By Bimbola Oyesola
The devastating effects of COVID-19 on every sphere of human endeavour across the globe is not an understatement, specifically, the blow on the global economies. But the President of Nigeria Employers Consultative Association (NECA)’ , Mr. Taiwo Adeniyi, said the pandemic has serious consequences for Nigeria’s economy. Hence the need for more support from government to the Organised Private Sector (OPS).
Reflecting the thoughts and perspectives of the Association on present pressing national and global issues, Adeniyi said Nigeria’s over-reliance on crude oil and lack of support to businesses may make recovery long for Nigeria.
He reasoned that government should go beyond the implementation of the Oronsaye report and deliberately reduce other leakages arising from over-bloated retinue of aides of political officers and expenditure profile with no direct national development impact.
Among other things, he also warned that the uncurbed activities of herdsmen could sound the death knell of government’s effort at achieving food sufficiency in the country.
The Nigerian economy was battered by a crushing recession in 2016 due to the global crash in price of crude oil. Coming out of recession in Q2 2017 with a 0.72 per cent growth and 10 quarters of slow, but steady growth, efforts were ongoing to revive the fluttering economy before the advent of the Coronavirus. Before the outbreak, the outlook for the world economy – especially developing countries like Nigeria – was fragile, as global GDP growth was estimated to be only 2.5 percent in 2020.
Just like it affected the global economy, the COVID-19 pandemic changed the dynamics of global economies with serious consequences for Nigeria. Though the IMF forecasted global growth to be stronger, driven largely by recoveries in the Emerging Markets, this forecast had been rubbished, while fiscal and monetary policies of advanced economies are now focused on containing the virus and keeping the economy going rather than growth and development.
Prior to the scourge of COVID-19, the African Development Bank (AfDB) projected the country’s real GDP growth to about 2.9 per cent in 2020 and 3.3 per cent in 2021, anchoring it on the implementation of the full Economic Recovery and Growth Plan (ERGP) from 2017–20), which emphasizes economic diversification. With the nation’s lack of decisiveness in diversification away from the current predominantly oil driven economy and the negative impact of COVID-19, these projections, to a large extent has become a mirage. IMF in its last reviews projected the country’s GDP to contrast by 3.4 per cent in 2020 and the Federal Ministry of Finance also projected a contraction of 8.9 per cent.
The anticipated growth expected to be driven by increase in disposable income of households as a result of the new National Minimum Wage was also wiped off due to general economic conditions, which has remained unpredictable. As oil prices falter, national debt profile becoming more unmanageable and government revenue dwindles, the government has gone back to the drawing board, starting with the downward review of the federal budget.
In 2019, the world was saddled with the cloudy outcome of Brexit and the US-China trade wars on global economy. On account of these, the IMF had predicted moderate global growth of 3.4 per cent. However, the advent of the Corona virus changed the projection totally. Due to the fear, uncertainty and the assessment that companies’ bottom-line are likely to be hard hit, it was reported that global stock markets, erased over US$6 trillion wealth in February, 2020.
Beyond the unfortunate health, environmental and human consequences of the COVID-19 pandemic, the economic uncertainties, and disruptions that have resulted come at a huge cost to the global economy. The United Nations Trade and Development Agency (UNCTAD) put the cost of the outbreak at about $2 trillion in 2020. Most central banks, finance ministries and independent economic experts around the world have taken solace in the prediction that the impacts might be sharp but short-lived, and economic activities would return to normal thereafter if contained early and economies stimulated. This line of thought reflects the perspective of the events that shaped the 2007 global financial crisis. However, it is quite instructive to note that the 2007 crisis was mainly an economic phenomenon, with its fallout spreading across many regions of the world.
We commend government at all levels for the efforts so far made to curtail the spread of the virus in Nigeria. The many guidelines and protocols initiated by the Presidential Task Force were needful, though sometimes late and hardly enforced. We note the political will that necessitated the imposition of significant restrictions in the movement of persons and goods practically all over the country, especially in states such as Lagos, Ogun, the Federal Capital Territory and the varying degrees of restrictions on movement of persons and goods, including public gatherings and markets within states. The effects of the various restrictions on businesses prompted the Federal Government to introduce fiscal and monetary measures to ameliorate the impact on businesses and save the economy from further collapse. Worthy of commendation is the CBN N50 billion credit facility to households, and Small and Medium Enterprises (SMEs) most affected by the pandemic, as well as N100 billion loan to the health sector, and N1 trillion to the manufacturing sector. In addition, the interest rates on all CBN intervention programmes were revised downwards from 9 per cent to 5 per cent, and a one-year moratorium was introduced, effective March 1, 2020.
While we commend these efforts, we wish to state with concern that organised businesses were basically left in the lurch to weather the challenges alone. With many businesses closed down and many others on the verge of bankruptcy, we had urged government to give attention and support to businesses to ensure their survival and competitiveness. With unemployment rate soaring high pre-Covid-19 and reaching an alarming rate during the pandemic period, it was expected that necessary Job Retention Scheme as proposed by our Association would be given adequate consideration; this was never the case. As full economic activities are on the brink, we, once again, urge Government to take a second look at long term strategic support for organized businesses to enable an accelerated and sustained economic recovery.
With the volatility of global crude price and challenge of dwindling revenue, there is no better time for government to take the issue of diversification of the non-oil economy seriously and take the bold step to remove subsidy on petroleum products. It is obvious that the nation cannot plan its future on the unpredictability of crude prices.
Nigeria had solely depended on crude sale as a main source of foreign exchange, thus, neglecting the rich natural endowments the country is blessed with. We recognize the strict efforts to tap other sources of revenue like solid minerals and agriculture; however, successive governments have only paid lip service to this important step. We expect that more impetus would be given to the exploration and exploitation of many other fronts of revenue in the coming years. As we shift focus from Crude oil, there is no better time for government to complete the total deregulation of the downstream oil sector to save the nation trillions of Naira that annually go down the drain in the name of fuel subsidy. We, therefore, urge the passage of a legislative bill that will address the gaps in the Petroleum Industry. Privatization of the existing three Refineries would further free the economy of Billions of Naira spent on annual Turn Around Maintenance (TAM) of a facility that could not run up to 30% capacity and generating less than 15% of its expected revenue annually.
We commend the President for approving the implementation of the Oronsaye Report, albeit eight years after its submission to the last administration. Over the past years, we have reiterated that the implementation of the Report is fundamental to the institutionalisation of operational efficiency and reduction of Government expenditure in the long term. It is worrisome that with over two hundred and fifty Institutions, Parastatals and Agencies of Government, the average cost of governance in Nigeria remains among the highest globally. We urge that the Oronsaye Report should not suffer the fate of the Ahmed Joda Panel Report and the Allison Ayida Report of 1995.
Recent global economic downturn has proved that the country cannot afford the burden of wasted billions of Naira and over-lapping roles of some of the Ministries, Departments and Agencies( MDAs). Some overlapping activities of the MDAs are, in reality, hindering the Ease of Doing Business efforts of Government. For the cost of governance to be reduced and ensure fiscal discipline, Government must go beyond the implementation of the Oronsaye report and deliberately reduce other leakages arising from over-bloated retinue of aids of political officers and expenditure profile with no direct national development impact.
One of the core responsibilities of any government is to ensure the protection of lives and property of its citizenry. Granted, there are records of successes in the fight against insurgency in the Northern part of the country, however, more should be done to tame the wave of banditry, terrorism, killings and unrest in most parts of the country. In the coming years, the President should show clear decisiveness and intolerance of insecurity in all its forms. Beefing up the technical capacity of law enforcement agencies is core to achieving huge success. It is not out of place to aver that the rising and uncurbed activities of herdsmen could sound the death-knell of Government’s effort at achieving food sufficiency in Nigeria. We suggest a total review of the security architecture of the country to enable a more effective and result-oriented decapitation of the twin-monster of terrorism and banditry ravaging many parts of the Nation.
Fiscal and Monetary policies can promote macroeconomic stability by sustaining aggregate demand and private sector incomes during an economic downturn and by moderating economic activity during periods of strong growth. While we note the efforts at maximizing these policies for national development, the inherent contradictions in the implementation of both leave much to be desired. We urge a coordinated approach by the Central Bank of Nigeria, the Federal Ministry of Finance, Budget, and National Planning, Federal Inland Revenue Service and other agencies for effective implementation of fiscal and monetary policies. These policies should ordinarily complement each other for the development of the national economy, rather than create bottlenecks for investment and business growth.
The shortfall in our transport and power infrastructure has brought a heavy cost to the economy. Congestion due to poor port and associated transport infrastructure created losses of N3.5trn ($9.7bn) last year at Nigeria’s maritime logistic hubs, according to a March 2019 report by the research group African Centre for Supply Chain (ACSC). These losses are set to increase as the population expands and economic growth continues.
While we commend the Government for the strides in road construction across the country and the aggressive investment in rail, more investment is needed in the area of infrastructure to reduce the cost of doing business in Nigeria. We therefore, appeal to Government to give more attention to the deplorable infrastructure, epileptic power supply and delay at the Ports.
In the past few months, while efforts were being made to make the business environment friendlier, especially in view of the damaging effect of COVID-19 to business and the economy at large, the actions of Nigeria Customs (NCS) operative have remained worrisome.
We had earlier drawn the attention of the Controller General to the myriads of issues created by Customs operatives, which has become impediment to the survival and competitiveness of businesses. These issues include but not limited to inconsistencies in tariff classification, excessive duty rate, and improper valuation of consignments, flagrant interception and delay of containers after being legally cleared by Customs amongst many others.
We call on the Minister of Finance, Budget and National Planning and the Controller General of Customs to urgently address these issues as continuous flagrant disobedience of the Law could have serious consequences for national development.
Report on Impact of COVID-19 on Businesses Survey
With the view of gauging the specific impact of COVID-19 on businesses to aid our advocacy efforts, we had, conducted a research into the effects of the pandemic on businesses. Outcome of the research showed, amongst others that 74.2% of surveyed enterprises have stopped operating due to COVID-19, while 15.8 per cent are either fully on site or teleworking. Over 90% of surveyed enterprises noted that limited cash-flow was an impediment to operations and over 90% stated that demand for their goods and services had significantly reduced. The disruption of supply chains resulted in 78.2% of enterprises had supply challenges as suppliers were unable to fulfil orders.