‘CBN decision to maintain interest rate is correct’

The Emir of Kano, Mohammed Sanusi II, was in Lagos recently for the launch of the book, A Conscious Life. He spoke briefly with FRANK ELEANYA of BusinessDay on lessons to be learned from living a focused life and also about the decision by the Central Bank to maintain rates.
What is your thought on the book, A Conscious Life?
I suppose the best place to start is to go back to the very concept which is an old one. You can go back to the old Greek philosophers and stories, they wrote books like this. Basically, a book that tries to make us live a good life, understand what it is to be a good person, understand what skills we need to cope with life.
We have situations that are beyond our control, it helps us take control of that which is within our power. It is a general book that I think has been missing for a while and I like the idea that someone is thinking in the 21 century of writing something like that for this century.
If you go back to the work of Cesario and Seneca and others, it was all about being conscious of your life and how to respond to situations.
Can you relate some experiences in your career to making greater use of consciousness and deliberateness?
In all my life the most interesting part of philosophy that I always carried with me was Greek philosophy. It is all about virtue, about knowing what is right, about knowing what is wrong, about knowing what to do in different circumstances; how to respond to tragedy and about confronting the challenges of life. So that has been for me the guiding element in my life.
Should you recommend these virtues to leadership in Nigeria?
It is absolutely something that we should try to build on because many of these are not something that you just pick up. It is the life of reflection that we should bring our children to know that every point in time they have got to be conscious of life and they have got to be deliberate; also understand that every action they take does have consequences and those consequences could in fact be life changing and important. I think it is important because anyone in a leadership position will find it useful. But I will really focus more on the younger generation and the next generation of leaders.
What would you recommend to the nation at this time, what can we do to come out of recession?
I think in the last couple of years there has been a greater degree of awareness on the enormity of the problem that we face. I never had any doubt that this administration was going to meet a difficult task ahead of it.
One of the reasons I lost my job was raising an alarm over what I saw in terms of land curve and cushion to the reserve, in terms of high oil prices, with current overhead expenditure, lack of structural reform. And I did warn that if oil prices fell that we would have a major crisis in the economy.
We have heard in the last few weeks comments about a strong fiscal stimulus. We have seen central bank indicate that it is interested now in a more flexible exchange rate regime. We have the seen the government begin to engage more with economists who are advising it, on how to move forward in structural reform. So long as the government has taken the advice, hopefully this should shorten the length of the crisis. But I do not think we should have any illusions. When you are producing oil and sitting on over a $110 per barrel and it comes down to less than $50 per barrel and your production gets crimped significantly by Niger Delta militants coming from a background where there are no structural reforms. When you delayed for so long in adopting appropriate exchange rate policy, you will not be able to have an immediate turn around. There will be time it will take for companies to come back. You need to track investments -local and foreign. But I think we will get out of this.
What is your thought on the MPC decision?
I think it was the right decision. I have always believed that those calling lower interest rates, in theory had a point but in practice they were being too naive. If you look at interest rates today, a 100 or 200 basis points reduction is not going to lead to a massive increase in credit to the private sector. On the other hand, high interest rates plus a flexible exchange rate provide an attraction to foreign portfolio investors. They come in because they feel they are going to get good returns on their investment. They also come in because they feel the naira is going to appreciate because on a PPP basis the naira is undervalued. The only thing missing in that piece is the actual implementation of the flexible exchange rate regime. If we allowed everybody to sell their dollars at the price that they want to sell it; if you want to sell at N400 you can. What happens is you will bring liquidity into the market and the naira appreciates and get to where the Central Bank over time wants it and naturally.
If you try to keep it at N300 today, you will just move the peg from N197 to N300, so you are not really floating the currency you are still back on a fixed rate and you will not get the results you want to achieve. So in a sense, the CBN needs to improve on its implementation of its liberalized market and let the market operate the way it should operate and people will then begin to find that Nigeria is a fantastic market. Imagine if sitting in New York, you can sell your dollars at N400 and also get stock from the Lagos Stock Exchange or buy federal government bonds?
It is a no brainer and this will bring in the liquidity in the system. The liquidity in foreign exchange is what is required for growth. The manufacturers need to have forex to import raw materials. Right now there is scarcity of foreign exchange. It is the simple and most critical short term element in addition to a fiscal stimulus you need to get out of recession. The CBN was spot on.