Getting the Economy Back on Track

Beyond the implementation of appropriate fiscal and monetary policies, the federal government must also ensure that it enhances the quality of governance, restore confidence and send the right signals in order to reset the Nigerian economy, writes Obinna Chima

 The focus of the federal government since this year has been how to revamp the ailing economy. Rising inflation, contracting economic growth and decline in economic activities, have remained a source of concern to policy makers in the country.
Although the fourth quarter 2016 Gross Domestic Product (GDP) is currently being awaited, the contraction in the country’s GDP in the first three quarters of 2016 as well as the steady rise in the Consumer Price Index (CPI), which is used to gauge inflation, clearly manifested in the activities of firms and households in the country as consumer confidence deteriorated. The slow budget implementation also impacted economic activities negatively.

With these, consumer Confidence in Nigeria decreased to -28.20 in the third quarter of 2016 from -24.20 in the second quarter of 2016. Consumer Confidence in Nigeria averaged -8.57 from 2008 until 2016, reaching an all time high of 6.38 in the first quarter of 2011 and a record low of -28.20 in the third quarter of 2016.

Also, the country’s unemployment rate rose further to 13.9 per cent in the third quarter of the year (Q3 2016) compared to 13.3 per cent in the previous quarter, according to the NBS. Unemployment rate was recorded at 12.1 per cent in Q1; 10.4 per cent in Q4 2015 and 9.9 per cent in Q3 2015. The NBS also revealed that a total of 27.12 million persons in the Nigerian labour force were either unemployed or underemployed compared to 26.06million in Q2 and 24.5 million in Q1 2016.

In addition, the country has suffered significant drop in its foreign exchange inflows as recent report showed that the federal government aggregate foreign exchange (forex) inflow as at the third quarter of 2016 was at $24 billion, This, represented an increase by N8.67 billion when compared with the aggregate forex inflow into the economy of $15.33 billion recorded by the country in the second quarter of 2016, as indicated in the Central Bank of Nigeria’s (CBN) economic report. Nonetheless, this amount of forex inflow recorded in the third quarter of last year was paltry, compared with an aggregate of $97 billion earned by the country in 2014, which reflected the plunge in foreign exchange inflows into the country.

Although, there have been predictions that the economy would stage a rebound this year, experts have stressed that applying the right policy choices and restoring investor confidence, would be vital in resetting the economy.

For instance, the International Monetary Fund (IMF) recently predicted a slim rise in Nigeria’s Gross Domestic Product (GDP) to 0.8 per cent in 2017. The IMF, however, was more bullish in its 2018 economic growth expectation from Nigeria, as it predicted a 2.3 per GDP growth for the country. The projections came few days after the World Bank predicted a one per cent GDP growth for Nigeria for 2017.

Restoring Investor Confidence
To a member of the Monetary Policy Committee (MPC) of the CBN, Dr. Doyin Salami, there is need for the federal government to restore confidence in other revamp economic activities in the country and attract the desired foreign exchange inflows.

“When you look at the numbers, foreign portfolio investment which was $16 billion in 2014, it was down to less than $2 billion in 2016. So, the inflow of foreign exchange has reduced dramatically. On the supply side, inflows are down, but on the demand side, the pressure for forex is still high. That is one of the few challenges that this economy is facing,” Salami, who is a lecturer at the Lagos Business School (LBS), Pan-Atlantic University, explained.

Salami argued that Nigeria “unwisely allowed herself to be exited from the JP Morgan Index. It was very unwise! Given that I sat in some of the meetings and listened to some of the comments, Nigeria really needs to understand that in the global market, it whoever offers the best terms and best securities that get it. My view is that currently, Nigeria’s policy stance is not aligned to attract capital flows. I don’t want to be sentimental.”

But he maintained that in terms of capital flows, if the country can rebuild investor confidence in the policy making of the government, then it would be able to attract capital flows.

“But if we cannot, we would continue this way. 2017 would be driven by the resource allocation mechanism to be adopted by the country.  Nigeria has one of the best forex policies introduced in June last year; it is just that we haven’t implemented it yet.
“As a nation, how we come out of recession is as important as coming out of recession. If we come out of it in a manner that sends us back to it two years down the line, because what we did to come out of it was unsustainable, that would be too bad. If we come out of it in the right way, it is going to be gradual,” he added.

Furthermore, he pointed out that because of the structure of the Nigerian economy, events in the global economy would always influence activities in the domestic market.
According to him, the international environment is no “longer set fair for Nigeria,” saying that part of it was our fault and partly because of the fact that things have changed.
On his part, a former Deputy Governor of the CBN, Prof. Kingsley Moghalu also stressed that the current economic recession facing the country as well as the profound structural challenges posed by the dependence of the economy on oil, calls for a serious political response. To this end, Moghalu urged President Muhammadu Buhari to respond with decisive action and a clear vision that will restore confidence in the economy.

This, according to him would require a re-appraisal of the role of the state, adding that government should be an enabler of growth and development, not an impediment.
He stressed that Nigeria’s policies have had effects that should bother the president, saying that a short-term, populist approach to economic thinking is exacerbating poverty, which the president vowed to tackle.

“Investors worry about the direction of policy and the competence of economic managers. The first priority, therefore, is to restore some sense of normality by making the foreign exchange markets truly transparent, which would help to attract much-needed foreign currency. This should be followed by a phased approach to structural reform,” he added.
But the Chairman, Stanbic IBTC Holdings Plc and Cadbury Nigeria Plc, Mr. Atedo Peterside, who noted that the federal government was doing some things right, such as the effort to curb overhead expenditures and to be more frugal than past administrations, also pointed out that they are also doing many things wrong.

To Peterside, there is a reluctance to completely break from the past and embrace significant economic reforms, “even when our present predicament clearly warrants same.”
” If we do not act now or if we do not act quickly, we may find our economy needlessly mired in a hopeless situation where the citizenry might not witness an increase in income per capita (living standards) for six to eight years,” he insisted.

According to Peterside: “The search for an economic policy direction must end now because we are facing an economic crisis. A crisis is an inflection point. It is that point when multiple outcomes become possible. When you superimpose our demanding political calendar, which requires presidential elections in a little over two years, it becomes clear that 2017 represents the last full calendar year that this administration has within which it must embrace major economic reforms, if we expect to still attain many of the more palatable economic outcomes. “It is no use arguing over who or what caused the economic recession (-2% growth) and high inflation rate (over 18.5% p.a.) that we are currently facing; far better to focus on what we need to do to get us out of this sorry state.

“There are several units within the federal government that are carrying out meaningful but disparate actions that solve many fringe economic problems. Various actors appear to be working in “silos” solving fringe problems. What appears to be still missing is a bold, holistic and audacious effort to harmonise fiscal, monetary, exchange rate, trade and macro-prudential policies in a bold and concerted manner.”

Policy Objectives
However, responding to complaints about its forex policy and some other government policies, the CBN Governor, Mr. Godwin Emefiele debunked the insinuations that the policies were meant for a few in the society.
He explained that the monetary policy stance of the central bank was always designed to serve the best interest of majority of Nigerians.

Emefiele noted that “policies were put in place to help Nigeria pull through the hard time.”
He observed that the country found itself in the present situation due to lack of appropriate commitment to economic diversification, especially when the earnings from oil were as high as $140 per barrel, just as he noted that earnings of the government had risen to height of $3.2 billion and fell to about 500m per month recently.

According to the governor, there was also a time when the crude oil price stabilised at $105 per barrel over a period of five years.
“What did we do with the huge accretion to the reserves then?”
Emefiele therefore, counseled the critics of the CBN and government policies that “priority will be given to Nigerian masses by managing the limited resources to provide for industrial raw materials, plants and equipment and agricultural inputs in order to create employment and generate wealth.”

Aligning with Emefiele, the Minister of Finance, Mrs. Kemi Adeosun, said that the foreign exchange challenges the country had been experiencing in recent time was as a result of the consumption based model of the country over the years.
Adeosun noted that with about $27 billion, the country does not have sufficient savings in its external reserves compared to other oil producing countries such as Saudi Arabia with $700 billion in its reserves. However, the finance minister pointed out that if the country would be able to fix its refineries, a significant amount of the pressure in the forex market would be reduced.

“Part of the problems we are having is foreign exchange. The challenge we are having with the foreign exchange is our consumption based model. Oil accounts for 30 per cent of our demand for dollars. So if we fix our refineries, 30 per cent of the money we need in dollars will just disappear.

“In 2010, there were warning signs that the oil prices were going to fall, but we didn’t take it serious. If we had done what we are doing now in 2010, such as cutting cost and cleaning up the power sector, we will not be where we are now.  However, we are hopeful that it will not happen again. We are not an oil economy, oil accounts for only 30 percent of our economy,” Adeosun said.

In addition, she stated that there was a strong link between corruption and the present state of the nation, adding that as part of the president’s efforts to transform the country, the fight against corruption would continue to be given the necessary attention.
“We cannot bury our head and forget, we have to fight it, otherwise it will continue. It is corruption that has brought us to where we are and added to that is wastage. We must watch the way our monies are spent,” she noted.

She lamented that during the oil boom the country didn’t save enough for the future; instead 90 per cent of government spending was been spent on recurrent expenditure, with just 10 per cent on capital project.

Fiscal Reforms
Therefore, as part of efforts to get the economy right, the Chief Executive Officer of the Time Economics,  Dr. Ogho Okiti advised policy makers in the country to push for “deeper form of reform that would transform education, infrastructure and governance’ in other to transform the Nigerian economy.
This, the economists noted would be the only path to guarantee sustainable economic growth. Okiti pointed out that the historical lesson learnt from the present situation in Nigeria was that oil prices drove economic growth in the past.
“Another lesson is that wholesale reforms are not sufficient. President Obasanjo started some of those reforms and it continued under the late president Yar’Adua and President Jonathan also did some reforms.
“But these reforms are wholesale reforms, they are helicopter reforms and are not sufficient enough to drive long term growth and productivity in the long-term and of course, long term increase in prosperity and reduction of poverty. That is why in a matter of two years that oil prices started declining, we started seeing the effect on the Nigerian economy,” he added.
However, the Chief Executive Officer of the Nigeria Incentive-based Risk Sharing System for Agriculture Lending (NIRSAL) Aliyu Abdulhameed, argued that the solution to the problem with the Nigerian economy is agriculture.
“As far as we are concerned, the past is dead and the future now. No need to be looking back and think you are going forward. The agriculture sector employs between 70 and 80 per cent of Nigeria’s population. The rural economy is denominated by agriculture, but not agriculture as it ought to be,” the NIRSAL boss said.
He stressed the need for Nigerians to start seeing agriculture as a business, which according to him is the spirit of NIRSAL.
“We intend to grow our capital base in a short while to about $3 billion. The whole idea behind this is that you can only talk business when you stand on capital that your voice can be heard. Government create policies, but government cannot do agric-business. Our job is to work is to create agriculture that makes sense to businesses. So, we need to get the economy right by focusing on agriculture,” he added.
He noted that Nigeria has the natural resources perfect to develop the agriculture sector, these he listed to include land, weather, water and human resources.  Abdulhameed said comparative advantage needed to be converted to competitive advantage.
“When you enter competitive advantage that means you have to submit yourself to the realm of business. Therefore, agriculture needs to submit itself to the discipline of finance, economics and the discipline of business. The only country that has the capacity to feed Africa is Nigeria and this is the moment,” he added.
Also, among his 11 major policy prescriptions which he urged the federal government to consider recently, Peterside called for a review of the CBN’s forex policy, saying that the more restrictions they placed on forex repatriation, the less likely it had become that badly needed forex inflows from portfolio investors, foreign direct investors and Nigerians will pick up.
Among others, he said: “The federal government should urgently pursue high-powered negotiations which should be brokered by persons with a healthy track record in this activity and the ancillary pipeline protection business. In the longer term, I favour a constitutional amendment that reserves a one per cent royalty payment to immediate host communities on all mining and mineral producing activity (including limestone, oil, precious stones etc.). Communities will then be well incentivised to keep production activity going.”

 

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