A road project
Olaseni Durojaiye writes on how the N350 billion stimulus initiative of the Federal Government, which is similar to Barrack Obama’ $800 million stimulus that was introduced in the aftermath of the 2008 global economic crisis, will impact the economy
The signing of the 2016 budget by President Muhammadu Buhari last week may have lifted an overhang on the nation after the back and forth between the executive and legislative arms of government on the budget. The focus has now shifted to government’s strategic implementation plan for the budget to ensure significant implementation of it.
The focus shift is not misplaced given that the year is already nearing the half way mark when the document was signed. While the President has assured that the budget will be fully implemented even with the late signing, stakeholders will have to tarry awhile before coming up with a holistic appraisal of government’s strategic implementation plan until after details of it is revealed.
Speaking during the budget signing process, President Buhari had said: “The budget I have signed provides an aggregate of N6.06 trillion. Further details of the approved budget as well as our strategic implementation plan for budget 2016, will be provided by the Honourable Minister of Budget and National Planning.
“The signing of the budget today will trigger concerted efforts to reflate the Nigerian economy, a key element of which is an immediate injection of N350 billion into the economy by way of capital project.
“To illustrate our renewed commitment to infrastructure development, the 2016 budget allocates over N200 billion to road construction as against a paltry N18 billion allocated for same purpose in 2015 budget,” he stated.
With the unveiling of government’s strategic implementation plan on Thursday, analysts and stakeholders have begun to debate government’s N350 billion stimulus, with particular emphasis on its sector-appropriateness and how it will impact the economy.
The discourse, observers opined, becomes more timely as the initiative took off on Friday with the disbursement of funds to contractors who have completed the processes of due diligence and are expected to return to site almost immediately.
Speaking earlier, Minister of Finance, Kemi Adeosun, stated that, “from the Federal Ministry of Finance in anticipation of the approval of the budget, we have virtually lined up about N350 billion, which we would be pumping into the Nigerian economy in the forthcoming months. We explained our rationale and the process that we have put in place, safeguards to ensure that this money actually achieves the desired objective which is to stimulate the economy.”
The Practice of Stimulus
THISDAY findings revealed that stimulus is only one of available routes out of economic downturn. In the aftermath of the global economic crisis in 2008, while Europe preferred austerity measure, the US under President Obama opted for stimulus.
It will be recalled that slightly over five years, President Barrack Obama signed the American Recovery and Reinvestment Act, his $800 billion stimulus bill. According to reports, at the time, the U.S. economy was losing 800,000 jobs a month. In the fourth quarter of 2008, it had contracted at an 8 per cent annual rate, a Depression-level free fall.
“Today does not mark the end of our economic problems,” Obama reportedly said on February 17, 2009. “But it does mark the beginning of the end.”
And so it did. THISDAY findings revealed that The Recovery Act jump-started investments in power, road construction, healthcare and education among other sectors. It facilitated investments in clean energy in America, financing unprecedented investments in wind, solar, geothermal and other renewable sources of electricity. It advanced biofuels, electric vehicles and energy efficiency.
Further findings also revealed that the stimulus was invested in healthcare infrastructure and facilitated the use of electronic medical records in American hospitals. It also improved more than 110,000 miles of broadband infrastructure. It launched Race to the Top, the most ambitious national education reform in decades, according to reports.
A February editorial article in TIME magazine on the Recovery Act stated that “… the Recovery Act succeeded in creating jobs, boosting growth and saving us from a much worse fate. We are still healing from the worst crisis in 80 years, but we’re well past the beginning of the end.”
It is against this backdrop that some chose to interrogate why the stimulus promised by government is rather restrictive and not as broad as what the US adopted to get out of the economic recession of the 2008.
Though analysts who spoke to THISDAY welcomed the initiative and insisted that it was one of the options open to economy managers when faced with similar situation as the country does, they however added that it would not have “dramatic impact “on the economy.
According to a Port Harcourt, Rivers State-based economist, “I expect that the stimulus will ease liquidity problem and help to create short-term employment particularly in the construction sector. This is so because if contractors are mobilised to return to site, they will recall their workforce; this will help with employment and this will in turn boost purchasing power; that is on the short to medium term.
“On the medium and long term, when the roads are constructed, movement of people and goods will improve; particularly that of agricultural produce from the farms which are mostly located in the hinterland to the cities where the commercial consumption takes place. So it is a welcome development but it is not the real solution,” he stated.
Also, an economist and research analyst with a Lagos-based foremost economic advocacy group, Rotimi Oyelere, said introducing the stimulus was “the right thing to do”, adding that injecting the fund into the economy “will stimulate consumption.”
According to him, “stimulus will jump-start the economy as money will come into circulation with the attendant multiplier effects. It will stimulate consumption; I expect that imports will come alive but it may not really impact local production.
On the appropriateness or otherwise of leaving out the education and healthcare sectors from sector that will benefit from the intervention, Oyelere argued that, “investing in education and healthcare sectors is for the long term. What the short to medium-term call for is to prioritise and that is what government is doing with the stimulus being spent on capital projects. The need to spend on capital projects and stimulate consumption is the best in the medium term. It is when the economy is stabilised that government can begin to look at those long-term indices,” he stated.
However, Director General, Lagos Chamber of Commerce and Industry, Muda Yusuf, and Chief Executive Officer of Renaissance Capital Nigeria, Temitope Popoola, both noted the limited resources available to government and insisted that the real stimulus that will grow the economy could only come from the private sector.
In separate interviews with THISDAY, they contended that government spending only accounts for 10 per cent of the economy arguing the private sector accounts for about 90 per cent.
Yusuf agreed that the fund would stimulate the economy, stressing that, “of course, it will have a stimulating effect on the economy as it will inject more liquidity into the economy but it will not have any dramatic effect on the economy. The problem is much bigger than that; the stimulus is only N350 billion, barely one per cent of the economy. Government has very limited resources. Government probably contributes about 10 per cent to the economy; the real stimulus will have to come from the private sector.
“But that will not come if government doesn’t come up with the enabling environment. This doesn’t necessarily mean provision of hardware, like physical infrastructure; it has to be in form of policies and regulations that will encourage both foreign and local investment and businesses to thrive,” he added.
Popoola, who spoke to THISDAY on the side line of the Renaissance Capital Investor Conference, which ended in Lagos, yesterday, explained that, “in reality, the government is a small portion of output in Nigeria; government’s impact on the economy is about 10 per cent; the private sector is really what drives, whether Gross Domestic Product (GDP), growth and the economy. An example is the N300 billion bailout fund that was given to state governments; that was just like a drop of water on a patch; people tend to over play the hand of the government in an economy such as this but that is not the route to go,” he contended.