- Buhari seeks home-grown solutions to Africa’s economic woes
Tobi Soniyi, James Emejo in Abuja and Crusoe Osagie in Lagos
Manufacturers yesterday decried the continued decline of capacity utilisation in the country, warning that the situation posed a major threat to the already ailing real sector of the economy, resulting in massive job losses.
The Chairman, Manufacturers Association of Nigeria (MAN), Apapa Branch, Mr. Babatunde Odunayo, explained that the manufacturing sector recorded a 20-per-cent drop in capacity utilisation at the end of the second quarter of 2016, stressing that the sector currently operates under 20 per cent of its capacity.
He blamed the decline primarily on the scarcity of foreign exchange for raw materials replenishment and the declining purchasing power of consumers in the country.
He said apart from the scarcity of forex and declining disposable income, the sector was also plagued by long-standing negative factors that are yet to be addressed, including inadequate municipal power supply and poor access road networks.
Odunayo, during the association’s seventh business luncheon, said the theme of the forum: “Nigerian manufacturing sector in a time of economic crises-survival strategies” was apt, considering the current tsunami blowing across the country, adding that it was the most challenging economic storm the nation had ever experienced.
He added that the reason behind this economic downturn began with the mismanagement of the windfall that was gained from exceptionally high oil prices between 2010 and 2014, saying that the government at that time did not cultivate the culture of savings.
“As soon as oil prices came crashing down, the country became exposed. The challenge now remains how to manage the aftermath of the oil price drop and its resultant 70 per cent drop in revenue earnings for the country. The Buhari-led administration is faced with this challenge,” he said.
He noted the efforts by the current administration aimed at revamping the economy, saying that the federal government’s plan for a $1 billion Euro bond for capital projects was a welcome idea.
He said that the most critical of objectives of the present administration was premised on policy, governance and security, including ensuring a stable and predictable currency exchange rate.
He said the exchange rate must be supported from two sources such as flexibility and support from direct foreign investment and inflows into the country.
He also called for external borrowing to shore up the naira in order to support poorly funded government businesses through funds injection into the forex market.
According to him, this would stabilise employment, drive infrastructure development, develop, and prepare grounds for non-oil export development through appropriate investments.
He added that many companies now declare huge exchange rate losses, pointing out that these losses already run into hundreds of billions of naira with many manufacturing outfits closing down.
Odunayo said Nigeria’s gross domestic product (GDP) had declined from a robust $568.5 billion in 2014 to $481.07 billion in 2015, stressing that for the first time since 2010, Nigeria has suffered a drop in its GDP with a year-on-year decline of -15.3 per cent in 2015.
“This decline may continue unless dollar funds can be injected to support private and public sector needs,” he said.
He added: “The greatest challenge facing Nigeria at the moment is low productivity. According to a recent CBN report for the second quarter of 2016, industrial production stood at near zero. It reduced to as low as 6.4 per cent in the second quarter of 2016.
“Whereas revitalised industrial production seems to be the single most potent solution to the current economic recession in Nigeria.”
Also speaking at the event, the Lagos State Commissioner for Environment, Dr. Babatunde Adejare, said the theme of the event could not have come at a better time than now that the nation is facing serious economic challenges occasioned by the country’s over-reliance on oil, adding that all hands must be on deck to take Nigeria out of the present situation.
“To express it more succinctly, we must think out of the box and look for a more creative, cost effective and sustainable way of doing business,” he said.
He said the Lagos State Government aims to make the state Africa’s model megacity through a clear set of policies and strategies, stressing that it was against this backdrop that the state government decided to partner with the organised private sector (OPS) because of its role in achieving the global plan.
Meanwhile, President Muhammadu Buhari has called on central banks in Africa to develop home grown solutions to tackle the economic challenges on the continent.
Speaking at the opening of the annual meeting of the Association of African Central Banks holding in Abuja, Buhari advised central bank governors in Africa not to rely on prescriptions from abroad.
He said: “I urge you to continue to look for original home-grown solutions, not to rely on ‘fit for all purposes’ prescriptions handed down from abroad. The world is a dynamic place and with innovation, we can survive.”
Buhari noted that Africa was confronted with several global and domestic economic challenges.
“Most worrisome is the slowdown in growth, weakening global demand, rising inflation, restrictions in capital flows, rising debt levels, increased exchange rate volatility, and depleting external reserves,” he added.
He said monetary policy alone are not sufficient to bring about the desired economic growth, adding that there must be carefully balanced monetary and fiscal policy measures to achieve macroeconomic stability.
Buhari said Nigeria needs to surmount its present economic challenges through the diversification of the economy away from excessive reliance on oil and other primary products.
He added that government is implementing policies that would ensure that the country is self-sufficient, generates massive employment for millions of youths, and explores untapped human and natural resources.
Nonetheless, the president said alongside the current economic stimulus measures, efforts must be intensified on surveillance as well as providing guidance to the operations of financial institutions to reverse the trend of illicit flows of funds out of the continent.
He said: “We should all be serious about putting in place measures aimed at ensuring that the proceeds of these illicit flows are repatriated to their countries of origin with minimal bureaucratic hitches.”
In his remarks, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, said the theme of the 2016 Governors’ Symposium tagged: “Unwinding Unconventional Monetary Policies: Implications for Monetary Policy and Financial Stability in Africa” was timely given the prominent space it has occupied in the discourse among the central banks with the escalation of financial crisis in 2008.
He said with the evolving literature on the unwinding of unconventional monetary policies (UMPs) and the overwhelming consensus among experts that the policy posed inherent challenges including financial instability, it had become necessary for central banks to evolve appropriate coping strategies as a safeguard against any negative impact on financial system stability.
Explaining the relevance of the discourse on UMPs, the CBN governor said: “You probably know that sometime in 2008 when the global financial crisis started, that was when unconventional monetary policies were adopted by central banks in the world to help to stimulate and stabilise their economies.
“And of course, we also know that the United States started the UMPs with the quantitative easing and followed by Japan, the Bank of England and by the European central banks.
“And of course, in Nigeria, we had also in our own little way adopted UMPs through the stimulation of the agriculture and manufacturing sectors.
“Some of those intervention funds we have injected in the area of agriculture as well as manufacturing were our own version of the UMPs which were meant to stabilise the economy and make cheap liquidity available to the agriculture and manufacturing sectors.
“But of course, you will find out that from last year, we’ve started seeing incidences of unwinding of the UMPs to the extent that for instance, during the third quarter of 2015, over $40 billion in foreign exchange flows moved out of emerging markets and of course, it also had its own impact on not just Africa but also in Nigeria.
“And that’s why you’ve seen most African countries suffering from exchange rate pressure or inflationary pressure. So we are saying that what we should we be focusing on at this time, when we are seeing the unwinding of unconventional monetary policies, is the government itself insisting that we can no longer continue to depend on oil.”
Emefiele stressed that on this basis, the CBN and the federal government would continue along the path of UPMs in order to stimulate the economy.
Also contributing to the debate, the Managing Director of the International Monetary Fund (IMF), Ms. Christine Lagarde, cautioned on the possible dangers of unwinding UMPs, given that they provide space for development finance to thrive.
Represented by an IMF senior official, Mr. Atingi Ago, she said: “We must first determine why advanced economies pursued UMPs and determine whether the conditions in Africa warrant this policy and bear in mind the current risks faced by advanced economies as a result.”
She said there should be policy coordination whereby monetary and fiscal policies focus on long-term growth.
She said whatever the objectives are for African countries to pursue UMPs, they should be conscious of their impact on African central banks.