It is rainy day for the economy! The Minister of Finance, Mrs. Kemi Adeosun officially confirmed to Nigerians last month what economic experts have been hinting at since early this year, that the Nigerian economy is in recession after three straight quarters of negative growth. Her remarks came a day after Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele told a closed door session of the Senate that foreign currency inflow dropped from $3.4 billion per month to $400 million. In another wary revelation, the National Bureau of Statistics (NBS) emerged with a report that the country’s inflation rate was as high as 16.5%, the highest in over a decade.
While the stakeholders expressed their misgivings, Mrs. Adeosun reassured Nigerians of high level consciousness of her team about the current situation, saying “Things are tough but we are not ignorant. I want to assure Nigerians that the economy is in good hands and we are absolutely doing our best. We want to assure Nigerians we are on the right path. We are on the right track.”
Nigerians appreciate the efforts of the Government at curtailing corruption in the country and recovered public money stolen by the irredeemably greedy citizens. However, they cautioned that the Buhari government’s focus on the fight against corruption is highly commendable. But with the poor state of the economy, high inflation, drop in GDP growth, unemployment, underemployment and mass poverty, it must complement that with urgent economic revival measures. Retrieving stolen money should not be the government’s only focus because if proper economic policy measures are put in place, the country could earn more than the stolen funds in a short time.
Some analysts have argued that the economic team of present administration headed by Vice President Yemi Osinbajo, has not got things right as its approach in bailing out the economy from the current woes does not seem to be yielding positive results. For instance, they said, the ban on rice importation has not been effective as the Central Bank Nigeria (CBN) Governor complained that rice, eggs and school fees still take a huge chunk of forex allocations every month. There is allegation from some quarters that some of those who procure foreign exchange from the official market in the name of importing rice and agricultural equipment engage in round tripping by selling the dollars to Bureaux de Change at higher rates, thereby enriching themselves at the expense of those who genuinely need forex.
To Dan Aibange, a Lagos based economic analyst, said “What we need is a new spirit of patriotism and national cohesion which can only evolve through a deliberate and consistent set of efforts at rekindling nationality instincts in the Nigerian people. The rebuilding should focus on deliberate creation of alternative foreign exchange earning production and value added. Nigeria must engage the international market in a manner that would provide opportunities for some levels of price determination. For instance, we must refrain from the error of rushing to export our natural resources such as solid minerals without first carrying out extensive world market research and partnerships that will optimize the returns in terms of revenue and employment.”
He added that “It’s strange that the oil producing states cannot jointly finance a few refinery projects through their 13% derivative funds, thereby improving employment generation and value added to their citizens. Government should also think of establishing a national mining infrastructure such as regional beneficiation plants, testing and analysis laboratories for developing globally acceptable Nigerian standards and brands as well as national online trading platforms that will enhance international market access for our products. Additionally, Nigeria must deliberately encourage the establishment of import substituting brands for our most demanding products.”
In his view, Naphtali Iringe-Koko, chartered accountant, said, “Devaluation cannot impact positively on an economy that is grossly unbalanced. Floating the naira is not the only attraction to increase investors’ appetite for Nigeria as investment destination. Other areas that can be critical to investors in their choice of Nigeria as investment destination include, the passage of the PIB, ease of doing business, lower interest rates (local investors), fight against corruption, power, diversification of the economy, essential infrastructure and security etc.”
Iringe-Koko, who noted that the naira has “stakeholders overload” each with varying interests and agenda, said, “Floating a country’s currency is usually a major event and is based on long term strategic plan where the various outcomes, outflows and inflows of economic and social benefits are predicted in advance by applying appropriate advanced forecasting economic models. It is a major project and it is expected that both controllable and uncontrollable variables will be encountered. It is a decision made based on uncertain estimates about the future. It requires appropriate risk management strategy to stem surprises in the course of implementation. This process takes time and CBN should not have been stampeded into taking action by stakeholders with diverse interests and agenda.”
He maintained that “I support market driven economy but my worry is that its implementation in Africa is likened to children who are forced to grow up before they are ready (before their time). What hope is there for the people if what matters most is market economy? What hope is there for compassion in a world of endless competition?” To float a currency, the economic fundamentals must be strong and accommodative to provide appropriate support to back the local currency. The economy must have enough fat to withstand any distress call.
In the case of the naira, the economic fundamentals are weak and do not add up. The country’s reserves are only enough to cover six months imports. The international benchmark is three months imports cover; interest rate and inflation are on the high side. The world oil prices have crashed to a disastrous level. The President’s bold steps in relation to fiscal injection and diversification programmes based on 2016 are on course but will take about 18 months to commence making impacts. The economy, therefore, is not equipped (balanced and diversified) to support the naira. Therefore, in the short term, a way forward must be found. Naira must wear a life jacket to prevent it from sinking. Naira is not US Dollar or Pound Sterling or the Euro. CBN cannot stop intervention or else the naira may sink.
Fiscal stimulus requires financing and the debt option is an unavoidable choice as long as the government borrows within the international bench mark (40% of GDP). In respect of the budget, deficit creation is not always a bad news. A temporary increase in government spending to pull an economy such as ours out of recession is acceptable. The government should remain focused and should not be distracted by the recent IMF forecast of 1.8% contraction in the GDP growth. After all, positive indicators in the past of economic wellness did not make sense to Nigerians as they did not pull them out of poverty. As the Economist has said “GDP should really stand for Grossly Deceptive Product”.
The financial expert, who expressed fear over recent monetary policies, said “I am worried that the MPC has gone ahead to raise the interest rate from 12% to 14% to attract foreign investors thereby depriving our local investors especially the SMEs to join in driving economic recovery through downward reduction in interest rates. Increase in interest rate is likely to attract hot money and not inflow into real sector. As is often the case in economics, theory is currently just one too many steps away from practical reality. Foreign investors are not likely to rush to rescue the economy and the naira as was predicted. The game changer as usual is fiscal stimulus. The government must borrow now and also commence spending the looted funds that have been recovered.”
Now that the Federal Government has officially admitted that the economy is in recession, Nigerians are watching with cautious optimism to see the entire psyche, attitude and orientation of government change in order to meet the new challenge. Though stakeholders are concerned about how to avoid a repeat of hitches that created crisis for 2016 budget in 2017 Appropriation Bill, the Minister of Budget and National Planning, Udoma Udo-Udoma, had said last month that the 2017-2019 Medium Term Expenditure Framework would be ready and submitted to the National Assembly for consideration by October.
Senator Udo-Udoma said that the Federal Government had expended N2.1 trillion out of the N6.06 trillion approved budget for 2016 while only N253 billion of the N1.8 trillion earmarked for capital projects had been spent so far, saying “We are considering a conservative oil price benchmark of 42.5 dollar per barrel for 2017, 45 dollar per barrel in 2018 and 50 dollar per barrel in 2019. We estimate oil production to be 2.2 million barrel per day for 2017; 2.3 million barrel per day in 2018 and 2.4 million barrel per day for 2019. We have pegged exchange rate for 2017, 2018 and 2019 at N290 to a dollar.”
“A significant increase in non-oil revenue receipts is projected due to a gradually recovering domestic economy and government’s expected improvement in FIRS tax collection efforts. Company Income Tax is projected to increase from N1.79 trillion in 2016 to over N1.86 trillion in 2017 and beyond. VAT collections to increase by about 42.4 per cent in 2017. Operating surpluses projection have been moderated downwards for 2017 and thereafter, a modest growth. Besides, VAT and taxes, he said the Customs collections are projected to be moderated downwards for 2017 and thereafter a modest growth. Udo-Udoma said recoveries of misappropriated and looted funds would also form part of their anticipated revenue for the years to come.”