order for the value of their money to be high in our domestic currency.
The Nigerian naira is now over stressed because no one care to buy stock again, no one no longer want to indulge in real financial investment due to the high volatility of our financial system.
Furthermore, it is a painful indication to our country that this Yahoo menace coupled with the political situation of the country have painted Nigeria as a red zone to potential foreign investors, in the sense that, if they could be defrauded while operating in their own country, then coming down to Nigeria would be a suicide mission for any firm.
Secondly, the volatility of the undiversified and Oil based Nigerian economy, does not only shed away foreign investors but local firms and SMEs are also victims as most of them now have a very low market capitalisation. That is why we witnessed a very incessant rate of job loss especially from the private sector from 2015 to the first quater of 2018 in the country.
Thirdly, these yahoo scandals have a very chronic xenocentric complex and a high thirst for ostentatious products. That is why you see that all they do with money is to purchase foreign products such as; iPhone, luxurious cars, Androids, imported gold jewelries, foreign drinks and total embezzlement at parties.
This only encourage importation and the resultant effects are;
i). The monies are indirectly returned indirectly to their original destination (abroad).
ii). Encourage importation thereby reducing the value of our local currency.
iii) Increase Foreign Exchange Rate .
All the above indications are not healthy for the future of our economy.
3. Looming and cryptocurrency investment: Looming and Cryptocurrency are like brothers and sisters. They are an unguided and decentralized financial investment and unsecured transfer of funds particularly online. Meaning they are not regulated, secured or controlled by any Central Bank or financial Institution.
However, while cryptocurrency may look more standardized than looming, they are economically birds of the same feather.
It is economically worrisome that our financial market is sinking, for that fact that real financial investment is going moribund for want of quick wealth creation.
People no longer have the patience to trend/spot the stock market to ascertain when to invest but rather all financial investment are channeled into looming and purchase of bitcoins. Little did they know that the effect is catastrophic to our own economy, that is why the Central Bank of Nigeria (CBN) had to sound a warning about cryptocurrency some time last year.
Secondly, another threat to the Nigerian economy is that, for these yahoo scandals and even some of our corrupt politicians, because of the fear of being probed by EFCC, they neither saved money in Banks nor invest in the financial market all they do is to scam dollars and use the same to buy cryptocurrencies such as bitcoin etc which consequently would lead to economic crash.
Buying of cryptocurrenciess does not in any way help our economic growth rather it tends to melt the economy down as money that’s meant to boost the economy are shorthanded in vague investment that has no positive economic indications.
They no longer care for economic indicators such as interest rates, market capitalisation, stock rates, and other stock market indexes, as the high thirst for quick money is sinking Nigerian economy.
Against the above backdrop, I recommend that savings and real financial investment should encouraged, in order to aide local investment and boost domestic manufacturing, thereby contributing the Gross Demostic Product and as well creating jobs and increasing standard of living of our people. This will balance the economy to a sustainable standard.
Disclaimer; All the information used in this publication are not dubbed from any source whatsoever, as it is wholesomely the author’s personal findings and assumptions.
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