From Economic Retreat, an Ambitious Stimulus Plan

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The intention of the Federal Government to reflate the economy with N4.72 trillion has provoked discourse among experts, writes Olaseni Durojaiye

The disclosure by the Federal Government that it would stimulate and pull the nation’s economy out of recession with a N4.72 trillion (up to $15 billion) stimulus package has begun to generate debate. It has also raised questions as to how the government hopes to raise the fund within the context of the prevailing economic situation in the country.

The announcement, which was one of the highlights of the recently held ministerial economic retreat that was convened by the Federal Executive council to tinker with the economy was coming even as it was announced that government had so far released N770 billion out the budgeted N1.8trn capital vote.

The need for government to tinker with economy became necessary against the backdrop of the current economic recession which analysts contended was inflation induced.
It will be recalled that the National Bureau of Statistics (NBS) recently disclosed that the economy had slipped into one of the worst recessions in its history. The official confirmation also gave alarming employment rate in the country as well as declining purchasing power due to rising cost of goods.

Funds Drive
Resolutions from the retreat also included a strategic plan to generate the needed capital. The sum is expected to be generated through various sources. According to the Minister of Budget and Planning, Udoma Udo Udoma, funding is expected to come from sale of some national assets, advance payment by joint venture operators for license renewals, infrastructure concessions, use of recovered funds etc, and long term, low interest loan among others including a $1 billion through Euro bond capital raise.

Among the infrastructure to be concessioned are the existing Lagos to Kano and Port Harcourt to Maiduguri rail lines. Udoma, who disclosed this, stated that General Electric (GE) had committed to bringing $2 billion through the concession. He added that the concessionaire would take over the rail lines, revamp them and build coaches in the country adding that the process of getting it through would however take some time.

Additionally, $1 billion will be raised through Euro bond capital raise, according to the Minister of Finance, Kemi Adeosun. This is in line with the external borrowing plan approved recently to enable government borrow lowest interest borrowings available to fund key projects.

Adeosun also said the World Bank, African Development Bank (AfDB), and other multilateral and international lending institutions, have already approved plans for loans at interest rates of 1.5 per cent, and repayment tenors as long as 40 years adding that the facilities would help the government intervene in some key areas, like agriculture, education, health, rebuilding of transportation facilities, railway and other projects considered vital to government effort to revamp the economy.

Economy watchers, who welcomed the plan, opined that the initiative is to stimulate growth, which is necessary under recession as against simply managing the inflation. They posited that the current inflationary trend was structurally induced and brought about partially by the foreign exchange rate crisis, collapsing infrastructure and increasing cost of inputs.

According to them, headline inflation (food plus core indices) has been driven by increasing prices of energy, electricity, fuel, and high cost of transportation services as against a scenario where too much money was chasing few goods. Analysts argued that is why we could see unemployment and inflation moving in same direction

Stakeholders React
In announcing the planned stimulus, the resolution emphasised the need to ensure quick injection of fresh capital into the economy and proposed the immediate implementation of the social intervention programmes, namely the school feeding, teachers’ assistance scheme and local debt repayment, particularly to states and contractors.

In addition, priority attention must be given to infrastructure, including power, rail and public works; agriculture and agro processing, mining and solid minerals, and human capital development among others.

Stakeholders agreed with the sectors that government planned to intervene in. Many believe intervention in the rail sector will restore the past glory of the sector and create a value chain and argued that it would see to a rebirth in commerce and economic activities along the rail routes which will further pull a sizeable chunk of the unemployed population into the employment bracket. It would also reduce capital expenditure on road infrastructure as the sector is likely to witness reduced usage translating in reduced expenses on road maintenance.

In his reaction to THISDAY enquiries, a research analysts with a Lagos-based economy advocacy group, Rotimi Oyelere, contended that, “During recession, government must reflate the economy through various means and stimulus spending is one of the many available options. If the fund is directed at production and productivity-enhanced activities, it guarantees quick wins by fast-tracking money flow into the system and this will increase consumer spending. Aggregate demand must be enhanced at this time.

“When consumer spending is enhanced, or demand for goods and service increases, industries will be motivated to increase production/output and where necessary expand capacity. These activity chains have huge impact on employment and job creation. In the first instance, opportunities will be created for disengaged workers/individuals, who recently lost their jobs due to the contraction in the economy. In addition, unemployed individuals and new entrants into the labour market can find jobs to do and earn income,” he stated.

Others argued that investment in the power sector could not be overemphasised due to its spiral effect on economic activities in the country, arguing that it was capable of reducing production cost and prices of commodities.
However, beyond the initiative being the right step in the right direction, there are doubts in some quarters as to how government will raise the stated N4.72 trillion even as they insisted that if government is able to raise the said sum and inject same into the economy the impact on the economy will take some time to become visible.

Those who hold this position, pointed at the current state of oil business both locally and in the international market and argued that tax receipts cannot fill the gap in short falls in the revenue from the oil sector.
Besides, one analyst noted that it was imperative to shorten the procurement process and take another look at lending rate in the country and insisted that doing same will fast track the impact of the initiative on the economy.

“Procurement process needs to be fast-tracked if we must see a quick turnaround in the economy,” stated Port Harcourt, Rivers State economist and entrepreneur, Ezeh Wordu.
“Both monetary and fiscal policy authorities also need to take another look at lending rate in the country to stimulate manufacturing activities which will, in turn, boost employment generation as many factories are currently either shutdown or operating at reduced capacity,” he added.

Doubts about Funds Sourcing
Speaking to THISDAY, Chief Executive Officer of Cowrie Assets, Johnson Chukwu, expressed doubt about government’s ability to raise N4.72 trillion as it has stated “even at the best of times, it will be difficult to raise the kind of money”, and pointed at the declining oil production level and price in the international oil market.

Chukwu agreed that sales of assets is the “low hanging fruit” option, he however insisted that while some assets might not be problematic to trade off, others might not be that easily sold particularly the joint venture assets which he argued will take some time.
“The first question we should ask is how government plans to raise that kind of money. I can’t see how they’ll be able to raise it; oil production is down, oil price too; revenue from tax cannot account for it, if we’re talking of government spending.

“Selling assets, especially in the oil sector of course is the low hanging fruit; government could sell off some assets like stakes in the Liquefied Natural Gas (LNG) easily but one cannot say so of joint venture assets; sales of joint venture assets will take time to materialise,” he explained.