Painful as it has been for the vast majority of Nigerians, the country’s worst recession in 30 years is an opportunity to deeply reflect on the wobbly structure of our country’s economy and learn some basic lessons on how to move Nigeria forward.
PREMIUM TIMES believes that while it is important to focus on solutions that will get us out of our present economic difficulty, it is also necessary that President Muhammadu Buhari and his government, and indeed all aspiring politicians and technocrats that will form future governments, learn from and apply these lessons. These lessons and the solutions we hope will come out of them include fundamental issues of leadership, the formulation and execution of public policy, and national economic management.
Nigeria’s economic recession has remote and immediate causes. The remote causes are well known. They include: (a) the failure to diversify the economy over the years and a dangerous dependency on one commodity (crude oil) for 80 per cent of our national revenues and more than 90 per cent of our FOREIGN EXCHANGE earnings; (b) the failure of the immediate past government of former President Goodluck Jonathan to capitalise on high oil prices to establish strong fiscal buffers by saving for the rainy day. It is important to point out in this regard that some of the politicians who opposed efforts by the then Finance Minister, Ngozi Okonjo-Iweala, to increase savings are members of the All Progressives Congress (APC) that is in power at the federal level today. It is simply a failure of leadership on the part of President Jonathan, and (c) the crash of oil prices that began in 2014 and reduced Nigeria’s revenue earnings.
The immediate causes of the recession lie in the leadership and policy failures of President Muhammadu Buhari and his government, as well as in the reduction of revenues caused by the sharp drop in oil production output as a result of the renewed insurgency and economic sabotage in the Niger Delta. PREMIUM TIMES notes the following:
First, despite all the signs that the economy was deteriorating and should have been his priority alongside security, President Buhari, on coming into office in 2015, ignored the looming economic danger and focused single-mindedly – and, in retrospect, unwisely – on the fight against corruption and the recovery of stolen asset which had populist appeal. This could have proceeded hand-in-hand with a focus on the management of the Nigerian economy to prevent the present crisis.
On the policy front, President Buhari intimidated and blocked the Central Bank of Nigeria from performing its statutory duties of independently responding to challenges in the foreign exchange market. By continuously making public statements that Nigeria would not adjust the exchange rate for the naira, it became difficult for the Central Bank to respond without appearing to openly defy the President. The currency market is however determined by demand and supply, not presidential fiat and the President could not sustain his populist attempt to defend the value of the naira and by the time he succumbed to economic reality, substantial damage had already been done.
It is always unwise for presidents to make direct political comments about monetary and foreign exchange policy that are solely within the purview of the Central Bank, because this could undermine the confidence of the apex bank itself and the external confidence in its independence that is an important psychological factor for market players who seek to invest in the economy. If such investors believe that the playing field is not level because political interference could shift the goal posts in an arbitrary manner, the risk of investing in such a market rises in their estimation.
Secondly, President Buhari’s leadership style has not helped the economy because he has encouraged an over-centralisation of power in the presidency. A small group of his aides – whose competence, motivations and integrity have been questioned by critics – has clearly hijacked the exercise of presidential power and the judgment that necessarily goes into that process. This has created a mindset that shuts out competing views and ideas, and has struck anxiety and paralysis into President Buhari’s government bureaucracy.
The cabinet appears to be a mere window-dressing for minimalist, constitutionally required but disempowered political representation in the government. It is widely known, from the experience with the government thus far, that virtually all-important decisions are made by a very small number of aides in the presidency. The necessary tonic of initiative and intellectual ferment has thus been shut out of economic decision-making for far too long, as has the wide and available talent pool required to rejuvenate economic policy.
Moreover, the extreme inertia that has become the key definitional attribute of the Buhari Administration has stultified both decision-making and policy implementation. The formation of the cabinet was delayed for five months out of a four-year mandate. The delay made it very difficult to make a good and coherent 2016 budget. More importantly, the finances for the implementation of the budget were not secured and government finds itself today with a budget it cannot implement. Had governance started earlier, the bottlenecks and challenges would also have appeared earlier, giving the regime a better head start.
The President spends a lot of time visiting countries but ambassadors to key economic partner countries have not been appointed and there is no legitimate team to pursue the matters discussed. The boards of several key economic institutions have not been constituted, or have only just been constituted, sixteen months after President Buhari’s entry into duty as Nigeria’s chief executive officer. The impression created by this tendency is one of a lack of coherent, well-articulated policy direction for the economy.
Thirdly, the policy mistakes, inconsistencies and flip-flops of the CBN contributed heavily to the recession we face today. The Bank’s artificial pegging of the exchange rate of the naira for 16 months, in the face of all persuasive evidence of the harm being inflicted on the economy, reflected a political and ideological mindset instead of a rational economic one. If the argument is that they were intimidated by Presidential comments, then their leadership is not deserving of the autonomy that is guaranteed to them by their enabling law. The Central Bank must take responsibility for creating a thriving black market for forex, massive inflation that is now at 17.6 percent, scarcity of forex, as dollar liquidity shortages in the market increased, and difficulties with access to forex for manufacturing companies that have led to sharply decreased capacity utilisation, factory closures and a spike in unemployment.
The recession is a direct result of this policy stance. Alongside the failures of the CBN have loomed those of fiscal policy by the government itself. Fiscal policy, which is in the purview of the Federal Minister of Finance, has so far failed to rise to the occasion in a depressed economy. There is still no clear strategy for getting out of the stagflation the economy is suffering from.
In any seriously governed country, these failures would have triggered accountability by the apex of the leadership. What we are witnessing therefore is a leadership failure for which the buck must stop at President Buhari’s desk.
The upshot of all these is a massive loss of confidence in the management of the Nigerian economy by domestic and foreign investors. Addressing the question of this foundational absence of confidence will be critical to getting Nigeria out of recession and back on the path to sustainable growth.
With the foregoing in mind, PREMIUM TIMES believes President Buhari must act decisively and quickly on the following pathways towards a solution:
• The Federal Government of Nigeria has no choice at present but to borrow internationally at concessional rates, but even more important is the need to spend such borrowed funds wisely over the next two to three years to stimulate growth. This requires both a prior economic analysis of how expenditures of borrowed funds will directly correlate to GDP growth, and a transparency by making such planned and actual expenditures available to the public in order to foster accountability in governance and public policy;
• Nigeria’s internal revenue must be dramatically expanded without increasing existing taxes or adding to them; tax collection has to be expanded effectively into the informal economy;
• The FGN needs to set out a more robust set of interlocking fiscal, trade, structural, and industrial policies that target the real economy, prioritise support for domestic manufacturing to create output growth and employment through fiscal duty, tax and tariff incentives to all manufacturing companies;
• President Buhari must rekindle confidence by making changes in his cabinet and the leadership of the CBN. The CBN Governor, Godwin Emefiele’s uninspiring record of performance, as well as his numerous ethical and corruption scandals that appear to have been swept under the carpet, constitute a key factor militating against foreign investor confidence in the Nigerian economy. PREMIUM TIMES strongly believes that there is a need to bring in more renowned, experienced and highly reputed technocrats to lead the CBN and the federal ministries of Finance and National Planning;
• Considering the dwindling confidence investors have in our economy, it is necessary that replacements for these positions to be persons with significant international name recognition, intellectual and professional stature and networks in international development finance and global capital markets; for this is what bolsters international confidence in practice;
• PREMIUM TIMES does not support the call in some quarters for the sale of national asset to get Nigeria out of the recession. Without addressing the more fundamental confidence-building steps set out above, a sale of national asset will be a short-gun approach that may provide temporary relief but would fail to restore foundational confidence. National asset sales would also push us along the path of crony capitalism, as the kitchen cabinet around the President will unload valuable national assets to their cronies;
• The CBN should reconsider the ban on access to FOREX for 41 items and remove the ban. This is an attempt to use exchange rate policy to make what should be fiscal policy. The policy should be scrapped and replaced with high fiscal tariffs for the importation of luxury or non-essential items, and raw material inputs for domestic manufacturing must be exempted from such tariffs;
• Complete transparency must be put in place, and be seen to be in place, in the FOREX MARKET. Anything short of this will continue to impede potential inflows of dollar liquidity that is required to stabilise the value of the naira. In this connection, PREMIUM TIMES calls for a transparency audit of the management of forex allocations by the CBN;
• This newspaper recommends extreme caution in any move to give the President of Nigeria emergency powers to handle the recession through legislative amendments. Any such amendments, in particular relating to procurement, must be time-limited to not more than two years in order to avoid creating an open-ended avenue for possible abuse of the requirements of transparency and due process.
We believe the assessments of the International Monetary Fund and other analysts that the Nigerian economy will begin to climb out of recession in 2017, with growth achieving targets of between 1.1 to 2.5 per cent. Getting a large economy out of recession will not be a sprint. We therefore consider the recent statements of the Governor of the CBN that Nigeria will come out of recession in the last quarter of 2016 as overly optimistic and not supported by deep thinking and concrete economic evidence.
Beyond getting out of recession, which is a short-term goal, Nigeria must remain focused on the longer-term goal of structurally transforming its economy. This requires a deep, well-thought and consistent strategy that should guide not just the present government but future governments as well.
It is the view of PREMIUM TIMES that President Buhari’s government and economic team, as presently constituted, are not optimally equipped for the fundamental tasks ahead. He must seek for new actors that are fit for purpose.