A view of Balogun Textile Market in the Lagos Central Business District
In the light of the current recession and rising inflation, which closed last year at 18.55 per cent, the Nigerian Economic Summit Group in its Macroeconomic Outlook for 2017, proffers policy measures that could quicken economic recovery and sustainable growth. In this report, Olaseni Durojaiye looks at the highpoints of the report
No doubt, the discussions bordering on the nation’s economic challenges, with a view to finding solutions to them, will not abate until the economy is out of the woods and begins to record growth. Indication to this effect is evident in the number of fora and resources dedicated to the topic and hosted by different groups and organisations from financial sector to faith-based groups alike.
Beyond the discourse, however, the Nigeria Economic Summit Group (NESG), in its Macroeconomic Outlook for 2017 themed: ‘Looking Inward: Will Nigeria Thread the Path of Economic Recovery and Growth in 2017?’, proffers ways to quicken the country’s economic recovery and set it on the path of sustainable growth, even as it noted that stop gap measures will not ensure sustainable growth. The report was presented by the Head of NESG Research team, Dr. Olusegun Omisakin.
The economic turbulence, which started mid-2014, became severe in 2016. Nearly all expectations and the much-awaited impact of policy measures did not materialise. Nigeria’s real Gross Domestic Product (GDP) contracted by 1.6 per cent in 2016, a far cry from 3 per cent growth rate recorded in 2015. A wide range of economic sectors faced severe capacity shock on the backdrop of higher input cost and foreign exchange shortage.
For instance, in the third quarter of 2016, agricultural sector was held up to a growth of 4.54 per cent from the usual 6 per cent, industrial sector declined to 12.21 per cent and services sector (which makes up more than half of economic activities) progressively became weaker with a growth of -1.17 per cent. It was not a surprise that the economy, which experienced decelerating growth in 2015, eventually plunged into recession in 2016.
With Central Bank of Nigeria (CBN) spending billions of dollars trying to shore up the naira, foreign exchange reserves could not salvage the struggling naira from the cross-currents. The various measures and interventions in the exchange rate market were unable to halt the widening exchange rate premium and resolving the liquidity challenges. For a country with heavy imports component in its consumption profile, inflation could not hold back and for the first time in 11 years, inflation closed at 18.55 per cent, according to renowned economist Dr. Doyin Salami.
What Government Should Do
Beyond identifying when the build-up to the current recession started, the report identified low oil prices and its knock-on effects on government revenue as well as the shift in the global monetary policy cycles and the downside risks it has created for Nigeria’s financial markets as the causes.
The report warned against relying solely on quick fixes to upturn the economy towards the path of recovery and sustainable economic growth in 2017 and beyond.
The report, which, according to the Chief Executive Officer of NESG, Laoye Jaiyeola, in his remarks at the launch is “research based and data driven”, stated that the country’s economic woes present an opportunity to implement some tough fiscal and structural reforms to improve the business environment, ensure self-sufficiency and export-led growth. It will be recalled that this was part of the recommendations to government at the close of the 2015 Nigerian Economic Summit Group, which held in Abuja.
The report insisted that Nigeria’s quest towards economic recovery in 2017 and beyond will depend largely on how it supports the production of strategic goods and services on a large-scale to meet local and exports market needs.
One justification for Nigeria to promote “Made-in-Nigeria” by improving the business environment lies in the fact that any economic recovery achieved outside the scope of supporting the productive base of the economy will not be sustainable. It would only depict a typical case of postponing the “evil day”. Nigeria, therefore, must realise that looking inward remains the sustainable way to create jobs, enhance foreign exchange earnings through the increase in net-exports and ultimately get Nigeria out of the economic recession. It is, undoubtedly true that a strong productive sector protects the economy from unforeseen external shocks and, therefore, engenders sustainable economic growth through job creation and value addition”, the report stated.
While it hailed the Nigerian Industrial Revolution Plan (NIRP) as representing a “great reference tool”, it called for its urgent review to reflect current realities and aspiration for the sector, even as it noted that communicating same to both domestic and foreign stakeholders is crucial in mobilising investments into strategic sectors of the economy.
On the macro scale, the report insisted that sound macroeconomic policy environment would be the main anchor of the “Made-in-Nigeria” initiative. It also noted that “the growth-enhancing stimulus would require that interest rate is adjusted downwards to a business-friendly level in order to spur credit growth and economic activity, the situation becomes more complex, considering the need to ensure stable inflation and exchange rates. This will remain a conundrum for the CBN in 2017.”
The report proposed the strengthening of development finance institutions to support businesses on a wide-scale. While it noted government’s commitment to recapitalise the Bank of Agriculture and Bank of Industry with a sum of N15 billion and hasten the process to start the Development Bank of Nigeria, as contained in the 2017 budget, economist and research analysts at the economic advocacy firm proposed that its implementation be prioritised in the year.
“We also believe that monetary policy choices in 2017 are limited and may not significantly drive foreign investment inflows or prevent outflows to stabilise the naira exchange rate. Hence, monetary policy must complement growth enhancing fiscal policy along with other trade and structural reforms.
The report contended that by proposing a budget size of N7.3 trillion, the federal government has shown it has plenty of firepower for fiscal stimulus in 2017 and added that the impact of the budget to stimulate economic activities would depend largely on three main factors: the attainment of key assumptions of the budget, the implementation of the capital component of the budget and the success of social intervention programmes.
The report shares the views of some economists and economic affairs analysts, who reiterated the need for a speedy passage of the 2017 budget. One of them, the Managing Director of CFG Consulting, Adetilewa Adebajo, in an interview harped on the importance of speedy passage of the 2017 budget and referenced the Lagos State government which has since passed its 2017 budget.
The report stated further that, “To improve the implementation of the capital budget in 2017, the government must ensure quick passage of the budget and prioritize disbursement of funds for capital projects. Also, certain reforms must be enacted to simplify and make efficient the procurement process. This is key in ensuring swift implementation of capital budget in 2017. To hasten the recovery process and achieve sustainable growth, the government must remove regulatory and operational bottlenecks facing the business environment.
Improving Business Space
The NESG outlook also called for removal of regulatory and operational bottlenecks facing the business environment, if government must hasten the recovery process and achieve sustainable growth in the economy. It also made recommendations.
Some major recommendations included: to “streamline regulatory agencies to eliminate bottlenecks and excessive costs attached to over-regulation of businesses, review cumbersome licensing procedures and multiple costs, which act as a disincentive to MSMEs, and fast-track the kick-off of one-stop shop in major parts of the country.” Others include “implement the National Tax Policy to ensure a harmonised taxation regime, and hasten passage of the competition bill’.
The NESG Outlook for 2017 was based on two scenarios. Scenario 1 acknowledged the current state of crude oil price in the international market at US$55 per barrel in 2017 and crude oil production estimated at around 1.8 million barrels per day. The second scenario assumes US$42.5 per barrel in 2017 and average crude oil production of 2.2 million barrels per day. Both scenarios are based on implementation rate of 65 per cent and 70 per cent for capital budget in the year 2017, respectively.
According to the report, the outcome of the first scenario is largely positive. As oil prices averages US$55 pb, the group held that real GDP will increase by 0.6 per cent in 2017.
While presenting the report, Omisakin argued that “Improved revenue associated with the high oil price will result in higher government spending, which is instrumental in the economic recovery process.
Specifically, oil revenues for 2017 will increase by 20 per cent to N2.4 trillion when compared with budgeted figure of N1.99 trillion. Consequently, we believe, the exchange rate will remain stable even as external reserve improves. We expect inflation to average 15.7 per cent in the year, largely due to a stable exchange rate. This scenario is likely to play out in 2017”, he stated.
The second scenario expects that real GDP will grow by 0.6 per cent in 2017, same as scenario one. Oil revenue is expected to decrease by 7 per cent to N1.85 trillion from budgeted figure in 2017”, and predicated this on the uncertainties that prevail in the industry, particularly relating to signature bonuses, funding of Joint Ventures among other factors. It also expects to average 16.3 per cent in 2017.