It is now official that the Nigerian economy is in recession and moving into depression. The economy is in coma, yet the people and the government is yet to adorn the aprons needed in the emergency room. Today, people are crying that the dollar is trading at above N400, without realizing that the worst is yet to come.
According to RBC Capital Markets Ltd, Nigeria has been grouped alongside Algeria, Iraq, Libya and Venezuela as members of OPEC “fragile five”. The Countries are said to be OPEC’s most vulnerable nations who are exposed to risks of worsening political and economic turmoil as oil prices plunge to six year low. They further noted that “While promises of reform from newly elected President Buhari have bought Nigeria time, the grace period won’t last indefinitely”. When many States cannot pay workers salaries and manufacturing companies closing shops, how then can one describe an economy in comatose? It is important to take steps to avert the Venezuelan situation from anchoring here.
If the President needs emergency powers to arrest the economic situation, I am yet to see the economic model that would support such a desire. It is only the CBN that has been tinkering with monetary policy, which has proved ineffective in tackling the enormous problems of these times. Particularly, the exclusion of 41 items from forex is the major distortion to the exchange rate regime. The CBN Governor, is doing a yeoman’s man, because, there has been big silence at the Fiscal end. Monetary Policy cannot operate in a discriminatory method. It is a framework that economic players are compelled to follow. When 41 items are excluded, their behind – the-scene activities kill the broad policy objectives of monetary policy. This is why, Naira will continue to crash.
There is silence at the fiscal policy end because President Buhari has no economists in his main team. There is no economist in this team that has come forward to put his name to an economic model, the way Olu Falae, Idika Kalu and Chu SP Okongwu put their names behind SAP. The way Okonjo Iweala put her name behind NEEDS (even when I never agreed with her neo-colonial approach that gave us growth with mass poverty). It is unfortunate that the Finance Minister, The Budget and Planning Minister and the Minister of Trade and Investment are not Economists. There is no one speaking hard economics in this cabinet yet.
The emphasis here is on SPEAKING and not in doing. When the people cannot buy into government programmes, the confidence needed for success will be lacking. This was a point that Prof Soludo emphasized in Kaduna recently. It is important to communicate, in fact, market the policies of government to the people. Here, I refer to the sort of marketing Prof Soludo did during the banking sector consolidation. We recall that he enunciated the programme, showed the hurdles and the expected benefits. At least, there were expected milestones to hold him accountable for.
In the present dispensation, there is no one setting any milestones, except the CBN taking up responsibilities that should not apply in their domain. The Finance Minister is talking about borrowing and releasing fund, while the Budget Minister is preoccupied with the budget padding controversy. The Trade and Investment Minister, has never said anything of note nor visited Nnewi and the likes. Instead, the mindset is still towards attracting foreign investors, while the local investors are not encouraged. I listened to Eric Umofia of Erisco Foods lamenting on Channels TV, the fact that government is paying lip service to the campaign on local production and consumption. Without a local productive base to substitute importation, there is no magic the CBN would employ to stem the depreciation of the Naira.
Agreed that we are in a state of economic emergency, the President does not need to wait for emergency powers to tackle the problems. What is needed is the creation of a smart economic model. Hitherto, this administration has left the CBN to be addressing problems and stayed aloof. They need to come up with a model that would complement the efforts of the CBN. The beginning is to have the right Economists in place to communicate the economic model of this administration to the people. The trio of Kemi Adeosun, Okechukwu Enelama and Udo Udoma have not done a good job in this regard and should be replaced with people like Pat Utomi and Charles Soludo or eggheads from the academics. At least, these are people that we understand their world view.
We need to see a strong fiscal policy regime. A fiscal regime that should address issues concerning the 41 items distorting the forex. If the desire of the President for emergency powers is to further the implementation of a tight fiscal policy, it may be desirable because the Customs Service need to operate like the Lagos VIOs, in ensuring that there are no circumvention of the exchange laws. This would ensure that speculation is eliminated in the forex market thereby reducing the demand pressure.
There are two central issues that need to be address in the Nigerian economy:
1. Government Domestic Borrowings
2. Why the foreign Exchange Market is the center of banking sector liquidity. The desire of the monetary authorities to mop up “excess liquidity” is because of the demand pressure in the forex.
An interrogation of these issues would find an answer to the growth of SMEs and the local productive capacity.
There is everything wrong with the manner of government borrowings from the domestic credit market. As DG of the Nigerian Stock Exchange, Ndi Okereke-Onyiuke at one point refused the listing of Federal Government Bonds on the official list of the exchange. This was because, the issuance of such bonds never indicated the purpose of such offers. Government was just borrowing blindly without being held accountable for the utilization of such funds. She insisted on disclosing the purpose of such issues because, when you decide to approach the stock market, you must “undress in public”. The stock market must account to investors for the utilization of such monies. The blind borrowing patterns have ever continued.
In the last month, The Government has borrowed N245b in treasury bill and another N110 in bonds. We have a situation where government releases money into the economy and turns round to withdrawn such funds almost immediately. There is no indication as to the purpose for the two issues mentioned above. There is no one telling us specifically where the N110b bond is going into and no one can account for it in future.
Meanwhile, the borrowings continues. Is it not time that we restructure the borrowing strategy and capital budgeting system? When borrowing becomes project-tied, the completion of such projects would not be held down by budgetary allocations. The borrowing strategy of the government promotes the conspiracy theory between the government and the banking sector to under develop the Nigerian people. As noted earlier, government will release money and borrows it back, with huge compensation to the banking sector. In this process, the banks make huge profit by doing nothing. In the last one month, the Government released N300b for capital projects and in the next week, the DMO issued the 245b treasury bill and the other week, another N110b in bonds. It implied that Government had even taken from the system more than it had released. This is happening at a time the economy is in dire need of stimulus. One wonders in whose interest? Obviously, not the majority of the people.
After government has borrowed, the chunk of what is left end-up in the forex, creating jobs abroad. When our youth remain unemployed, we remain happy that we are a consuming nation. If you are engaged in a venture that does not require forex, hardly would you access credit from the banking sector. Those in agric sector had been told that it is a no go area for credit, yet it employs over 60% of the population. Should this not be a cause for serious cause for concern?
There must be a holistic approach at addressing the fundamental issues and proper interrogation of these issues would underscore the need to enunciate a real Structural Adjustment Programme. It was unfortunate that when IBB initiated the programme, it ended up in liberalizing the markets and threw our economy into global competition. We have not recovered from that competition as our economy has becoming a dumping ground for all sorts of foreign goods, from Used cars to diapers. It is time to pull the breaks and have a programme that would address the basic structures of our economy. The approach has to be holistic, including our consumption behavior. It has to change from foreign to local. It’s time to have local rice, local car, and local textiles. local shoes, local building materials. If the President needs emergency powers to force this change, it is desirable.
Simon Osigwe, is CEO, Scientific Trust Investment Ltd, Lagos, Nigeria, and a progressive financial analyst