By Amechi Ogbonna

If some of the recent developments in Nigeria’s monetary and fiscal space painting a gloomy picture of the economy in the months ahead are anything to go by, then there is indeed an urgent need to worry about the future of the country’s corporate existence as a sovereign state.

With electioneering for general elections scheduled for February 2023 fast on the wings when billions of hot money are expected to be hurled into the financial system to further aggravate the vulnerabilities plaguing the nation, amidst a hawkish monetary policy environment, those with prime knowledge of its consequences are already out with a looming doomsday prediction.

Early this week when the latest National Bureau of Statistics (NBS) inflation figure at 19.64 percent, the highest in 17 years was released, many expressed  concern over the pathetic state of the nation’s currency exchange rate at over N700 to $1 and unemployment figure at over 35 percent.

Already some economy experts have argued that one plausible  remedial actions left for the government to salvage the nation’s embattled economy was to embark on a comprehensive reform to reactivate its moribund productive capacity to make it more globally competitive.

But a cursory assessment of the various components of the Nigerian economy could easily reveal the  rot that needs to be tackled urgently for the country to retain its sovereignty.

For most economy experts, it is ironic for instance that Africa’s largest economy and its biggest hydrocarbon producer has suddenly become a net importer of refined petroleum products.

With all its four refineries in PortHarcourt, Kaduna and Warri, gone prostrate, Nigeria has continued to import refined products from overseas making it to lose the benefits of current crude price rally arising from the Russia -Ukraine war.

This was even as available Federal Government data have shown that Nigeria’s debt service spend in the first quarter (Q1) 2022 was N1.94 trillion, about N310 billion higher than the actual revenue earned during the period.

Part of the distressing revelations was the fact that within the period under review the NNPC recorded N2.39 trillion as gross revenues from oil and gas receipts, but paid out a whopping N2.6trillion in subsidy claims. This was even as an estimated N1.59 trillion was used to cover part of the subsidy costs in the last six months, leaving an outstanding of N1.01 trillion to be recovered from July 2022 proceeds in August.

To compound the situation, all known fiscal buffers including the Excess Crude Account (ECA) that government naturally relied upon in times of distress have virtually been eroded leaving only the internal and external borrowing windows as the only low hanging fruits for the government to run its business.

The alarm triggered by these developments led the International Monetary Fund (IMF) into issuing a warning to the Nigerian government last July to urgently restructure its economy as it became apparent that government revenue underwhelmed debt servicing obligations in the first four months of the year if it should avoid a debt default.

The Fund in its World Economic Outlook (WEO) for July 2022 entitled, “Gloomy and More Uncertain’ put Nigeria’s growth for 2023 at 3.2 percent, an increase of 0.1 percent compared to the 3.1 percent it adopted in its April outlook.

However, in his reaction on the grim outlook for the Nigerian economy, Chairman, Apapa branch of the Manufacturers Association of Nigeria (MAN), Frank Onyebu noted “To say Nigeria’s economy is in dare straights is an understatement.  The economy is actually in comatose and needs a miracle to revive. Sometimes I wonder if this economy can be revived without restructuring politically. When an economy is set  for consumption only without manufacturing infrastructure, it’s difficult to make progress. What we need to do is to  first change the mindset of everybody in Nigeria to start thinking of production and not just consumption.

“At the moment, we are thinking about what we can consume and not what we can produce.  The country needs to go fully into production so as to reduce the dependence on import. We need to export rather than import. Very few businesses are into production, most of them are into importing, buying and selling . We need to change that. If people from the different  regions (states)  begin to think of what they can produce, in terms of  high level of  comparative advantage, things will be better. We should not be thinking about the national cake, what we can get, but we should be thinking about what we can add to the national cake.

“The government has a lot to do, including thinking about how to create the right environment to encourage production and implement the right policies.”

Onyebu further stated that Investment in infrastructure is also very key as there are no two ways about it. Government may not have the resources to invest in all sectors but it must make the conditions  for private sector investment conducive.

It can concession some of these infrastructure to private companies that are willing to invest in them. More companies should be encouraged by government either by way of tax holiday or some other incentives. And so our governments have to be creative.

Today the Nigerian economy is almost dead and something drastic has to be done to salvage it. The governemt needs to realise that other than rushing to share the oil revenue, we need to think about production. There are so many countries that don’t have natural resources, but their economies are doing well. We have abundance of natural resources  but we are not optimising the use.

We need to do something about the endemic corruption that has been there. People are not being punished for being corrupt, so there is no deterrence.

They are bordered about what to share and now truely there is no longer  anything to share.  If the right environment is created, the diversification of the economy will set in naturally and people will begin to invest in diverse  areas. .

When production takes place, there will be employments, when we produce and add value to our products, we will earn forex to boost the country’s lean forex. 

Also commenting, Chief Executive Officer, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, in his response said “We can stratify the challenges of the economy into four categories.

The macroeconomic challenge; which has to do with inflation, debt crisis and exchange rate. The structural challenge, which has to do with ensuring productivity and competitiveness in the economy, driven largely by the quality of our infrastructure.

The third challenge is one of security which has become a major problem now because it’s affecting productivity in the economy especially in agriculture. It is affecting our ability to attract investment from countries also affecting domestic investors from investing.

On the global factor, Yusuf said Nigerians were yet to recover fully from the COVID-19 pandemic when the Ukraine -Russia war that is threatening global food supply chain broke out thus causing  disruption in the energy sector.

He argued that in order to tackle the macro economic issue, the government needs to tackle inflation by dealing with the problem of productivity.

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In this regard, Yusuf stated that government needs to  revive infrastructure, so that the level of competitive output can be improved and increased. “We need to fix infrastructure to be able to support output production and employment that is critical in bringing down inflation.

Another thing we need to do is to reduce inflation and moderate the rate at which the Central Bank of Nigeria finances government deficit which is extremely high at the moment. The cumulative figure now is about N15 to N19 trillion. A major component of inflation is food inflation and insecurity is the biggest problem contributing to food inflation.

If we have not had the kind of disruption to our agric sector, the situation would not have been as bad as this.

On naira depreciation, he  said “If we can address the issue of insecurity and forex, then we can address the issue of inflation.

We also have the revenue collapse. The level of fiscal deficit is high. The level of debt servicing  is increasing.

The way to deal with that is to ensure we restore investors confidence. If there is more investment, there will be more revenue. If there is more revenue, there will be less need for deficit financing and therefore less need for debt.

There is a need to review government’s expenditure. We are still spending the way we used to spend. There is no deliberate effort to cut down on the cost of governance. The issue of oil theft needs to be addressed. We are having a major financing deficit because of oil theft, especially our forex. It is  in our control to ensure security within our own space. If we are able to fix the oil theft issue,  we will be able to restore sanity in our oil producing areas.

On the issue of forex scarcity, exchange rate is a price and is determined by forces of demand and supply.

On the demand side you reduce the amount of importation and be able to strengthen our currency and the biggest pain as far as importation is concerned is importation of petroleum products. If we fix our refineries and encourage Dangote refinery to come on board, things  will improve a great deal in terms of forex with respect to importation of petroleum products.

So forex, refinery and  encouraging  the local production of petroleum products could be one way to strengthen our currency.

Another thing is to look at the policy around the management and the foreign exchange market. The way the  CBN is managing the forex market is encouraging a lot of parasites and people who have no business with forex, who don’t import raw materials or machinery.

Because of the huge premium between the official rate and the parallel market rate, these brokers  are there blocking those who actually need this forex, making a lot of money. So this is happening because the CBN is operating a fixed exchange rate regime. But if the CBN allows for a flexible exchange rate regime, an exchange rate policy that allows market fundamentals to determine price, then all the pressures coming from currency brokers and speculators will be out of the system and we are likely to see a moderation in the exchange rate.

On the supply side, if we have a market-driven exchange rate, we are likely to see more supplies because right now, many don’t want to bring investment into the economy at this official rate because they feel they will be losing money,  because of that the currency exchange policy has become a barrier to the inflow of foreign capital into the economy. So, to unlock those foreign inflows we need to liberalise the market and allow a market of flexible exchange rate. Flexible exchange rate regime will help both on the demand side to reduce all these superficial demand from parasites and currency brokers.

It will help to incentivise more supply into the forex market.

On security, government has been doing a lot, but there is need to do more, to review the strategy, spend more on intelligence and hardware. But you cannot deploy military hardware if you don’t have intelligence. We need sound intelligence to be able to target properly.

Also commenting, Mr Segun Tayo, Kuti-George , Managing Director, Goshen-Multi Nigeria Ltd and the immediate past chairman, Nigerian Association of Small Scale Industrialists (NASSI), Lagos State said “We need government to build industries. When the nation is industrialised, it will boost the economy and more jobs would be created. For this reason our governments at all levels need to encourage production and manufacturing by funding businesses adequately. The government needs to establish more industrial parks to encourage people who have ideas but don’t have the funds to produce and increase value.

Nigerian businesses need access to cheap funds to improve their operations because right now loan facilities from commercial banks are not accessible due to high interest rate and demand for collateral.’ Kuti-George also urged the Central Bank of Nigeria (CBN) to make access to funding easier than what it is today.

“When we produce as a nation,  we will consume what we produce and then we can export earn more forex earnings. Industrialised nations like Singapore Europe and America have parks, that make production easy and boost the economy. For this to happen we need to improve on our infrastructure especially power supply since the cost of production is high due to epileptic power supply among others. Today many businesses don’t have sufficient power supply and the  alternative to public power is expensive.

We can’t be competitive in the market with high cost of production as we have it today.

He further asks, “Why can’t we generate power. We have all it takes to generate power.

South Africa has huge solar farms generating up to 20,000 megawatts, India is targeting 75,000 megawatts from solar energy.

What is the problem with us in Nigeria. The country knows what to do but what is happening?” “Manufacturers  cannot increase the prices of our products anyhow because there are alternative products in the market.

Government needs to know that as Companies are shutting down their operations so will there be increase in crime rate and unemployment. Our government has to wake up to reawaken the  country’s economy.

For his part, Eben Joels, Country Lead Partner at Stransact Chartered Accountants said

“In my view, the Nigerian economy is still a mono-economy which relies solely on sales of crude and this is counter-productive for any developing economy. There was a time when our population was not as high as this and we were making a lot of money especially when international gas prices are high but as of today, our population is rising and our need for gas consumption is also rising. We make a lot of money selling crude and then use the same money to import refined petroleum products from aviation fuel, diesel to premium motor spirit (PMS).

We are even struggling to meet our bills in importation. Previously, we made a surplus, but there is no more surplus because pricing is international, shows that when prices go up, the cost of importing also goes up. Our refineries are not fixed, and rather than the government fixing them they are moving to acquire a stake in Dangote refinery. I do not think the people who run the country take these issues seriously enough to understand that we need to develop our own local refining capacity even if it means empowering local small scale modular refineries. Rather than declare them illegal, the Federal Government could work with them, get them investors to, standardise their processes and create a modular refinery chain. The more we import gas as crude oil prices rise, the more our naira falls. The political class needs to be awake.