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Much ado about Nigeria’s economic recovery and growth plan

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Last year, when Africa’s largest economy Nigeria sunk into its worst recession ever, an immediate economic recovery plan was expected from the government in response to the critical situation. Unfortunately the sluggishness that has characterized the President Muhammadu Buhari administration manifested itself again.

A wholesome strategy for charting the way forward did not come until April this year – 4 quarters after official acknowledgement of the recessive status of the economy. In classic Nigerian style, the 4-year Economic Recovery and Growth Plan (ERGP) was launched with much pomp and fanfare. The event was a star-studded one.

The president’s cabinet and anyone you would imagine in the economics and public finance nexus was there. The ERGP had a three-thronged approach supported by enablers and a clear delivery plan which involves restoring growth through Monetary and fiscal stability, external balance, economic growth and diversification; Nigeria Investment in the Nigerian people – Health, education, social inclusion schemes, job creation and youth employment schemes; Building a globally competitive economy by Improving the ease of doing business, investing in infrastructure and promoting digital led growth.

There’s just a little problem. The ERGP is expected to return the growth of the nation’s economy by 2.19 percent in 2017 and 7 percent by the end of the Plan period in 2020– 2 years after the president’s current tenure. For this bogus plan to materialize, Buhari needs to return to office or his party All Progressives Congress (APC) win at the 2018 presidential elections since there’s never a continuity of programs when there is a change of government.

But even under the People’s Democratic Party (PDP) rule between 1999 and 2015, there wasn’t a continuation of program. The President Olusegun Obasanjo government from 1999 had a financial bolstering plan, paying off Nigeria’s foreign debt and saving up nearly $30 billion in Excess Crude Account from oil earnings. But during President Jonathan’s government, the savings were squandered and Nigeria returned to debt. Now, 66 percent of the country’s earnings services foreign debts.

Feyi Fawehinmi, one of Nigeria’s leading economic commentators says it is impossible for the government to achieve 7 percent economic growth by 2020 as planned. On his blog he wrote:

“One of my favourite American economists, Tyler Cowen, recently wrote a book where he complained about how America had become a complacent country. He illustrates this with data showing that in 1962, only 30% of the American government’s spending was spoken for before the fiscal year. By 2014, that number had reached 80% and is getting worse. In other words, all sorts of interest groups and entitlements have claimed so much of government spending in advance that it is very hard for the government to do ‘big things’. Nigeria today is not much different. 66% of current government revenues goes toward servicing debt. Typically, 80% of the government’s budget is spoken for before it is passed by salaries and other recurrent expenditure. The crucial difference is that America has all those roads, bridges, electricity and railways it had built before getting to the point of stasis.”

Nigeria is going to need to do some big and painful things as shock therapy to achieve high growth trajectory again. The alternative is stasis. The most disturbing risk of the ERGP 4-year plan are the very managers of the economic move. Many know the antecedents of Governor of the Central Bank of Nigeria, Godwin Emefiele.

He was Nigeria’s largest loaner Zenith Bank’s MD who was whisked in by the previous government when the then CBN governor Sanusi Lamido blew the whistle of $20 billion theft in government coffers. No one can vouch, except those who recommended him as elections moved close for the Dasuki scandal job, that Godwin was ready for the increasingly complex world of Central Banking.

It is a well-known secret, that Godwin Emefiele held an internal meeting with Zenith Bank staff the weekend after his appointment, weeping for joy. He had never expected he would assume such elevated position and responsibility. Upon election, many expected that Buhari would have had a tea meeting, early on, telling him confidence was lost and he should honourably resign. Instead, he kept him.

When Buhari was going to bring in a fiscal manager, he found Kemi Adeosun, a local state Commissioner of Finance, at a time Nigeria was roaring into a slump.

One would not have expected anything less than a proper Goldman Sachs or hedge fund star, a brilliant academic, ready to put calls across the world. While it was good for Minister of State for Finance to worry on cost of pencils and erasers in government, this is Nigeria for heaven’s sake. For a country the calibre of Nigeria, her Finance Minister’s profile can’t be beneath Okonjo-Iweala, the country’s former Minister of Finance and World Bank MD, or Olusegun Aganga, Oby Ezekwesili, etc.

A lot of people even anticipated that Okey Enelamah (who led Nigeria’s arguable biggest private equity, the African Finance Corporation) would be Finance Minister, but Buhari surprised everyone, sadly. Immediately oil price started tanking low, the eggheads at IMF saw it; they saw the weaknesses in the economy.

There were no savings buffers, poor Niger Delta engagement to firm oil production and the dependence on oil was evident to all. When Christine Lagarde landed, it was clear that she came for serious business.

But Nigerians would prefer to be emotional than face the facts. The economy was quietly sinking but the idea of accepting IMF’s help carried a stigma (you can’t blame the correctional days of Structural Adjustment Program (SAP)). Nigeria’s economic team brought out Powerpoints and thick plans to affirm that all was right.

Christine’s words: “Frankly, given the determination and resilience displayed by the presidency and his team, I don’t see why an IMF programme is going to be needed..” However, Kenya that is not vulnerable to oil shocks put up a standby $1.5bn facility in case of currency shocks. Rather than being honest and accepting the real situation, some people started selling Indian $15bn cash advance to Nigeria and Chinese Yuan support.

The monies that would have changed hands in consultancy would be unbelievable. Seun Onigbinde, CEO of Bill and Melinda Gates Foundation-backed BudgIT and a vocal economic transparency expert suggested that he “would have gone for a $10bn IMF facility—$5bn for currency stability & $5bn for import substitution plan heavily invested in machinery that completes Nigeria’s value chains and industrial parks.

“This government is not honest on the hole we have sunk in or they weren’t smart to see it,” he concludes. Understandably, the government has finally rolled out a recovery plan because investors have affirmed that they won’t borrow Nigeria $30bn if she can’t produce an economic plan. That $30bn has a pile of Chinese money that won’t come in cash but in infrastructure.

If the Chinese build all the railways and roads, plunging the country in deeper debt, will those infrastructure projects generate sufficient revenue to offset them? If Nigeria borrows $30 billion when her current exposure is $24 billion, is the government not heightening the economy’s vulnerability to currency crisis? The challenge here is that current government is in its final lap of governance.

The cacophony for next year is for the elections and placement for politicians. Where is the long term and institutional approach to see this entire plan through? Nigeria won’t be great if government approach is like someone dieting and checking the scale every hour.

There has to be a long term shot to this. Who will do the work? The risk exists – it is that of getting that World Bank cash, Chinese Roads, doubling our foreign debts but the government undoes everything with clueless leadership in another four years. If the government doesn’t institutionalize this, it falters again.

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Nigeria’s economy in 2019: Woes or fortune?

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As 2019 begins with hopes and aspirations, there are expectations from the federal government to better the economy with a view to making it have more meaningful impact on Nigerians. Here are the looks at the key indicators that will characterize the economy and determine its fortunes this year.

The economy appears to have lost its sparkle; its growth has dwindled. And there are palpable fears that the effect of political activities in the lead-up to the general elections, scheduled to commence on February 16, could overshadow whatever gains the economy may muster during this period, thus, compounding its woes. As it stands, the federal government has abandoned the economy for politics and the economy is already bearing the brunt.

After five quarters of recession, which the economy entered in the second quarter of 2016, having plummeted to a gross domestic product (GDP) growth rate of -2.06 per cent, the economy exited the quagmire in the second quarter of 2017 with a GDP growth rate of 0.55 per cent, which was revised upward to 0.72 per cent, according to data from the National Bureau of Statistics.

Then, the economy turned the corner as it grew at 1.40 per cent in the next quarter- that is, the third quarter of the year, and sustained the improvement recording a GDP growth rate of 2.11 per cent in the fourth quarter of the year 2017. However, in the first quarter and second quarter of 2018, the economy reversed the rising streak as evidenced in the slowed growth rates. NBS data showed that the GDP growth rate fell to 1.95 per cent in the first quarter of 2018 from the 2.11 per cent it achieved at the end of 2017. It dropped further to 1.50 per cent in the second quarter.

The agency noted that the clashes between farmers and herdsmen, which took its heavy toll on agriculture, mainly dragged down the growth rate during the quarter under review. Agriculture, being a major component of the non-oil sector was badly affected. However, with improvement in the non-oil sector, the economy received an impetus for growth, which pushed the GDP growth rate to 1.81 per cent. According to NBS, growth in the third quarter was largely helped by the non-oil sector, which contributed 90.62 per cent to the total GDP, while the oil sector contributed 9.38 per cent to growth in the review period. Oil GDP was reported to have contracted by -2.91 per cent compared to -3.95 per cent in second quarter and 23.93 per cent in third quarter 2017.

Despite the improvement in growth rate in the third quarter of 2018, the economy is still experiencing slowdown and was recently put on red alert of slipping into another recession over weak economic growth.

According to the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, who raised the alarm at a recent Monetary Policy Committee meeting, the economy may be under threat of relapse into a recession, which it recently exited from with fanfare, given the weak economic growth of the second quarter of 2018.

Emefiele also raised concerns about threat to efforts to curb inflation, stabilise exchange rate and build reserves, considering the macroeconomic fundamentals at the period.

The consumer price index, which measures inflation dropped from 11.28 per cent in September 2018 to 11.26 per cent in October 2018 and rose again to 11.28 per cent in November 2018, but when compared with the levels in the corresponding year of 2017, when it dropped from 15.98 per cent in September to 15.91 per cent in October and 15.90 per cent in November, it was not where the monetary authority had envisaged it would be. The apex bank has the onerous task of bringing inflation to its targeted single digit, especially in an election year.

Also, of note as a potential contributor to relapsing the economy into recession, as pointed out by the CBN governor, was the delay in budget implementation. A situation, where three months after presidential assent and about three months to the end of 2018, there was no budget implementation was unhealthy for the economy. According to the apex bank, long years of fiscal policy lag had contributed to the weakness in the economy. Most of the inimical factors identified by Emefiele at that time are still at play.

Given this scenario, as the New Year begins, economic managers have the arduous task of resolving those issues as well as ensuring the economy not only continues to grow, but also record appreciable and inclusive growth. While 2019 is an unusual year, being an election year, more, but critical efforts would be required by handlers to put the economy on a sure footing with a viewing to avoiding a relapse into recession.

The federal government has proposed a budget of N8.83 trillion for the 2019 fiscal year. Nigerians would not accept any excuse for delay in its passage and poor Implementation. The executive and the National Assembly should therefore quickly address the grey areas and harmonize their positions so that the appropriation bill could be passed into law and implemented in earnest.

The budget has been predicated on an oil-price benchmark of $60 per barrel. In recent times, oil prices have been sliding at the international market and currently stood around $54 per barrel. The falling oil prices have been identified as threat to implementation of the budget and as such, the relevant authorities would do well to peg the budget at the most appropriate benchmark.

As part of its strategy to mobilize revenue, the federal government through the ministry of finance, in July 2017, created Voluntary Assets and Income Declaration Scheme (VAIDS), a tax amnesty, which was expected to rein in $1 billion from tax evaders and avoiders. By the end of the scheme, one year later, with only about N30 billion, the proceeds fell short of the government target, but the scheme was able to swell the tax database by five million to 19 million from 14 million. The government is expected to follow up on this initiative as well as intensify the revenue mobilization from more alternative sources than oil and borrowing to fund the budget. As at the end of 2018, the total collection by the Federal Inland Revenue Service was about N7 trillion.

Besides, the federal government is expected to review the power sector transition market policy performance this year after its first five years of implementation.

It is obvious that this present administration led by President Muhammadu Buhari, which is already pre-occupied with politicking ahead of the general elections, would not be able to solve the burgeoning unemployment problem. With unemployed Nigerians now at 20.9 million, having risen by 17.6 million in nine months, one of the major tasks before the incoming administration is to tackle the factors causing unemployment or to put it more aptly, provide employment opportunities in the economy and tame the rising scourge of unemployment.

Besides, Nigerians are anxiously waiting for positive outcomes from the talks, between the Nigeria Labor Congress and federal government over the N30, 000 minimum wage, that have resumed and are expected to be brought to a logical conclusion before the general elections.

 

Experts’ Views on the Economy

But in the view of the Chief Executive Officer of Financial Derivatives Company Ltd, Mr. Bismarck Rewane, political jostling and the elections would becloud the talks on the minimum wage. He also expressed the opinion that political activities and elections would becloud 2019 budget talks by the legislature and the first monetary policy committee (MPC) meeting in the month of January.

Also, in his projections, Director, Union Capita Market Ltd, Mr. Egie Akpata, posited that 2019 would likely be more challenging for the Nigerian economy than 2018.

According to him, most variables which were in the country’s favor last year, but not capitalized on, have reversed. “Oil prices, local interest rates, inflation, stock market indices, political environment and other variables that were positive for most of 2018 are now negative and will remain so for most of 2019.”

On the key areas that are likely to impact the entire economy, Akpata noted that in the aspect of government finances, it was unfortunate that for the federal government, tax revenues could be generated by threat or decree.

“The VAIDS programme fell far short of expectation and so did many other initiatives to diversify government revenues away from oil. These failures are not surprising. Individuals and companies have to be financially buoyant to pay a lot of tax. The reality is that most sectors of the economy are in a recession and profitability has been badly eroded.

“Self-inflicted damage from Apapa ports congestion, inability to solve the power crises, government crowding out the private sector in the debt markets, insecurity in large sections of the country amongst others mean that corporate profitability is unlikely to improve and hence better non-oil revenue for the government will take a while to materialize.”

Akpata added that, the federal and state governments had shown that they were unable to reduce their costs and instead had resorted to massive borrowing, particularly at the federal level.

This borrowing, he pointed out, was almost entirely to fund overheads. “Unfortunately, this produces very high market borrowing rates which very few private companies can afford. As long as the economy continues to have a risk free rate close to 20 per cent, it is unlikely that there will be massive credit to the private sector to drive the investment needed to grow the economy at the required levels.”

“Until there is a political force to stop government simply borrowing to fund overheads, FGN debt will continue to grow at an alarming rate. Since a default is very unlikely, the market will happily give the FGN all the debt it wants to pay its bills today. Repayment is largely a problem for future governments to worry about,” he also submitted.

He argued that the presented 2019 budget showed that “it is business as usual – unrealistic revenue targets, huge borrowing and waste on fuel subsidy. None of these are a positive for government finances,” stating that, the ongoing minimum wage battle with the NLC would likely result in some kind of wage increase, which will put more pressure on government finances.

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