Cash And Carry Economy

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It is unfortunate, un productive, a throw back to practices which this country should have left behind and most inimical to the growth and development prospects of the Nigerian economy the report that transactions are now done on cash and carry basis. My observation that there is a death of credit in the economy. The fact remains that no economy will function optimally without the availability of credit facilities as most business structure their operations based on the availability of one form of credit or another. In fact we can make bold claim that there is no company anywhere in the world that does not use one form of credit or another in its operation. Banks are reported to have stopped lending and are now concentrating on debt recovery as they are now living in a state of suspended animation not knowing what the Central Bank might come up with the next moment. Specifically it is reported that oil companies cannot find credit to carry on with importation of petroleum products and there is fear that fuel queues with it’s enormous cost implications for the economy are imminent as product importation is now being inadequately carried out by only NNPC and Zeno Oil and government is concerned about adding the problem of scarcity of petroleum products to the numerous other problems encountered by the citizenry.

The aviation sector is reported to e one of the worst hit sectors of the economy with some tales which sound comical if not that this has serious and untoward implications for the economy. It has been reported that this sector has credit exposure of about 5 billion naira to the banks and as a result of the recent developments relating to bad debts particularly in the down stream sector, petroleum products market now witness a situation where the banks are now only prepared to deliver products based on cash payment, pay as you go! And that airline operators now load the planes, collect cash from unsuspecting passengers and then rush to pay before products are provided resulting in-flight delays and all manner of inconveniences to the travellers.

This development is reminiscent of the way and manner economic relationships were conducted in the distant past. It is recorded in history that in times past economic agents aimed to be self-sufficient depending on land. And when it becomes obvious even then that that was not a practicable proposition resort was had to trade by batter including pawn broking with all the difficulties which conducting business in this manner portends not the least of which is finding coincidence of needs. Then came the banks with their financial intermediation role.

The banks stood in the breach between those with cash surplus to their immediate requirements and those in a deficit situation that could productively use the credits and the extent of the performance of this function define the efficiency of a banking system. In fact the received wisdom is that the depth of the financial system is measured by the extent of relative availability of long-termed credit in an economy which until the consolidation programme no one even gave the stock market a chance of providing. It is also correct to observe that since then the pension funds have also given an indication of potential in fulfilling this role. And this is why the core function of banks is lending and therefore a banking system without lending operation is to put it mildly mal-functioning. The banks, those audited and those that are as at the time of putting these thoughts together have not been audited are reported to have recovered 90 billion naira. We can celebrate this feat where the recovered monies have already been classified as bad debts but not as it has been proven in the current situation that some were debts which were incurred in the normal course of business which faced recovery could be counterproductive.

It has been reported that the Governor of Central Bank speaking on a British Broadcasting Corporation (BBC) service interactive programme, predicted that there will be only 15 banks in the country at the end of the current audit exercise while others may opt for mergers due to capital in adequacy related problems and that he envisages that some of the banks will be operating as regional, national or specialized banks. But such comments by the governor and to the uncertainty in the banking sector continuous to undermine badly needed confidence. I think the governor should be reminded that in the position he now finds himself, he cannot express a personal opinion any more. Any word he utters would be latched onto by economic agents with motives imputed and this is why those who occupy such positions are usually of the conservative bent who are hardly seen in public. There is  need for confidence to be restored to the economy and the speed with which the current reform phase is concluded would go a long way in determining how soon this can be achieved so that the banks will get back to doing regular banking business and the numerous challenges confronting the economy could then be taken on board.

 

Njoku wrote from Anambra State University, Awka.

 

Sylvia Njoku