By Bimbola Oyesola
Things are really hard for the Organised Private Sector (OPS) and as a big player in the economy, the Director General of the Nigeria Employers Consultative Association (NECA), Olusegun Oshinowo, believes that the Muhammadu Buhari-led administration urgently needs to come up with policies that deliver benefits to Nigerians in the short term.
He noted that most policies of the government had failed to deliver meaningful outcome more so on the availability of foreign exchange, where Nigeria has a huge supply gap of almost $2 billion.
Oshinowo stated that in 2017, the economy may not be any different from 2016 despite hopes being expressedby various stakeholders, considering that the basic variables that made the economy to move in that direction have not been addressed in the 2017 budget.
He speaks more on reasons the Federal Government has no other option to fund the 2017 budget than to borrow, the need to sell the nation’s four refineries and the inability of the economy to pay the new minimum wage among other issues relating to the economy.
Excerpt:
2016 in retrospect
Looking back at 2016 would simply amount to rewinding the tape of what I called pains, agonies, negativism about our economy. When you look at all the indices, is it the exchange rate of our currency, the convertibility of our currency, interest rate, availability of foreign exchange to oil the wheel of the economy, everything tended towards negativism absolutely. Of course, the statistics are quite clear, the last three quarters of the year, the economy has been in recession. In fact, if you break that further down, you will discover that it is only some pockets of sub-sectors of the economy that have been able to keep their heads above water. Probably, the entertainment industry recorded marginal growth, insurance and finance have been able to record marginal growth. But the rest of the sub-sectors – building and construction, hospitality and hotels, manufacturing – were all under water. So the story of 2016 is really the story of pains, agonies, woes and just name it.
$30 billion loan
First, we must realise that nobody goes out to a lender to borrow money, except there is a reason for it. A typical attitude of a man would be to be debt free. So if a man, a country or an institution says, we want to take loan, it must have been borne out of the fact that such cannot generate the resources required. That’s a fundamental issue, and Nigeria can be on that page. In 2016, we ran a budget deficit; how will government be able to run its deficit, government cannot just print currency to fund its deficit. So the very context and outlook of the budget deficit exposes one to the imperative to go and look for means to fund the budget deficit. We’ve come up with the framework for the 2017 budget, so the outlook and the context of the deficit, probably of bigger magnitude, how are they going to fund it? But the question we should be asking is not whether we should approve or endorse their decision to borrow. They have no other option than to borrow. What we should be showing interest in, is why are they going out to borrow? What are they going to use the fund for? If the bulk of the fund they are going to borrow is going into the recurrent expenditure, there is going to be a big problem there. We should be telling government to share with us the specifics of what they are going to use this money for. I don’t know whether Nigerians are already asking that question, but that’s really the question I would be asking. Because I do realise that they don’t have any other option than to borrow in order to fund the budget.
But what is of interest to me is, is the money you are going to borrow going to fund your recurrent expenditure? Which, in my view, is still very high. Even though the percentage earmarked for capital expenditure in 2017 budget is a little higher than what was earmarked for capital expenditure in 2016, even at 30.87 per cent of the budget, I still consider that low to actually improve our infrastructure so that we can improve the environment for doing business. So government should come up with a more specific list of what it’s going to do with the money it intends to borrow. So that on a quarterly basis we can hold our government accountable.
Appraisal of 2017 budget
As I’ve said, we need to know what the money government is planning to borrow is going into. What it would deliver to the ailing economy will manifest over a time frame of short, medium and long term. But the key thing is for them to be on the right track in terms of ensuring that their expenditure, attitude and profile gesture is what will boost the economy. Let’s take the short term; I want to hear from the government in a very clear term, what its plans really are to boost the source of foreign exchange. We must look at policy that must deliver benefit to people at short term. We need something that will give some respite to Nigerians. This is because the gap between our needs and what we have in supply is quite huge, it’s almost about $2 billion. So we need to look at government policy options that will ensure that we reduce those gaps. What are those options – sell unproductive and derelict national assets.
The second thing is, we need to reduce the use of foreign exchange for what I call non-critical sectors or non-critical items. What are those? Government did come up with the list of banned items last year. We’ve got to accept the fact that there are some items we import that are non-critical to this economy. Anyone that still wants to be involved in that should not have access to government foreign exchange. Honestly speaking, I believe in that because in a situation of scarcity, there is need to draw up scale of preference.
Then thirdly, government must address the issue of militancy in the Niger Delta. This is because we are not maximising our OPEC (Organisation of Petroleum Exporting Countries) quota. We have a quota of about 2.2 – 2.4 barrels, the much we are doing now is under 1.8. In which case we have the potential to have boosted our foreign exchange inflow but we are not because of the militancy in the Niger Delta. We cannot discount the imperative for government to have a blueprint for ensuring peace in the Niger Delta, so we can take maximum advantage of our OPEC quota. I’m yet to see or hear what government is doing along that line. If government is able to get its acts together on those two issues, increase the flow of foreign exchange and guarantee peace to some extent that would boost more supply to the foreign exchange market. This would also stem inflation.
In the medium and long term, one would expect government to be looking at the bigger issue of how we can promote made-in-Nigeria goods so that we can consume what we make and beef up our domestic capacity to produce and export those items. We are more an importing country than an export country and for as long as that remains, it would limit our potential for meaningful economic growth. But for a net exporter, it would boost our supply in terms of foreign exchange, and it would also reduce our need for foreign exchange. Government simply has to look at policy options that will transform Nigeria from being a net importer to a net exporter so that it can promote meaningful economic growth.
N56,000 minimum wage
There are two ways I can look at it, first, as a representative of employers, equally as an economist or probably from the two perspectives. I’m not an economist but I have economic understanding. Let me first look at it from economics angle; consumer expenditure is one of the critical variables that drive the growth of any economy and the GDP growth. Nobody can dispute that and I’ve always given a classical example of the US economy where consumers’ expenditure on its own contribute not less than 60-75 per cent to GDP growth. So we can’t discount consumers expenditure as drivers of growth. However, due to inflation, disposable income has significantly reduced.
Other things that have contributed to this include the failure of government to pay salary to its staff. High unemployment has equally led to the virtual collapse of the disposable income. So on the face of it, this economy should be able to benefit from consumer expenditure; that is standard normative economic principle. But when you juxtapose that against ability to pay, then you got to choose between the two. So even though consumer expenditure should drive growth, the fact is the economy cannot afford it for now. The economy will have to draw up the list of its priorities among key drivers of growth. What are those key drivers of growth? I’ve mentioned consumer expenditure, investment also is a key driver of growth, government expenditure is equally key driver of growth, the nation’s net exporter is also one. Now, when I look at all those four variables, if our current economy is constant, it would not make it possible for us, it would rack up consumer expenditure so it can drive growth, but what else do we have?
Investment is not going pretty well for us because our environment is not encouraging investment, and beyond that, the instability and inconsistency in the foreign exchange market is making many would-be investors to take their time. Consumer expenditure and foreign direct investments are not going well, we are left with two variables, government expenditure and net of export and import. The net of export equally is not going on well because we are not an exporting country. So we are only left with one variable, which is government expenditure. Take 2016 budget as example, government is the biggest spender in the economy. To what extent did government spend in 2016? As at October 2016, we had only spent about 35-40 per cent of the capital expenditure. Where would growth come from? The question is, is the time right for salary increase? On the face of it, standard economics, we need to get that via income, but the economy cannot afford that now. That is the truth about it. I can bet it if we are to conduct a poll, even among Nigerian workers, and they are asked to choose between job security and income enhancement, 100 per cent of workers would opt for job security.
Job security in that situation is not constant, that would make you to wake up in the morning and you are assured that you have a place of work to go.
I can bet it, outside the comrades circle that speak on behalf of workers, if individual workers should be asked to make a choice between job satisfaction, income enhancement and job security, they would all go for job security.
2017 outlook
I must commend government of the day for going on a roadshow and having a town meeting to raise the hope of Nigerians. I would not have expected them to do anything less. We actually need somebody to do that. I must also praise the churches and the pastors and imams for raising the hope of Nigerians on a continuous basis. At least, we have something to look forward to and we just pray that hope will deliver its good dividend to us. We are all creatures of hope, that’s what keeps us living. But unfortunately, when you look at the horizon, and the facts, seeing a situation where this trajectory with all the features already listed is likely to continue in the same direction in 2017 because the basic variables that have made that trajectory to be moving in that direction have not been addressed in the 2017 budget. So why would I expect the result to be different from what we had in 2016. But I just want to end my comments on the basis of aligning with the government, aligning with the pastors and with the imams in asking Nigerians to be hopeful of a better time to come.
Government policies
The truth about it is that we’ve not seen any meaningful outcomes and benefits from some of those policies. It may well be that the gestation period for those policies are such that you cannot expect immediate outcomes. But talking frankly, when you examine each and everyone of those policies, you discover that you can’t pinpoint anyone of them that has delivered meaningful outcome. As I’ve said, every policy has its own gestation period, some of them probably will start delivering on outcomes in the medium term, and I can give example of such policies. Take the decision of government to ban importation of rice through the land borders and given the huge appetite of Nigerians for rice, which is a product we can cultivate locally, some investors have been encouraged to go into rice cultivation. Now, those who have gone into it have started delivering the outcome of their initiatives. Recently, the governors of Lagos and Kebbi states were eating what they called lake rice, which the Lagos State government was selling at affordable price to Lagosians. That’s one positive outcome of government policy to ban importation of rice. But the capacity that has been built up since that policy was announced is still not sufficient to meet the consumptive capacity of Nigerians. I do understand that other investors have gone into it. Using that as an example, that’s one policy that is going to run a full circle of its gestation. When it eventually runs the full circle of it’s gestation, then this economy will enjoy the full benefits of it in terms of reduced demand on foreign exchange to import rice. So one must commend government for that kind of policy.
But when you look at other policies of government, it’s pretty difficult to really pinpoint anyone of them that has even delivered the kind of marginal outcome, which the policy on the ban of importation of rice through the land border has given us. But for me, the issue is not so much about whether we have started enjoying the benefits of those policies. The issue for me is more about whether eventually, in the medium term and the long term, those policies will deliver on their intended outcome. Take the issue of our foreign exchange market, the Central Bank of Nigeria (CBN) has become probably an expert in churning out policies but have they delivered on the outcome? Of course they have not delivered on the outcome. Why have they not delivered on the outcome? This is because the problems are fundamental and until we address the fundamental issue of why we are having scarcity, any other policy by the CBN will not give us any outcome. It’s simply the issue of not having enough foreign exchange to meet the needs of the economy.
So CBN should start tinkering with the policies. This would only give what I call palliative in the short term and that palliative will not last. That probably explains why CBN, from time to time, comes up with another policy to see whether such would give a desirable outcome. But the point is, this won’t happen until CBN actually puts its finger on the fundamental issue of how to push supply so that there is sufficient supply to meet demand. The unfortunate thing is that in their attempt to come up with policies, they’re beginning to sound very desperate about it, and which is probably making them to make certain comments which some of us cannot connect with. Like it’s been said that they want to ban the black market or get the black market under. That, for me, does not make any sense. The question they should ask themselves in the first instance is what gave rise to the black market. If as a Nigerian, I want to travel abroad and I’m entitled to PTA (Personal Travel Allowance) of $4000 and I must travel for whatever reason, and I’ve now approached my bank to exercise my right of obtaining $4000 PTA and my bank tells me sorry, they don’t have sufficient foreign exchange to give and I must travel. Definitely, I must look for an alternative; and I now approach another official outlet, which is a BDC, and the BDC is actually telling me the same story, the truth about it is that since I must travel, I must find another source. If that source now has to be the black market, where I’m going to pay a higher price to get my product, then I would be much more than willing to obtain it from the black market. So it is that kind of experience and situation that leads to black market. It’s like that anywhere in the world, standard economic principle where supply of a product cannot meet up with its demand, a subterranean market would emerge and it is the subterranean market that we call the black market. So to get the market completely under, all you need to do is to boost supply. But they are not telling us how they are going to boost supply, so whatever attempt, whatever policy they may want to come up with, as far as I’m concerned, is dead on arrival. Because the fundamental issue in regard to demand and supply has not been addressed.
Unfortunately, government is shying away from embracing some tough decisions that would enable them to boost the supply. Yes, they are looking in the direction of other policies that have the potential and I’m watching my words, that have the potential to boost supply but they don’t have complete control over the outcome. Remember it was the recognition of the fact that if government should loosen up on the control of the foreign exchange market, and allow the naira to find its level, there would be inflow of Foreign Direct Investment (FDI). But to what extent really have we had FDI on account of the loose space they are giving the foreign exchange market to play in the market? To a lesser extent. But there are policies open to the government that would make it easy to bring foreign exchange to the country. If you ask me, can I give example of such, government of course knew that and they flew the kite in the public domain but when they saw the reaction of the public, they moved back into their cocoon. Why on earth would anyone want to continue to hold on to unproductive and derelict assets? If I have a vehicle that is smoking, a vehicle that is draining me of resources for maintenance and I have another vehicle that is good, why would I want to keep that vehicle in my compound? Why would I want to continue to use that vehicle. The truth is that this country has some assets that are unproductive, that are derelict, and they are like smoking vehicles that government has no business in hanging on to. Take our four refineries, for instance. They are like the smoking vehicle. Why can’t government sell those refineries? Wouldn’t that bring in some foreign exchange for us? But instead they are talking about investing some money to still fix a smoking vehicle.
How about social responsibility?
It is rubbish! The issue is simply economic. I have an asset, it is unproductive, instead I’m spending money on it, yet it’s unproductive, it doesn’t make sense for me to continue to hang on to it. It is not an emotional decision. It’s a decision of the head and not a decision of the heart at all. So government should explain why it’s still hanging on to those four refineries. I’ve used that as an example, but I know that there are other government assets dotting the nooks and crannies of this country that would fall into the category of unproductive and derelict assets that other people can still take and turn around and decide on what they want to do with them. But, at least, the money that Nigeria would have realised from the sale of these assets would boost our purse and can be used to focus on other projects that would be of benefits to Nigerians.