One of the easiest things to do in Nigerian is to criticise. These days, everyone has become an expert. Pseudo analysts and bogus critics have indeed pervaded the landscape with each one claiming to know and having solutions to Nigeria’s economic woes.
Except the mischievous and die-hard critics, it is quite obvious that what culminated into the present economic crisis is a combination of past and recent factors that have accumulated over a period time.
Among these are, the postponement of the 2015 general election in the face of insurgency in the North East, delay of handover note and turning of dollars to a legal tender (particularly in the presidency) by the Goodluck Jonathan’s administration, depletion of foreign reserves by past governments, failure to save for hard times in the rainy days all took their toll on the economy.
Consequent upon late submission of the hand-over note and the delay that trailed an attempt to produce a corruption-immune cabinet led to erosion of confidence in the economy and its resilience. And despite the delisting of Nigeria from JP Morgan’s bond index, economic recovery was still expected to mend the discernment already created by 27 state governments’ insolvency with loads of salary arrears. of confidence in the economy and its resilience. And despite the delisting of Nigeria from JP Morgan’s bond index, economic recovery was still expected to mend the discernment already created by 27 state governments’ insolvency with loads of salary arrears.
erosion of confidence in the economy and its resilience. And despite the delisting of Nigeria from JP Morgan’s bond index, economic recovery was still expected to mend the discernment already created by 27 state governments’ insolvency with loads of salary arrears.
Added to these woes are the vulnerability of political and security fields, low ranking in the World Bank’s Ease of Doing Business (Nigeria ranking 170th out of 189 nations in 2014) the unpredictability of Boko Haram insurgency, tensions in the Niger Delta and the Biafra agitators.
Other foremost contributing factors are the unceasingly fall in the price of oil world-wide. This economic tragedy was driven by global buoyant production in the face of weak demand that is aided by slow growth in the emerging markets.
And very closely related to this is China’s transition to consumption-services driven economy with the strengthening of US dollar that combined to bring Nigeria’s economy to the eye of the storm. Consequently, lower oil prices put a strain on the fiscal well being of fuel exporters and their growth prospects.
Hence, the punishing effect of the oil crisis on a country like Nigeria witnessed a sharp decline in government revenues. Expectedly, the development imposed a significant pressure on fixed or floating currency markets and Nigeria’s economy has to pay dearly for it, even as its resilience has come to the fore in recent times.
Furthermore, the oil price and the domestic security situation are both uncertain, presenting significant downside risks to the economic, commercial and financial landscape.
But in spite of all these, the dynamics of Nigeria’s economy maintain its good shape and the country continues to statistically record economic growth. Oil-related crises are not new to Nigeria. Two previous episodes (Global Oil Glut of 1986 and Asian Financial Crisis 1997) of falling prices have resulted in a free-fall of Naira and slowing economic growth.
Hence, it is not about who is in Aso Rock or who just left the corridors of power like some Nigerians are led to believe, but it is about what the government and Nigerians are doing or not doing.
It is, therefore, essential to get the policy response right, as falling economic growth imposes real ‘human’ cost on the populace.
‘Common sense’ alone will neither save the economy nor will mere catch-phrase of ‘proudly Nigeria’ do. Devaluing Naira, buying, eating, drinking and wearing Nigeria alone won’t earn the country enough foreign exchange. This will no doubt, improve the economic condition of the people, but definitely won’t lead to increased foreign exchange earnings.
The Economic Culture
Economic growth neither occurs by accident nor happens at random. The challenges facing the Nigeria’s economy are certainly not far-fetched. The sleeping African giant exports virtually only crude oil and imports almost everything else from others (including products and services that are produced and available locally).
Oil is Nigeria’s main source of foreign exchange earnings and government financing. So, logically, any crisis or deterioration in the volatile market will naturally affect the economy. Thus, Nigeria needs a rethink to urgently adopt and embrace the culture of home-made products to take care of her population and possibly export to some other countries.
State governors and public officers will have to re-order their values and priorities. It is sure that a new culture of accountability will lead to a treacherous compliance as manifested in the last 2016 budget saga.
The macro-economic pressures of low revenue and activity should rather create a new basis for unity rather than partisan politics being played so that the electorates’ Internal Rate of Return (IRR) on their investment during the 2015 General election do not end up to be negative in 2016.
Nigerians are one of the most travelled people in the world. Global airlines know too well that the country’s route is one of the most lucrative in Africa, yet Nigeria Airways is abandoned. It also has the great potential for tourism. Nigerians find time out to check out the London Bridge but ignore the Idanre hill.
While government must decide on whether to further borrow to maintain expenditure levels, it must also cut back on commitments which may be politically sensitive; just as the central bank must decide on whether to draw down the remaining foreign reserves to defend the exchange rate; and to decide on whether to impose painful capital controls or accept weaker exchange rate with the possibility of losing control of inflation.
These are quite essential as the key social services that impact directly on poverty alleviation have not seen significant improvement, in spite of increased expenditures.
Silver lining of the Economy
In the midst of political tension, communal clashes, ethnic conflicts and religious violence, Nigeria’s democracy does not appear threatened, as it remains stable in the face of the centrifugal forces and divisive tendencies; with the government in power enjoying the confidence of the majority.
The resilience of the economy to oil price shock is almost unbelievable, although the benefits of oil revenue have not been equitable distributed, with some sectors experiencing relative benefits from falling oil prices. Non-oil sector growth will be expected to be driven by construction, agriculture and manufacturing. distributed, with some sectors experiencing relative benefits from falling oil prices. Non-oil sector growth will be expected to be driven by construction, and manufacturing.
The supply of high-yielding and disease-resistant seeds, low incidence of pests and diseases, improved handling of post-harvest as well as a continued intensification of research efforts by research institutions will in no small measure contribute to improving agricultural outputs; and these we must pursue.
The fall in oil prices provides an opportunity for the countries to remove petroleum subsidies and it motivating the government to boost income by increasing revenue from industries other than oil and cutting costs while improving the collection of taxes.
It is thus not controvertible that blocking of leakages through the implementation of the Treasury Single Account (TSA), Integrated Payroll and Personnel Information System (IPPIS) and the anti-corruption war of the current administration will save the country some trillions of Naira.
Navigating the rocky road ahead
Politically sensitive recurrent expenditures with the current and anticipated economic challenges should in a rational world lead to spending cuts, such as controversial cars for the Senators. But then, some capital expenditure would have to be slashed further. It is only then that the zero budget system of the present administration becomes reasonable and realisable.
Consequently, is there never a time in the history of this country that is better than now to reduce the size of the government. The federal system is quite expensive but the government could as well be made moderately manageable.
Building resilience to commodity market downturns will also mean widening the tax base. Nigeria is a low-taxed economy compared to its peers. According to World Bank, the West African nation collected the equivalent of less than two per cent of its national income in tax receipts in 2012, compared to an average of 16 per cent for emerging markets and 18 per cent for Sub-Saharan African economies.
This is the more reason why the current administration needs enhanced IGR to finance the government. Attaining all of these is contiguous on workability of the economy, productivity of citizens and profitability of businesses. These are applicable to all sectors, inclusive of manufacturing, mining and agriculture.
As a matter of necessity, government must consciously work toward diversifying the economy. Patience is a concept that must be adopted as an enduring virtue at this juncture. There is no gain saying the fact that the effect and gains of diversification will take between 5 to 10 years of consistent policy measures to materialise.
Similarly, as the populace get encouraged to amend their socio-economic and cultural preferences for foreign taste and stick to proudly Nigerian products; government must take the lead and be exemplary. They must necessarily use locally made products at homes, in offices and at occasions; including wears and foods.
Local refining of crude oil will no doubt lead to huge forex savings on fuel and petrochemicals importation for personal and industrial use. In doing this, the country needs only to adopt reverse technology without necessarily reinventing the wheel.
Again, time has actually come for other sectors of the economy to provide the country with earnings and put an end to mono-cultural economy syndrome.
Like never before, Nigeria must for once, give pre-eminence to mining of solid minerals like gold (which rarely depreciates) and agricultural resources like cocoa which recently gained over 700 percent price increase due to deficit in cocoa market.
If crude oil remains the only major source of its foreign earnings, the value of naira may remain weak and be at the mercy of crude oil prices and attendant volatility. Nigeria has equally got to explore its potential to be a massive exporter of abundant mineral and agricultural resources that constitute highly sought-after raw materials for many industries.
Although, less ‘diversification’ outlets assisted in the economic resilience, cushioning the effect of the shock of slide in oil price, it is unlikely to be enough to offset a second type of pressure: the vulnerable political and security outlook.
This probably justifies the president frequent trips across the world, for Nigeria needs to present better and conducive political and security outlook so as to ameliorate the significant challenges to building a stable business environment.
Evolving Resilient Economic Model
Ultimately, Nigeria’s policymakers must develop resilient economic mode by learning from the lessons presented by the current challenge with a view to building an effective economic strategy, strong enough to harness the country’s growth fundamentals, particularly of a young, entrepreneurial and increasingly well-educated workforce.
If Nigerians have accepted in principle, to key into the Change agenda by eating, drinking, wearing, buying and exporting ‘Proudly Nigeria’ products, then the authorities must, as a matter of urgency, critically ease doing business in the country.
Though ease is the focus of the next article, It must be mentioned that Nigeria government needs to look in the regulation guiding the processes of starting businesses, getting stable power, obtaining construction permit, registering property, accessing credit facilities, protecting investors and investments, avoidance of double taxations, ensuring free flow of trade across borders, enforcing contract/contractual discipline, preventing/resolving insolvency and implementing labour market regulation among other factors. Only after these will the country be able to produce and export ‘Proudly Nigeria’ products.