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Nigeria in Recession: What is the way out?



After months of denial, the Nigerian government through its Minister of Finance Kemi Adeosun, in July, finally announced that the country was officially in recession. The news did not come as a surprise to experts as some had predicted the crisis. The International Monetary Fund (IMF) projected the contraction of the Nigerian economy, cutting the country’s GDP growth forecast from 2.3% in April to –1.8%, the lowest in 29 years.

Minister of Finance, Kemi Adeosun

Sanusi Lamido Sanusi, during his tenure as governor of the Central Bank of Nigeria (CBN) reckoned that the country needed to preserve her balance sheet in order to prepare for any eventuality as she could not afford to keep paying ₦1trillion as subsidy funds to a select few, while heaping huge debt burden on the nation’s finances.

President Muhammadu Buhari

During the debate, he mentioned that a crash in crude oil price under the condition could lead to an economic crisis that would be comparable to Greece’s. “In 2008, the price of oil crashed from $147per barrel to $37per barrel and the only reason this economy continued growing was that we had reserves of $62billion which are now down to $30billion; that was the shock absorber,” he said.

Adding that if oil prices crashed again considering that the external reserves or shock absorber as he called it were depleted, the country would be plunged into a crisis such that salaries would be difficult to pay with inflation rising to about 18%.

This argument was made as far back as 2012. Four years on, crude oil prices have crashed from $114per barrel to as low as $27per barrel in January before rising to about $45per barrel – thereby battering government revenue and this was further affected by a reduction in daily crude oil production to 1.69 million barrels per day (down by 0.42 million barrels per day from the first quarter of 2016) due to the activities of the Niger Delta Avengers with foreign reserve at a meagre $27.86 billion.

The Nigerian economy contracted by about 2.1 percent in the second quarter, while inflation soared to 17.1 percent in July. The decline can be seen in other measures, too. International airlines have pulled out, Nigeria’s second largest commercial air fleet has shut down, industries are closing and 4.5 million people lost their jobs in a year.

President Muhammadu Buhari took office with a huge chunk of goodwill, but he has gradually expended that with his outdated thinking on the economy, open interference in monetary policies of the central bank and poor management of fiscal policies to stimulate the economy.

While capital fled the country, the Nigerian government fed uncertainty with its flipflops on foreign exchange and fiscal policy. The Nigerian currency has been devalued by more than 87 percent in the last year and the shortage of foreign exchange reserves threatens businesses.

Nigeria’s Oil and gas Industry

In Nigeria’s states, there is a grimmer crisis as most of them can’t pay salaries, paralyzing money supply and commerce at the retail end. Well, the prevailing economic crisis has forced the Buhari-led administration to seek drastic measures to salvage the economy.

Sadly, of all possible solutions, the one that’s been considered most and has sparked a national debate is the proposal by Nigerian Economic Council (NEC) and Senate to the president to sell national assets to “build reserves and provide funds for immediate spending” and thus ensure that this recession will be the “shortest” ever. It is hoped that at least $10 billion can be generated from this.

Oluseun Onigbinde, founder of BudgIT, a public budget communication company, and a heartbroken supporter of the Buhari government, lamented on this myopic attitude of the government. “No consideration for Inter-generational equity but just lure for short-termism. No review of public finance structure and lifestyles. Always hunting for the easy way out,” he said.

Mr. Chukwuma Soludo, Former CBN Governor

Former CBN governor Chukwuma Soludo says he is “troubled” by the proposal to sell some valuable national assets. “Sale of assets is the easy short-term option to earn peanuts while ignoring the hard work to earn the sustainable revenue required to move the economy forward,” he stated.

A few leading economic analysts like Feyi Fawehinmi have argued in favour of the sales adding that some Nigerian assets are actually worth nothing hence a sale would be profitable. For example, across the first half of this year, Nigeria’s 3 oil refineries have managed to expend N41 billion on operations to generate N720 million in revenues.

So Fawehinmi concludes: “How much should any normal person pay for the right to lose billions of naira? The correct answer is zero. Sorry Nigerians, those refineries are worth the same thing as those iron pots they use to cook jollof rice for parties.”

So why sell them? Well, the first reason is that it frees the government from being the one making those losses. That money can go towards something else. Secondly, if we can find anyone crazy enough to buy them, we should let that person have a go at trying to make them work.

Maybe they have some ideas on how to cut costs and use technology to increase efficiency. Remember when the government collected $2bn from the privatization of run down power assets? Since then it has put in far more than that amount in bailouts to the industry.

If you sell for zero, there is less reason to bailout the owner in future. But this very type of sale does not achieve the objective of the Nigerian government which is to raise revenue for cash reserves to run its government. The lucrative national asset at the centre of the sale debate is the Nigeria Liquefied Natural Gas (NLNG), a joint venture between Shell, Total, Eni and Nigerian National Petroleum Corporation (NNPC) – the largest shareholder with 49% stake.

The privately well run asset generates $1 billion annually for Nigeria and is expected to fetch $28 billion if sold. The question remains – to sell and get quick cash to solve immediate problems? Or not to sell and determinedly look inwards for long-term sustainable solutions?


It is good news that the Federal Inland Revenue Service (FIRS) has announced its intention to make 700,000 companies pay tax for the first time and bring 10 million more individuals under the tax net.

From this source, it anticipates an increased revenue of over N1 trillion to N4.8 trillion from taxation. While Nigeria’s non-oil revenue has averaged 3% of GDP over the years (because of its overdependence on easy oil rents for revenue and abandoned tax collection) many African countries without oil average 18-25% of GDP in tax revenue.

Such countries also have a larger informal sector than Nigeria. Several of them are doing close to double digit GDP growth. The tax compliance drive is a good effort, but the bulk of the money is in the informal sector and Nigeria must learn how other African countries capture tax from their informal sectors.

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Nigeria’s economy to experience higher growth if liquidity can be unlocked



“Unlocking Liquidity will restore growth and stability for Nigeria,” Ayo Teriba, Economist and CEO, Economic Associates.

If Nigeria is to achieve sustainable economic growth and stability in its economy, unlocking liquidity must be given top priority.

Dr. Ayo Teriba, an economist and CEO, Economic Associates, made explained this point at the Q2, 2019 one-day quarterly conference on Nigeria’s economic outlook in Lagos.

He decried the fact that Nigeria was at the low end of the liquidity ladder in Africa, arguing that the situation had to be addressed urgently.

Liquidity he pointed out was critical to increasing the nation’s external reserves that serve as a buffer against shocks in commodity prices.

One of the ways he believed Nigeria could improve its liquidity, is by attracting capital inflows, which was important considering the revenue challenges of the government.

In the evolving race for global liquidity, Teriba made a strong case for the alignment of policies to strengthen liquidity.

According to him, “The Federal Government is focused on growth, while the Central Bank of Nigeria is concerned about stability. There is no express concern about liquidity”.

He was of the view that liquid markets are about making sure that there are buffers against shocks, and for Nigeria, having more capital inflows was important than outflows.

Speaking further Teriba identified the various options for unlocking liquidity in the economy, which include;

Privatization: Which implies partially selling its equity across all State-Owned Enterprises, SOEs to retain a minority stake. (Brownfield Foreign Direct Investment Inflow)

Liberalization: This implies the development of idle land and building and unbundled infrastructure projects. (Greenfield Foreign Direct Investment Inflow).

Commercialization: Getting rental income from wholesale leasing of idle lands and buildings.

Securitization: This suggests securitization of future income streams from all financial and non-financial assets.

Teriba called for a strategic reform of revenue generation in the federation and across all tiers of government.

The economist stressed the need for Nigeria to move beyond exports, taxes and debts towards rental income and equity. He stressed that Nigeria had a lot to gain from securitizing its assets.

Some of the assets he identified for the government to consider are the following;

Corporate Assets: Which are government wholly-owned or majority equity holdings in State-Owned Enterprises, SOEs.

Financial Assets: Which represent the government’s minority equity holdings in Joint Ventures and other companies

Tangible Non-Financial Assets: Taking the steps of commercializing and securitizing idle lands and buildings, amongst other assets.

Giving further insight on capital flows, he identified foreign direct investment, FDI and Remittances as the major types that Nigeria should utilize.

He gave an example of Saudi Arabia that has developed a privatization plan worth $ 100bn, which will bolster the liquidity of the Gulf nation.

Dr. Teriba also referenced the Liberalization and Privatization plans of India, that has positioned the densely populated nation, as one of the leaders in FDI.

The CEO of Economic Associates was of the strong view that Nigeria needs a robust strategy to attract more foreign investments to compensate for lost export revenues.

In an interactive session with participants, he called on Nigeria to explore how it can leverage the Diaspora remittances, noting Africa was one region that had a challenging environment for remittances. Currently has a foreign reserve of approximately $45bn which can triple within a year, if it prioritizes unlocking liquidity through the various capital inflow options available.

Coming into 2019, considering various views on FX stability and expected calmness in the polity post-election had revealed an improvement in economic growth over the year. Notably, growth was projected to be anchored on stronger performance in the non-oil sector as the lower investment in the oil sector– save for the addition of the Egina oil field – amidst shut-ins at key oil exporting pipelines will result in slower growth in the oil sector and by extension a much slower contribution to overall GDP. Notwithstanding, the optimism of stronger contribution from the non-oil sector, has boosted the impact of the innovative programmes by key industry players in the ICT on the overall subsector growth. Reflecting the improved activity in the ICT subsector in Q1 19, coupled with recovery in both the Agriculture and manufacturing sectors, economists expect a much robust growth in GDP over 2019 by 20bps to 2.2% YoY (FY 18: 1.9% YoY).

Starting with the harbinger of growth, some economists retain their surmise on most sub-sectors in the nonoil territory with slight changes to services – driving a nonoil sector growth of 1.8% YoY (FY 18: 2.1% YoY). While some made an upward adjustment to the growth assumption for ICT subsector, the high base of growth in the prior year, the lull in the real estate and slower growth of credit creation in financial services is expected to constrain the rate of growth for the overall services sub-sector. In the ICT subsector, the upward projection to the assumption emanated largely from the now telling impact of the innovative customer acquisition programs. For financial services, notwithstanding the recent policies aimed at enhancing private sector lending – there are not much traction, as banks remain cautious in growing their risk assets. Lastly, there’s a believe that activities in real estate sector would remain muted given its oversupplied state. That said, activities in services is expected to expand modestly by 1.7% YoY (FY 18: 3% YoY).

On Agriculture, there is an optimistic view of a recovery in crop production due to favorable weather and government intervention aimed at curbing ongoing conflict in the northern region. On the government intervention, the RUGA (rural grazing area) settlement program was recently proposed, which requires each state to provide lands for the herders to grow their cattle. Though the program was suspended due to kickbacks from various states, there are positivity on some form of concession by the State government given the critical nature of the sector. Further buttressing the point is the ongoing discussions on a peace pact between the Zamfara state government and armed bandits in a bid to improve farming activities in the state. That said, economists expect the sector to grow by 3.2% YoY (FY 18: 2.3% YoY).  Elsewhere, while the general elections slowed activities in the manufacturing sector, some economic pundits see some traction in the sector beyond Q1 2019. Further upside would be payment of the minimum wage approved at the start of the year and successful implementation of the presidential order to clear the Apapa gridlock which had been a strain on producers over the last two years due to difficulty in transporting raw materials. That said the manufacturing sector is expected to grow by 2.13% YoY.

In the oil sector, it was highlighted at the start of the year that the plausible risk to crude oil production would be the resumption of militant attacks during the first quarter of 2019 should the electoral process get violent. With militant attacks out of sight, there is no impending risk to overall production asides minor pipeline leakages. Asides that, additional 200,000bpd capacity from Egina oilfield which resumed operations in January further supports the stance of increased production. For context, while NNPC is yet to provide any data on Nigeria’s oil production this year, the channel checks with external sources reveals that actual production touched 2mbpd (condensates inclusive) in April. That said, it is expected average oil production to print at 2.04mbpd – 6.4% higher than the prior year. Thus some economists suggest that the Nigerian economy will experience a 2019 growth estimate of 2.2% as against an initial prediction of 2% as a result of improvement in both the oil and non-oil sector.

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