Amechi Ogbonna and Bimbola Oyesola
In his 2020 Democracy Day broadcast to Nigerians last Friday, President Muhammadu Bihari, gave a terse indication of his government’s achievements in the economic a space but wasn’t quite robust on plans to diversify and strengthen its weakened fiscal buffers. The president frankly acknowledged that the broad objectives of his administration remains to stabilise the macroeconomy, achieve agricultural and food security, ensure energy sufficiency in power and petroleum products, develop infrastructure, fight corruption and improve governance.
He pointed out also that despite witnessing eleven quarters of consecutive GDP growth since exiting recession in 2017, growing from 1.91per cent in 2018 to 2.27percent in 2019, the economy declined to 1.87 percent in the first quarter of 2020 to a slump in global economic activities due to the COVID-19 pandemic, a development he said touched every single economy in the world, but with relatively moderate impact on Nigeria.
“In order to stabilise the economy, the Monetary Authority took steps to build the external reserves which resulted in improved liquidity in the foreign exchange market. The external reserves grew from $33.42 billion on April 29, 2020 to about $36.00 billion in May, 2020 which is enough to finance seven months of import commitments.
Agriculture remains the key to our economic diversification strategy.” The Nigerian president said in the broadcast.
Buhari’s allusion to efforts of the monetary authority in the fight to keep Nigeria’s economy running stemmed from initiatives it had taken at the outset of the COVID-19 pandemic and particularly with the introduction of six critical policies to essentially simplify borrowing conditions for small and medium-sized businesses currently under its several intervention funds.
This also included interest rates reduction from 9 to 5 percent and extension of the loan repayments by 12months.
Indeed, the key beneficiaries of the apex bank’s reprieve included farmers under its Anchor Borrowers Programme and other SMEs in sectors such as textiles, food processing and power among others.
The Godwin Emefiele – led bank had included healthcare and other coronavirus impacted businesses to its intervention fund privileges to broaden its impact in addition to announcing a N50 billion credit facility to support businesses and working with banks to continue lending to the productive sectors.
However, like Oliver Twists, while Nigerians were still awaiting for more government interventions to help stave off a potential slip into recession, the CBN came out with the directive that households and SMEs applying for the N50 billion COVID-19 Targeted Credit Facility would no longer be required to provide guarantors before accessing the credit facility.
This, according to a brief press statement posted on its Twitter handle was part of its strategic plan to forestall all distortions that the impair economic activities in the various sectors of the economy in a time of emergencies like the current pandemic.
But even as Nigerians look forward to a more vibrant economic atmosphere to actually enthrone a stronger and more diversified economy amidst a volatile COVID-19 environment, the feeling among most observers really was that the magnitude of shock suffered by the economy in just about a quarter of lockdown, could have been abated but for its lack of depth , its low level of diversification, poor infrastructure, high unemployment rate and import dependency especially for industrial goods and services among several gaping voids yet to be filled five years after the administration came on board.
Even as the president acknowledged the impact of various interventions by the monetary authorities to diversify the economy, weak response to global shocks is often symptomatic of its insufficient buffers required at crisis times to navigate tough challenges like the COVID-19 pandemic.
Meanwhile, as the global community takes stock of cost of the pandemic on economies of around the world amidst efforts to contain its impact, experts including Nigeria‘s Organised Private Sector in separate interaction with Daily Sun listed some imperatives and policies government needs to deploy to stave off a second wave of crippling economic recession.
For Nigeria that only exited a recession in 2017 following a debilitating crash in global crude oil prices in 2015/16, sliding into a second economic recession three years later could turnout a disastrous gamble for both the government, the private sector and indeed the citizens considering its far reaching implications in a pandemic.
The advice came as some of the world’s leading economies admitted they also took a huge haircut in GDP losses over the last three months on account of socioeconomic lockdowns arising from the pandemic.
As at last Friday, the British Government came out with damning evidences that its economy contracted by more than 20 percent of its GDP, even though Prime Minister Boris Johnson, remains upbeat it would rebound in no distant time.
In Germany, Chancellor Angela Merkel, said her government is set to inject about 130 billion euros ($146 billion) into rebooting an economy severely hit by the coronavirus pandemic.
The measures include temporarily cutting of value-added tax from 19percent to 16percent providing families with an additional €300 per child and doubling a government-supported rebate on electric car purchases.
In Nigeria, the journey into a second recession after three years looks like a foregone conclusion with the huge hit the economy had taken since March 2020.
For one, crude oil, Nigeria major foreign exchange earner was on a free fall from the early days of the pandemic due to falling demand consumer demand in major industrial centres across the global following the lockdowns.
With key parameters of 2020 budget already reviewed downwards and global supply chains still disrupted, the threaten to local manufacturing with implications for job and wealth creation looks huge without more government interventions.
Alarmed by this unhealthy trend, President of the Senate, Ahmad Lawan, last Thursday assured the upper chamber would, going forward focus more on how to keep economy from going into recession.
Lawan made the pledge in his message on the 1st anniversary briefing of the 9th Senate during plenary marking the one year anniversary of the 9th Senate.
According to him, “in the next one year, we should focus on how to keep our economy from going into recession.” Over the last one the Red Chamber boss said it had approved a borrowing plan of over N10.08 trillion for President Buhari’s as part of measures to keep the wheels of the Nigerian economy running.
Aside the Senate pushback against a second recession, other stakeholders including the organised private sector, the Labour centres among others have been urging the Federal Government to focus its COVID-19 interventions on diversification and tax reliefs to stimulate the economy, promote growth and make it more sustainable to avert impending recession.
Both the OPS and Organised Labour hold the view that the key lessons from COVID -19 pandemic and the collapse of crude oil price are a pointer to the fact that Nigeria’s economy can no longer grow sustainably on its monolithic oil revenue source.
The Lagos Chamber of Commerce and Industry (LCCI) for instance, argues that the collapse of crude oil price remains the single biggest shock the Nigerian economy had seen in recent past.
The Chamber therefore advised that the focus of government’s economic diversification going forward should be on resource-based industries – agro allied, oil and gas, manufacturing with high local content.
LCCI Director General, Muda Yusuf, believes that diversifying these sectors would strengthen the capacity of the economy to create jobs, drive inclusive growth, promote income redistribution, and generally impact positively on the economy. He said, “A great deal of potential still needs to be unlocked in the oil and gas sector – refineries, fertiliser plants, gas-based industries, petrochemicals. We need to put an end to being just a crude oil exporter to becoming self-sufficient in petroleum products and export of refined products and other gas related products.”
Yusuf also listed three critical factors crucial to driving economic diversification in Nigeria to include quality of infrastructure, the quality of policies and quality of institutions, adding that getting these key parameters right would be crucial for achieving sustainable development.
“It is equally critical to ensuring proper alignment among these key variables to achieve sustainable economic diversification.
“The policy factor has many dimensions – monetary policy, forex policy, interest rate policy, tax policy, trade policy, procurement policy and investment policy. Each of these policies has a major role to play in the economic diversification process. The policy mix must be right for the desired outcomes to be achieved,” he said,
The LCCI boss further stated that the monetary policy for instance should be designed to drive domestic investment through a moderation of the monetary tightening stance of the Central Bank of Nigeria (CBN). According to him, this is needed to moderate interest rate in the economy, noting that it would be difficult to drive domestic investment at current levels of interest rate at well over 25 percent for most economic players, his call on the management of the Central Bank of Nigeria led by Mr Godwin Emefiele to ensure a moderation of lending rate to guard against the private sector being crowded out of the financial system.
“Happily, this is beginning to change with the recent policy measures introduced by the CBN and the various interventions in the development finance space,” he said.
The LCCI DG, said the foreign exchange policy is another very important policy component which impacts economic diversification,
warning that a forex regime that perpetuates a rent economy would not serve the cause of diversification but rather create opportunities for arbitrage, corruption, resource misallocation, impede the inflow of investment, and create transparency issues in the allocation of forex.
He added, “The multiplicity of rates in the foreign exchange markets is inimical to sustainable economic diversification since Inappropriate forex policies could impede the inflow of foreign exchange into the economy and contribute to the weakening of the currency.
“It is also important to avoid a forex policy regime that penalises domestic production and incentivises imports. Such policies inadvertently undermine the country’s drive towards self-reliance.” He also condemned the aggressive tax drive, that is disproportionately targeted at investors and inherently a disincentive to investment and economic diversification, adding that in an economy that is almost 50percent informal, taxation structures need be business friendly.
Other policies advocated by the LCCI boss include trade policy that should be focused on incentivising resource-based industries which typically have competitive advantage and good impact on the economy because of the high multiplier effect.
For its part, the Nigeria Employers’ Consultative Association (NECA) while commending President Muhammadu Buhari for the various initiatives and achievements listed as milestones of his administration during his June 12 address, the association expressed it believed much more could have been achieved.
NECA Director General, Timothy Olawale said his association had hoped that after five years, the security issues and a clearer path to the diversification of the economy would have been decided and followed to put Nigeria on a stronger growth trajectory.
“It appears that insecurity is now the order of the day, the Northwest region has now turned to hub of banditry, kidnapping and armed robbery are a concerns to Nigerians across the country, especially in the South.
He expressed concern that for Nigeria, the GDP has remained below the desired targets (growing below population growth rate) despite 11 consecutive quarters of positive growth averaging 1.87 per cent from Q2, 2017 to Q1, 2020.
He said, “With the tepid growth of GDP in Q1, 2020 coupled with declining foreign reserves, a fall in the price of crude oil & the outbreak of COVID-19, the Nigerian economy will contract in Q2, 2020.” However, for this contraction to be averted in subsequent quarters thereby avoiding recession, there must be synergy between Fiscal & Monetary Policy mechanism to revive and stimulate economic activities. “We urge that the recently submitted Economic Sustainability Plan by the Committee led by the Vice President should, without any further delay, be implemented in addition to other plans needed to keep the nation’s economy afloat to fight back the negative impact of COVID-19 on businesses . Government should also grant tax waivers for the rest of the year, among others to sustain companies to retain staff strength. “We urge that greater attention should be given to the real sector of the economy to enable it drive economic recovery, job creation and national development.
“A lopsided recovery plan without the collaboration and partnership or organised businesses will only achieve results on paper without real positive change in the economy or life of Nigerians.”
For Organised Labour, the resort to economic stabilisation and austerity measures by the Federal Government would only further worsen the current economic crisis.
The Nigeria Labour Congress (NLC) said experience from other countries including Nigeria should come handy at this time. NLC President, Ayuba Wabba, warned government against cutting down on budgetary allocations to education, health, agriculture and infrastructure as these sectors are critical for the needed economic rebound and growth.