HOW CENTRAL BANK OF NIGERIA CONTRIBUTED TO UNEMPLOYMENT SITUATION IN NIGERIA

INTRODUCTION

The high rate of unemployment we are witnessing in Nigeria at present is not unconnected with the bad policy of the central Bank of Nigeria.  Thus, Central Bank of Nigeria like the Central Bank of other countries of the world is saddled with responsibilities of controlling the volume of money in circulation through interest rate.

HOW IT WORKS

Benchmark rate is the interest charged by Central Bank on deposit or borrowed money by commercial banks in order to meet their cash shortfall. It is a tool normally used by Central Bank to control commercial banks to check inflationary trend.

HOW DID IT HAPPEN

When the former Governor of Central Bank (Malam Sanusi Lamido Sanusi) assumed duty, he met with serious crisis in banking sector and later introduced some far reaching measures to revamp the sector.  Among the measures introduced are rationalization of the perceived distress banks, introduction of deposit rate and increase in benchmark rate.  At present the benchmark rate in Nigeria is 12 per cent.  This has invariably made the cost of banks loans to business to exceed 20 percent and consequently constrained the chances of commercial and industrial expansion with less job creation opportunities. This high benchmark rate and its collateral high cost to the real sector is a clear signal of the Apex bank objective to aggressively restrain borrowing and bank lending rate to customers in spite of obvious adverse effects of such strategy on job creation.  In expressing his displeasure on the implication of this kind of policy on the economy of the developing countries the World Bank Group President, Mr. Jim Yong called on them (including Nigeria) to urgently do something about their growth rates that are too far modest in the world to create the kind of jobs needed to improve the lives of the poorest, 40% (Oyetunji Abioye).  To support the World Bank President view, the outcome of this type of bad policy may have been responsible spade for the violent of crime in developing countries.  For instance, in Nigeria a lot of  youths are on rampage as a result of joblessness and is already taken its toll on the corporate existence of the nation.  For instance, there is Book Haram in the North, Kidnap in South-South and South East and Killings for rituals to make money in South West.  All this is happening as a result of  joblessness of the youths due to lack of capacity building to absorb and keep them at work. As they say “idol mind is devil workshop”.  Studies have already shown that the buoyancy of economic activity in any nation ultimately depends primarily on the cost of funds. Hence, more industries, diversified economy and increasing employment opportunities will become facilitated when business across the board can have access to loan at low rate like it is obtainable in advanced economies where there is high rate of job opportunities because their interest rate is far low compared with ours.  For instance, according to Henry Moyo European Central Bank benchmark rate is reduced to 0.15 percent from 0.25 percent and deposit went down to -0.1 percent in an effort to create jobs , stimulate economic growth and avoid inflation.

RECOMMENDATION AND CONCLUSION

Although as the newly appointed Governor of Central Bank, Mr. Godwin Emefiele has already announced on assumption of duty that he would address the issue of interest rate.  However, how and when are still not clear because the fear in some quarters is that the current macroeconomic environment will not support an expansionary monetary policy stance that will enable him reduce interest rate and encourage more investments, productive activities and subsequently creation of new jobs. For instance, Mr Sewa Wusu in Oyetunji Abioye argued that gradual reduction of interest rates, exchange rate stability and shoring up external reserves could not be achieved at the same time.  What I think he should  do now is to drastically reduce the interest rate to 1 percent like is obtainable in Europe to stimulate economic activity that will eventually expand the job horizon for our youths in order to save the country from the total collapse.

REFERENCES

1.      Henry Boyo: Monetary Policy: Is Emefiele our Saviour? The Punch Newspaper of  Monday, 9^th June, 2014.

2.      Oyetunji Ajiboye: Emefiele on a long Journey to Job Creation The Punch Newspaper of Monday, 9^th June 2014.

3.      Oyetunji Ajiboye: World Bank Urges Nigeria Others to Increase Reform The Punch Newspaper of Wednesday, June 11, 2014