By Bimbola Oyesola
FOR the Director General, Nigeria Employers Consultative Association (NECA), 2015 financial year may have been a tight belting one, but 2016 without subjecting it to any form of forecast holds more dreadful stories as he submitted that Nigeria’s economy has gone into depression and now in shambles. Though he agreed that the Mohammadu Buhari administration could not be blamed totally for the present economic predicament, he however, noted that Nigerians could not excuse him in terms of the policy options he would embrace to navigate the nation through the tough situation.
Speaking as a member of the Organised Private Sector (OPS), Oshinowo stated that more companies are heading for the graves due to government’s policy of forex restriction which if not reverted urgently may see more Nigerians in poverty as more workers lose their jobs.
On the devaluation of naira, he noted that members of the OPS would not consider it a bad option, provided it would guarantee access to foreign exchange to ensure the survival of industries and the economy. Oshinowo also speaks on the removal of subsidy on petroleum products, privatisation of the refineries, minimum wage and other national issues.
2016 in views
The issue of 2016 is not something that we want to subject to forecast at all because there is no need for that. The point is that eventually, the chicken has come home to roast. The realities are facing each and everyone of us, that today, the experiences of Nigerians across this country, are having are simply indicative of what 2016 is going to look like. Oureconomyisin shambles and that is the truth about it. Honestly, I must say that I do have some measure of sympathy for the government of the day.
It inherited an economy that has gone into depression, and more unfortunately at a time when the price of crude oil has been declining. It’s not the best of context or situation for anybody to inherit. As I’ve said earlier, theissueisnotsomuch about where we are now, they are not responsible for where we are now, so we can excuse them to that extent. What we will not be able to excuse them for is
in terms of the policy options they are embracing to navigate us through this tough terrain. Things are really tough out there. The point about it is that the decline in our foreign exchange reserve, which has necessitated quite a number of administrative measures by the Central Bank of Nigeria (CBN), has been sending businesses and enterprises to their early graves. The unfortunate thing is that the full impact of that is not known to the public yet. You cannot know it in the press, but the truth is that quite a number of businesses arebeginningtocloseshopsor scaling down their operations. What that means in effect is that more Nigerians are going to go into poverty. Because when a company decides to close shop or scale down operation, while it’s assets, machineries might still be there, it cannot keep the human beings. The human beings will havetobesenthome,andthat is exactly what is happening all across our sectors, on the account of the fact that we are still import dependent and if these businesses cannot access foreign exchange to bring in raw materials or machine components or even import machines to expand their operations, they have to cut down on their expenses and those expenses, including salary that are paid to workers. So we have mass retrenchment going on all across our sectors.
Recovery and IMF visit
Beyond the visit of the International Monetary Fund (IMF), we need to look at the nitty gritty of the budget, which include the assumptions. The fact still remains that revenue from crude oil is more important to the health of this economy. If we are import dependent, it then meansthatwehavetohavea healthy foreign reserves to meet the needs of the industries. Our current foreign reserves is not healthy. What should happen
to make our foreign exchange reserves healthy is that, we have to hope for miracles that the price of crude oil will start heading up again. Would that really happen, from the forecast, it does not seems it’s going to happen. Even our budget is predicated on the assumption that a barrel of crude oil will sell for $38. But from what we have seen in the past months, the price of crude per barrel has not even reached $38, in which case if the current trend in respect of the price of crude oil should continue, am sorry to say that this budget will not initiate the recovery that we areexpecting.We’ve gottobe frank with ourselves in respect of this, except there is recovery in the crude oil market, am sorry to say, the Nigeria economy may not experience speedy recovery. Some might want to say that this is an opportunity for us to diversify. We’ve got to look at diversification fromtwoperspectives.Will diversification earn us foreign exchange? The truth is that our diversification may not earn us foreign exchange yet. But things we need to diversify into must be supported by good fiscal policy. They are not things that will give result in the short term of a one year budget plan. Talking about agriculture, our cash crops, are not crops that will startgivingreturnswithin one year. Cocoa farm could not be resuscitated within one year and start producing within one year. The groundnut pyramid will not come up within one year. The palm oil plantations will not give returns within one year. Those are programmes and initiative that will produce results in the medium term, so they will not earn the country the foreign exchange, which
is extremely important. But in termsofadditionalsourcesof revenues from local sources, through taxation and levies, or the key exchange, initiatives of government, yet to some extent that would provide some money for government. But as far as the key sectors are concerned, local sources of finance will
not provide what is required in terms of access to foreign exchange, that is still a big issue and we cannot ignore it in terms of having a guess to a time lag in relation to the recovery of this economy. Another issue in terms of falling back on internal sources of revenue is that perhaps we are extremely optimistic, but economic attributes are shrinking because business cannot access foreign exchange, it will also affect, the potentials of governmenttogeneraterevenues.
When one is in crisis, there are two broad types of policies that must be embraced. There are policy that must be embraced and allowed to stand the test of time. Because the crisis situation must have thrown up basic learning points from the past from which you need those policies to correct over a long time period. An
example of that is the case of importation of rice into a country that has ecological system to plant rice, that is commendable.
Probably if we have continued to enjoy the bumper of the high price of crude oil, nobody would have thoughtofthat. But because there was a glut in the international oil market or we have foreign exchange crisis,
we now have to face the reality. Must we continue to use our hard earn foreign exchange which is diminishing to import the product which we can produce locally, for me that is a good policy direction. In that same category of policy, is the issue of subsidy, do we have the fiscal space to continue to sustain that policy dispensation. The answer is No! While we might not be able to build up the domestic capacity to be self sustaining as far as petroleum products is concerned, we should be able to block the leakages and make Nigerians pay the economic price for PMS. That decision has been taken and we hope that such policy decision will be allowed to sustain for a long time. But there are other policies, which we need to examine almost on a weekly basis, because by their very nature to see if those policies are giving the desired results, as the outcomes are more in the short term than in the long term. If in the short term they are not giving the result expected, then they can be tinkered with. I think that informed the decision of CBN on the reversal of domiciliary account. In that context, I won’t see it as policy sommesault, it is simply wisdom. I think what the CBN did was to tweak the policy to ensure that it gets the maximum results from there and I don’t think there is anything wrong in that.
The 41 ban items
This is where I want to be consistent with the position which I’ve just espoused, that what must have informed the decision of the CBN to come up with those list was borne out of crisis. They are not policies that are expected to be kept for long because they must generate outcomes.
One of the outcomes which they have generated is that those businesses have gone under, with all the employment they have. It is then left for the CBN to review if that was the actual intention, can the situation be salvaged? And the same disposition that has informed the decision that Nigerians can now pay foreign exchange into their accounts, should inform their disposition to sit down and reflect if to reconsider the list of items we have come up with, that should not have access to foreign exchange and I believe that there are quite a number of those items that should have no business being there. The truth about it is that those items are important to our development. We cannot develop or evolve substitutes locallywithin a short time frame and that is where I will expect the CBN to come up withacritical listofthepriority sectors. I understand that the CBN has expanded the list of restrictions, but must now come up with the list of which sector it consider of priority for national development, for which it must accord priority of allocation of foreign exchange so that national development will not really be static. Some weeks ago, the Governor of CBN visited Dangote sites, if for any reason, any of the components which Dangote required for its refinery is on that list, then it would be out of place for CBN to say that it would not provide the foreign exchange because it is on the banned list.
Investors are interested in consistent policies which will make it easier to develop business plan. The condition in the past, was not conducive for any good business man to be able to come up with a business plan, which he can faithfully execute. Though, what we expect is for government to hands off from this issue of subsidy, but what we are hearing now is price modulation, but I want to equate price modulation to deregulation. But government is being careful on the terminology of the removal of subsidy. But we all must come to a level where we know clearly that fuel subsidy dispensation has ended. And the investors must have that conviction. Once that is there, it then becomes much more easier for them to move ahead with the utilisation of the licence they had. It’s a little bit hazy now, what we are hearing now is price modulation. Is price modulation equivalent to removal of subsidy or endofsubsidy? Iwanttobelieve
so and that should send encouraging signal to those who had been given licences to deploy their licences to the establishment of refineries. In any casewiththeDangote650,000 barrel refinery, he would be holding the long end of the competitive stick against any other peer that may want to come in. And from what we’ve been told by 2018, the refinery will be on stream. Majority of it will be for national consumption, but we expect government to make decision on its own combined capacity of almost 450,000. The combination from Dangote and the national production should be able to meet our national demand.
Selling the refinery
The issue simply is who will be in the position to run the refinery more efficiently and more effectively. We have something on ground for ages, those are ground fields, we don’t need bricks and mortars to recreate them. What is required is maintenance. So we have some measures of capacity right on ground to meet some of our requirements, but we are not maximising the capacity. So we need to understand the argument of 450,000 barrels capacity. Over the years we have not even utilised two percent of that capacity, why have we not been able to utilise two to three percent of that capacity? Because it is government owned. Government business is nobody’s business.