Crusoe Osagie looks at some early signs of economic recovery being bandied by multilateral institutions and concludes that only a hands on effort to replace imports with locally made goods is the path to the nation’s economic redemption
For every major setback, they say there is always a bright side, a masked benefit.
But as for the ongoing recession in Nigeria, it is hard to think of its sunny side.
People are having their personal savings wiped out by inflation and massive drop the value of the Naira.
Employers are letting large numbers of their workers go on the back of declining capacity; parents are pulling their children out of private schools and enrolling them in cheaper public schools where the standards are unreliable and the list of recession repercussions are endless.
However, some figures from international financial institutions and multilateral organisations are showing that amidst these discomfiting inconveniences there seems to be some sort of silver lining.
Importation Decline
Last week, a country assessment report on Nigeria by the International Monetary Fund (IMF) indicated that a sharp decline in imports contributed to a modest recovery in Nigeria’s external current account balance in the first half of 2016.
Although the report showed that Nigeria’s exports declined by 14 per cent in the first half of 2016, it revealed that imports fell more than proportionately by 25 per cent in the first half of this year, compared to the same period last year.
Also, the foreign trade report released yesterday by the National Bureau of Statistics (NBS) showed that the country’s total value of merchandise trade rose to N4.72 trillion in the third quarter (Q3) of 2016, representing an increase of 16.3 per cent, or N661.5 billion, compared to N4.06 trillion recorded in the preceding quarter of the year.
Without disregard for this gradual fortification of the economy indicated by the reduction in importation which also means reduced pressure on forex demand, it remains to be seen if this declining export is not simply because importers are unable to access as much forex as they need to import what they require.
If this is the case, then the reduction in the volume of export is not a sign of an economy that is healing itself, rather it is a symptom of the recession which the nation’s economy is currently plagued with.
Balance of Trade Still Negative
Meanwhile, the NBS, noted that the country’s balance of trade still remained negative despite the improvement, as the rise in exports in the quarter only helped to reduce the existing deficit trade balance from N484.23 billion in the preceding quarter to -N104.14 billion in the third quarter.
The IMF report, which detailed an assessment of Nigeria’s macroeconomic situation, was prepared for the African Development Bank (AfDB) by the Fund, as part of the conditions for the country to access the $1 billion budget support loan from AfDB.
The AfDB in November released the first tranche of the loan amounting to $600 million.
It was also gathered that the country is aggressively working towards securing an additional $2.5 billion budget support loan from the World Bank, just as it finalises plans for its $1 billion Eurobond issue for the first quarter of next year.
However, THISDAY gathered that part of the conditions for the World Bank loan is for the CBN to freely float the naira exchange rate, which the Nigerian regulator has strongly resisted.
The CBN ditched its 16-month-old peg on the naira in June this year and introduced a flexible exchange rate regime to allow the currency to trade freely on the interbank market.
But perennial dollar shortages in the economy appear to have frustrated the objective of the central bank, as the gap between the interbank FX market and the parallel market has continued to widen. This has made the central bank to maintain its managed float system.
“There is no central bank in the world that allows a free-float of its currency. That would encourage an attack on the currency by speculators. What you do is try to find the price level and find the rate at which you can live with,” a bank chief executive officer in support of the CBN policy told THISDAY.
The chief executive, who pleaded to remain anonymous, pointed out that freely leaving the naira exchange rate to market forces would have dire consequences on the economy.
This he listed to include a spike in the price of goods and services including energy prices, and worsening unemployment, adding that the naira would also record significant depreciation.
The six-page assessment report from the IMF on Nigeria noted that while liquidity and capital adequacy ratios for the financial industry as a whole remained above prudential levels in the first half of 2016, asset quality had deteriorated, with some banks reporting non-performing loan (NPLs) ratios above 20 per cent (the NPLs for the banking sector was 11.7 per cent as of 2016 Q2).
It stated that a prolonged economic slowdown and additional exchange rate depreciation could further increase the already high NPLs.
“Renewed disruptions to, or inadequate recovery of oil production could further increase fiscal financing needs. With external financing likely to fall short of budget, the domestic financing requirements needed if the budget is to be fully implemented are very large, crowding out private sector credit and investment.
“An additional financing constraint facing the FG is the likely need for further assistance to state governments that are facing deteriorating finances and the re-emergence of domestic payment arrears,” it added.
The report acknowledged that the Nigerian authorities have introduced some key measures, but stressed that much stronger measures were needed to address the severe imbalances.
The Fund said: “In May this year, the regulated fuel prices were raised by 68 per cent, bringing them in line with the cost of importation. While the 2016 budget assumed no subsidies, it was estimated that the continuation of the previous regime would have cost 0.3 per cent of GDP.
“However, the regulated price system has remained in place, which poses a risk that further increases in the landing cost of fuel or additional depreciation of the exchange rate could result in renewed shortages if the price is not adjusted.”
The IMF said there was urgent need to implement an appropriate and coherent set of policies to rebuild confidence in the near term and foster economic recovery over the medium term.
These included articulating a plan to place fiscal policy on a sustainable footing, ensuring the monetary policy stance is kept sufficiently tight, and pressing ahead with structural reforms to improve competitiveness and facilitate economic diversification, it said.
Having seen the technical assessments of the nation’s economic crisis by the IMF, it is important to note that all effort being made to save the Nigerian economy apart from import substitution and self-sufficiency in food production will only end up as mere theories.
Statistics available to THISDAY reveal that Nigeria spends around $1.8 billion annually on rice importation; $700million every year for fish and a whooping $6 billion for petroleum products importation.
If only these three commodities gulp about $9 billion annually, it speaks volumes about the desperate need to wean the nation and its economy off the fixation on imported products. Until this happens, no amount of theories can bail the country out.
The country got it right in the case of cement. Dangote Group led the charge in that sector, leading to the increase of annual output of cement from less than three million metric tonnes per annum to around 40 million metric tonnes per annum in about 15 years. This helped to completely shut out imported cement from the country, saving the nation colossal sums of forex annually.
Just as was done in the case of cement, Nigeria needs to get it right with gasoline, diesel, petrochemicals, rice, fish and fertilizer among others. Here only rests a sustainable solution the Nigeria’s economic crisis which is currently manifesting in the form of a recession.
