Peculiar Economic Mess and the Way out
Economy
The Nigerian economy is in a peculiar mess. Bad macroeconomic and microeconomic policies, a blasé attitude to national inclusiveness and an expansive lack of confidence in the economy and local currency have all coalesced to drive the economy into the ‘valley of the shadow of death’. But there is a way out, if only the government is really desirous of doing the right things for the economy and the people. Nosa James-Igbinadolor looks at the recent diagnosis and prognoses of the Presidential Economic Advisory Council on the timorous economic situation in the country, and the way out of the economic Golgotha
Unarguable, the Nigerian economy is currently facing the worst of times since independence 61 years ago. The unconscionably depressing unemployment, inflation, production and monetary policy figures, starkly support the truth of an economy so thoroughly mismanaged by its minders over the past six years.
Six years ago, President Muhammadu Buhari had campaigned on a promise to grow the economy, end insecurity and create jobs. He had promised to deliver annual economic growth of some 10 per cent annually. He has failed in all his promises; unable to end insecurity, create jobs and grow the economy.
On the contrary, the jobless rate under Buhari has more than doubled in size from 2015. Insecurity and poverty have expanded horrendously and the country slipped twice into recession in 2016 and 2020. Nigeria under Buhari’s watch overtook India to become the poverty capital of the World. Since 2015, the local currency has lost more than half of its value on the official exchange rate window, corruption remains undiminished and unrelenting.
For a government not known for sound policy making and deaf to calls for social and political inclusiveness to help propel growth, Buhari’s policies have led to widespread distrust by Nigerians and lack of confidence by foreign investors leading to large-scale capital flight out of the country especially as many who do not see any reason to bet on the local currency.
Dr. Uche Igwe, a Senior Political Economy Analyst and Visiting Fellow at the LSE Firoz Lalji Centre for Africa argued in an October 6, 2020 analysis that, “With an unenviable reputation as the world’s new poverty capital, about 40 per cent (82 million people) of Nigeria’s population are living on less than 1$US per day, according to figures from National Bureau of Statistics. Amidst repeated claims by the government of undertaking measured to alleviate poverty, the recent increase in fuel pump prices and electricity tariffs has triggered questions about Buhari’s commitments and priorities. Considering the economic downtown experienced by many Nigerians in a period marked by a remarkable loss of jobs and income, owing to the severity of the global COVID-19 pandemic, the decision to eliminate the expensive but popular petrol subsidy programme, and likewise the programme for electricity tariffs, is considered insensitive to the realities on ground and generally an act in bad-timing.
“This further raises questions on the patterns of decisions, actions and mechanisms for feedback that have been undertaken by this government and the conflict they pose for the administration’s mandate for tackling poverty and achieving economic growth. A plethora of misunderstood, miscommunicated or outright problematic government decisions easily come to mind.
“In the last five years, the price of food items has risen steadily, with rice that used to sell for N9,000 per bag in 2015 now tripled up to about N26,000 – a fact acknowledged by the Nigeria’s Minister for Finance, Budget and Planning, Zainab Ahmed. This has impacted disproportionately the poor in a country that is said to be already hosting a high population of the world’s poorest citizens. Considering the increasing prices of food commodities, Nigeria’s decision to close its borders, despite being a signatory to the African Continental Free Trade Agreement (AfCFTA), may have been considered as something done in the country’s best interest, with the intent of improving local production and agriculture. But even with the continued closure of the border and huge investments in domestic agricultural production, nothing seems to have changed substantially.”
Earlier this month, the Presidential Economic Advisory Council (PEAC), set up in 2019 by Buhari to advise him on “economic policy matters, including fiscal analysis, economic growth and a range of internal and global economic issues” sat down with the President and his economic advisers, and again intimated him on the parlous state of the economy and the need for quick-win policy decisions to remediate the dangerous trajectory the economy has been on since 2015.
While the global economy has continued to improve as COVID-19 infections drop and roll-out of vaccination strengthens, PEAC noted the Nigerian economy “remains fragile with inflation continuing to rise, unemployment remains high and external account very weak.”
In addition, rising prices of goods and services continue to be a cause for apprehension with the “main drivers of rising prices including disruption to farming activities and inter-state trade as a result of worsening security conditions. In addition, the effect of depreciation in the exchange rate and the residual impact of border closure contributed to higher prices. As a result of the factors above, overall prices rose by 18.17 per cent whilst food prices increased by almost 23 per cent in March 2021 when compared with a year ago.”
Inflation, they pointed out, affects all Nigerians especially the poor very unfavourably by reducing the value of savings and purchasing power while at the same time reinforcing expectations and reducing Nigeria’s price competitiveness with regard to its trading partners.
PEAC further expressed grave concern over the intensifying rate of overall unemployment and youth unemployment currently officially recorded at 33.3per cent and 42.5per cent as at the end of 2020. According to PEAC, the high level of unemployment is explained by factors which include: slow growth in output resulting from recession in 2016/17 and between March and September, 2020.
The members of the Presidential Economic Advisory Council also brought to the fore the country’s weak external trading account despite the increase in global oil prices, which has led to increasing pressure on the Naira at the foreign exchange market. They pointed out the country’s cumulative trade deficit of N7.4trillion between January-September, 2020, a current account deficit of -3.7percent of GDP in same period and the fact that almost 30 per cent of foreign exchange used in Nigeria come from non-official sources.
“Though Interest rates are now rising,” they noted, “the value of returns to savers and investors remain negative because prices are rising faster than interest. In consequence, savers and investors are actually losing money by holding the Naira. This continues to provide an incentive for Nigerians moving money into foreign currency. It also creates a distortion in capital markets resulting in misallocation of resources.”
The peculiar mess called the Nigerian economy no doubt, requires an unprecedented policy response from the Nigerian government and its implementing institutions.
The President’s Advisory Council members urged for credible and sensible short, medium, and long-term policy responses to counteract the recklessly haemorrhaging economy.
On the oil and gas sector, they urged the need for clarity and consistency in petrol pricing policy and the urgent reality of ensuring that, “subsidy on petrol be removed and a pricing regime which reflects the cost of petrol adopted…The cost of retaining the subsidy outweighs the benefits, or that the benefits of removing the subsidy are far greater than the costs…That in addition to further worsening government revenue, re-introduction of subsidies will jeopardise investment in the oil sector and also create uncertainty about general government policy on pricing.”
The morbid state of insecurity in the country has impacted heavily with expansive human and economic costs. While there is a growing consensus in the country that Buhari has been very blasé about the security challenges, its impact of the economy was well identified by his economic advisory team.
They posited that conflicts and heightened insecurity reduce business confidence, manifesting in declining foreign and domestic investment, deteriorating financial sector performance, higher fiscal cost and security spending. According to the UNDP, between 2007 and 2019, Nigeria lost 141.9 billion USD of production to security related violence.
To put an end to the threat posed by general insecurity to the economy, the Nigerian government was counselled by its advisory council to among other actions, defeat Boko Haram decisively, as a conclusive defeat is essential to permanently keep the insurgency at bay. In addition, Buhari was urged to resolve grievances around exclusion from access to power, opportunity, and representation through dialogue, hasten the implementation of agricultural reform policies especially transformation of livestock farming to reduce potential for conflict and implement existing law on compulsory attendance of primary school to reduce the number of out of school children, a key recruiting ground for thugs.
Nigeria’s political, social and economic challenges have a long history that predates Buhari’s government. What is unique about the challenges today, is that they have become more heightened in scope and quality as a result of Buhari’s actions and inactions; including his refusal to acknowledge the reality of the incapacity of his economic team to make any headway of the economy. In addition, his penchant for socio-economic and political discrimination and insensitivity to social and economic inclusiveness have succeeded in raising the acidic temperature in the country that have culminated in violent responses to government’s policies.
His positive assessment of his own performance during a ministerial retreat last year shows a genuine insensitivity to the pulse of the street.
For the economy to leave its ‘current residence at the valley of the shadow of death’, the President and his economic team would do well to listen to the advice of his Presidential Economic Advisory Council.
As it stands, a large share of revenues from oil and gas is spent on the country’s public debt service payments, leaving insufficient fiscal space for critical social and infrastructure spending and to cushion an economic downturn. In this context, the advice of the World Bank to mobilse revenues through efficiency-enhancing and progressive measures is a top near-term priority. “Revisiting tax exemptions and customs duty waivers, increasing and broadening the base for excise taxes, developing a high-integrity taxpayer register, enhancing digital infrastructure, and improving on-time filing and payment are important measures” are critical to driving economic growth.
For a country whose real GDP growth has lagged behind Asian economies that have adopted export-oriented policies, the government needs to reject statist policies and embrace more open trade and competition policies that would help diversify the economy and reinvigorate growth, particularly as the African Continental Free Trade Area takes effect.
