Policy Briefs

Nigeria’s Economy; Is FGN Risk Averse?

Before crashing oil prices destabilized Nigeria’s rebased economy; the economy was already distressed due to mismanagement, policy vacillations and intrusive partisan politics. Hence, the economy President Muhammadu inherited, while perceptibly promising, was far from robust, despite the blustering by the Jonathan government, about Nigeria having Africa’s largest economy. Paradoxically, the change agenda touted by the incoming Buhari government were predicated on a gross underestimation of the laggardly scope of the economy and governance rut. So, the crash of global oil prices merely trip-wired and propelled the economy toward recession. Still, national economies being stunted, laggardly or in recession is nothing new. Major economies like the USA, China, UK, and India have at different times faced grave economic challenges. The key to addressing such challenges is the ability to determine the fault lines and apply necessary corrective measures or stimulus, including fiscal shock therapy and attending broad risks.

Ten months into the Buhari presidency, Nigeria remains challenged economically. Aside from Buhari’s espoused economic policies not manifesting fully, policy dissonance also intruded. As the economy wobbled toward a deleterious downturn, trenchant criticisms raged, compelling the government to resort to some inexplicable ad-hoc measures. Such disconnected measures proved confusing. Unhelpful policy reversals followed, making broad calls for a national economic conference inevitable. The welcome response was a two-day National Economic Council (NEC) retreat of the held on 21-22 March 2014, on how to revamp Nigeria’s sinking economy. While the retreat’s seventy-one decisions are salutary, the revamping efforts risks defaulting to a false start, as policymakers seem ambivalent about addressing core challenges. This latter fact drives the notion of government being risk averse in tackling Nigeria’s tanking economy.

Fairness warrants deference to the thinking that instructed using the NEC as the medium for arriving at an economic stimulus plan. Still, in some respect, the outcome of the NEC retreat is bothersome as it is bereft of some classical stimulus tools recognized worldwide. Economic stimulus entails explicit fiscal measures and massive infusion of cash aimed at boosting economic growth. These include significant tax cuts -especially corporation and capital gains taxes — coupled with interest rate cuts and direct cash stimulus that benefit low income earners and the unemployed. Surprisingly, the catalog of corrective measures adopted by the NEC lacked clear unemployment benefits, even as empirical studies have proven that “direct government spending – through unemployment benefits, food stamps, work sharing or infrastructure spending- top the list” in higher returns on stimulus spending.

Government’s role remains that of regulator and partner in operating the Nigerian economy. The joint partner is Nigeria’s organized private sector (OPS), which has the wealth creation niche. It’s mind-boggling; therefore, that serious efforts to kick start Nigeria’s stalled economy was undertaken by the government to the exclusion of the OPS, organized labour and think-tanks. Decisions from the retreat, which some gratuitously characterized as far-reaching are generally symbolic. After all, the N350 billion meant to jumpstart the economy will be dedicated to offsetting arrears owed to contractors, even as Minister of Finance Kemi Adeosun clarified that the fund would go mostly to capital projects and job creation. Whereas President Buhari had underlined agriculture, power, manufacturing and housing, as four key areas, requiring urgent attention in order to revive the economy, the stimulus fund allotment plan does not tally with these priority areas and the disbursement plan remains ambiguous. While the “art of governance is difficult and complex” -with apologies to Ashiwaju Bola Tinubu- grasping the fundamentals that engender “creative reform” ought not to be so difficult.

Relatedly, four policy actualities remain worrisome. First, President Buhari publicly declared twenty-seven of the nation’s thirty-six states as broke and unable to pay salaries. This leaves nine states even as it’s clear that half of these nine states are also struggling. Secondly, Nigeria’s economic downturn remains negatively aggressive. Recorded growth in first quarter of 2016 was a stunted at 2.1 percent. Nigeria also experienced an arrested total growth of 2.8 percent in 2015 –the slowest and lowest since 1999. A sad corollary is that the earning and purchasing power of Nigerians continue to dwindle. So any meaningful “change” or economic revamp must address the plight of the national population.

Thirdly, predicating the stimulation of the economy on payment of arrears owed to contractors is fallacious, despite Minister Adeosun’s disclosure about “discussing with some of the contractors who will be paid these monies….how many Nigerians would be re-engaged.” Under the present circumstances -even with the best of intentions- any contracting firm paid arrears owed by government will feel obligated to settle its bank loans and investors’ obligations first, before rehiring and recruiting new staff with a view to boosting the economy. Hence, that option seems predicated on altruism rather than being a policy option with clearly annotated deliverables. Fourth, the recommended stimulus measures, while cognizant of the States as federating units, employers of labour and the most distressed segment of the economy, failed to adopt options that are sufficiently strong to serve as catalytic triggers for jump-starting distressed state economies. As employers, it is the States not the private sector industries that cannot pay salaries. The 27 indebted States bailed out recently need instant and massive infusion of funds to begin their recovery process.

Despite the expressed desire to ensure that the stimulus “money actually achieve the desired objective, which is to stimulate the economy” there is no clear policy criteria or directives matching the disbursable funds to specific desirable outcomes. This leaves the funds open to turf fights amongst technocrats. It would seem sensible to have matched the envisaged stimulus funds to youth employment or vocational and industrial training programmes; thus putting the resources into private hands, guaranteeing expenses that will boost the economy, while cutting down the prevailing youth unemployment bulge. Although it was disclosed after-the-fact that government plans to inject N3 trillion TSA savings into the economy, it remains unclear why the N500 billion earmarked in the FY 2016 budget for social welfare was not tied directly to targeted stimulus projects. Summarily, it amounts to dubious policy handiness for government to adopt a piecemeal approach to revamping the economy. Similarly, the recommendation that State and Federal Governments must emphasize the patronage of “Made-in-Nigeria” products, “Import competition” rather than “Import substitution”, seems vacuous, when government fiscal policies are not sufficiently compelling to make Nigerian consumers look inwards. Preferential consumption is a factor of affordability as much as choice. Only the pressure of high cost of imported goods will induce Nigerian consumers to look more closely at more affordable Made-in-Nigeria goods. Meanwhile, the nexus between our fixed rate currency regime, the broad differential in the official and parallel market rates, and our consumption of foreign goods remains stark. It is such realities that compel devaluation.

The seventy-one policy decisions the NEC took are mainly exhortatory. Nonetheless, five core areas would have served the nation well had they been better and fully amplified. First, as a catalytic stimuli, the government should have established a 24-month moratorium in which the counterpart funding statutorily required to access the Universal Basic Education Commission (UBEC) fund would be waived completely, thus allowing a complete draw down of the estimated “N58 billion that is currently un-accessed.” Such resource infusion into the education sector would immediately impact on salaries, employment and construction works in that sector. Instead of pursuing an enabling “legislative approval to change the need for counterpart funding on the part of state governments”, it would have been expeditious and constructive, if President Buhari had requested the National Assembly to grant a moratorium.

Second, is the recommendation for the Federal and State Governments to establish minimum price guarantee for farm produce. This subsidy-type support for farmers will engender two critical outputs; food self-sufficiency and exportable surpluses, and increased employment of agricultural workers. Third, the decision to create an environment conducive for the Micro, Small & Medium Enterprises to create jobs for the unemployed and undertake deliberate policies to create access to funds, is a rehash of extant policies. Yet, if efficaciously implemented, a majority of the nation’s unemployed would become employers of labour themselves. Fourth, the decision to increase investment in infrastructure through public private partnership (PPP) merits diametric support. Many States already have that arrangement in place. Although such partnerships have high-yield value, they also create a paradox for foreign investors. A weakened Naira is certainly attractive to a foreign investor, but the inability to repatriate foreign earnings and expatriate emolument remittances continue to be a hindrance. Finally, the decision that single digit interest rate for agricultural loans should be considered while duties and taxes for Agricultural products and equipment should be waived should have been an unequivocal directive, and not an optional or voluntary policy; a fact that will inevitably dissipate its focus, utility and implementation impetus.

Nigeria under Buhari continues to face a multiplicity of economic challenges, not due to the absence of viable solutions, but because policymakers routinely arrogate to themselves the absolute wisdom of solving problems including those outside their remit, while asserting their prerogatives to public policymaking. While the convening of the NEC to tackle Nigeria’s economic challenges must be applauded, the retreat would have yielded higher value and broader perspectives had the representatives of the organized private sector, especially manufacturers, financial institutions and importers and exporters been fully engaged. This cluster inarguably, consists of employers of labour and wealth creators, thus key drivers of the Nigerian economy. Since along with the national population, it is the OPS and labour that bear the brunt of incongruent and blurred fiscal and economic policies and a tanking economy, they ought to have been allowed to contribute to formulating government’s ameliorative measures. Indubitably, they would have made huge demands on government, which may explain their exclusion. But in doing so, the FGN conveyed the impression that it is risk averse.

The NEC retreat was a propitious juncture to engage government partners on how best to revamp the Nigeria’s plunging economy. Such an engagement would have added vigor to Buhari’s ‘change agenda’. Not involving the OPS directly in the economic stimulus discussion was a grievous mistake and missed opportunity that will translate to a false start; except some urgent means is devised for the NEC’s decisions to segue into a joint platform which the OPS can buy into and implement. Absent that transitional arrangement, in the fullness of time, Nigerians will definitely return to the drawing board to discuss concretely how best to transform their beleaguered economy.


Obaze, MD/CEO of Selonnes Consult, is a strategic public policy adviser, consultant and immediate past Secretary to the Anambra State Government. ©Selonnes Consult Ltd. Nigeria 

Oseloka Obaze, MD & CEO

Oseloka Obaze, MD & CEO

Mr. Obaze is the former Secretary to the State Government of Anambra State, Nigeria from 2012 to 2015 - MD & CEO, Oseloka H. Obaze. Mr. Obaze also served as a former United Nations official, from 1991-2012, and as a former member of the Nigerian Diplomatic Service, from 1982-1991.

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