Alhaji Aliko Dangote, one of Africa’s most prominent businessmen, addressed Nigeria’s rising interest rates, making comparisons with other countries, especially in North America, Europe, and Africa, facing similar of different economic challenges.
The Chairman of the Dangote Group, noted that economic growth in Nigeria will remain elusive unless the current bank interest rate of 30% is reduced. He made this assertion during his keynote address at the 2024 summit of the Manufacturers Association of Nigeria (MAN) held in Abuja.
Dangote pointed out that the inflation-driving interest rate hikes in major advanced economies such as Europe and the United States differs significantly from the inflation experienced by developing countries, particularly in Africa. He highlighted that the unique economic challenges faced by these nations require a different approach to interest rate policies to foster growth and development.
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He attributed the inflation in North America and Europe to the massive cash transfer programs implemented by governments during the COVID-19 pandemic in 2022. According to Dangote, around $18 trillion was disbursed to individuals and businesses during this period, leading to an oversupply of money chasing a limited supply of goods.
“Mr. Vice President, I know that today we are battling with very high interest rates. This interest rate is now saying that we should fight inflation. I’m not an economist, I’m just a local businessman,” said Dangote.
He elaborated, “The other countries, why did they jack up interest rates during COVID-19? The G7 countries pumped money into their economies to the tune of 18.9 trillion. So in their economies, there was so much of money chasing few goods. This means that everything is going to go up.”
Dangote pointed out that unlike North America and Europe, African economies did not implement such significant cash transfer programs during the pandemic.
“During COVID, we didn’t do anything at all. The only thing we did was food palliative and I’m talking about Africa in general,” he noted.
As a result, African countries did not experience the same inflationary pressures stemming from excess liquidity, but they are now facing other economic challenges, he explained.
Speaking about Nigeria’s current high interest rate, Dangote stated that it is responsible for economic stagnation.
“Right now, at 30%, there is no way anybody can create jobs because we are actually stifling growth. So interest rate can remain at 30% but no growth will happen unless that interest rate comes down,” he asserted.
The Central Bank of Nigeria (CBN) has hiked interest rates by a combined 750 basis points over three consecutive Monetary Policy Committee (MPC) meetings, raising rates from 18.75% to 26.25%.
World Bank’s Warning on Monetary Policy Measures
Supporting Dangote’s assertion, the World Bank warned the CBN in early June that recent monetary policy measures, including raising interest rates, may not effectively curb inflation as anticipated by analysts. In its latest report, “Global Economic Prospects,” which outlines the economic outlook for 2024 and 2025, the World Bank highlights the risks of the policies, particularly the potential ineffectiveness of the CBN’s monetary tightening measures in controlling inflation.
Despite an aggressive increase in interest rates by a combined 750 basis points since the beginning of the year, inflation remains a persistent issue. Central bank Governor Yemi Cardoso, in his first Monetary Policy Committee (MPC) meeting, raised the interest rate by 600 basis points from 18.75% to 22.75%. Subsequent hikes have pushed the rate further to 26.25%. The bank also increased the Cash Reserve Ratio (CRR) of banks to 45%, one of the highest rates globally.
These measures were aimed at taming inflation, but the results have been underwhelming. Inflation rose from 29.90% in January 2023 to 33.95% in May 2024, defying expectations that higher interest rates would slow it down.
Various stakeholders, including members of the Nigerian business community such as the Centre for the Promotion of Private Enterprise (CPPE), the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), and the Manufacturers Association of Nigeria (MAN), have criticized the CBN’s approach. They argue that the high interest rates are ineffective in combating inflation and instead harm the real economy by raising the cost of accessing capital.
Economists have also pointed out the contradictions in the CBN’s strategy. While the bank is increasing the MPR to combat inflation, other policies appear to counteract these efforts. This highlights the complexity and potential ineffectiveness of relying solely on monetary policy to address inflation in Nigeria’s unique economic context.
The Need to Protect Local Industries
Furthermore, Dangote called for greater protection of local industries, especially in manufacturing, which has been in decline since the 1970s. He emphasized that attracting foreign direct investment is heavily dependent on strong local investment. He cited examples from around the world, where countries that publicly support free trade often enact policies to protect and promote their local industries, turning them into national treasures.
“The only way to attract foreign direct investment is local investment,” he stated, pointing to the success stories of the West, China, and India.
If small people like us point these things out, they dismiss them as mere ranting, but what happens when a colossus like Aliko Dangote is saying the same thing? You cannot take economic and financial lessons from people who haven’t successfully run even a kiosk. If policies are expected to deliver results, what results has the high interest rate delivered, or do people just promulgate something without caring to measure outcome?
It’s obvious the whole thing is to make or keep Nigeria as a trading route, and not really a manufacturing hub or destination for anything economically significant. From policies formulated and defended, it is not difficult to figure out the mindset and intent of your managers.
Nigeria doesn’t really have many smart people, and if you think otherwise, you will have to provide proof and the economies they built and advanced. All your lies and delusions are now being unpacked. Feckless and weightless people.
That is what happens when people are appointed to head offices they are not fit for.