Exiting Recession: Seven Things to Consider, By Oluseun Onigbinde
The problem with this government is that it makes its hay at dusk when the sun has retreated. It waits for six months to appoint ministers, delays a currency devaluation and held off public contracting for over a year. If the recession does not portray that an emergency is needed to fix the economy, we might as well forget this opportunity.
Recession is upon Nigeria. It is important to accept that this phenomenon of negative growth demands an emergency response. The Nigerian economy needs to be wheeled to the emergency room with quick action taken to bring it back to life. Allow me share my seven takeaways that should form our nexus of conversations to exit this crisis before it leads to depression.
States’ Finances Matter
As a son of a public primary school teacher who has put in nearly 34 years at work, my mother not receiving salaries consistently for the last two years have evidently shown me that recession has been on a build-up. Possibly Lagos being the largest entity in national consumption has been “padding” the figures of our growth but the reality is that most state economies have been in limbo. Most of the retail trade happening in states have stagnated with the serial non-payment of salaries and pensions. I have seen my mother’s salary trickle down to bricklayers, poultry feed sellers, fabric traders and market women. Now stagnating that on a wide scale and halting public contracts have crumbled those economies and the Federal Government needs to pay attention to states and ask genuine questions on how to sustainably end their woes. These are the conversations we need to have as a matter of urgency and it points towards restructuring and incentivising it, possibly on a gradual scale.
An Interest Rate of 28 Percent
Most commercial banks have sent a notice of the upswing of interest rates to their debtors, adding to the squeeze of doing business and further deepening the default loan portfolio of the industry. If we really want to be serious, we can’t do extensive enterprise if the interest rate is put at 28 percent. Who breaks even at this point? It has to be those protected by government and who are able to fix prices. The problem in the room is not the inflation rate soaring to 17.1 percent. It is in the floor rate the government borrows. With government risk-free rates inching towards 16 to 18 percent, why won’t a bank take an extra premium of 10 percent on a customer? Few people are already talking of Quantitative Easing to force down the cost of government borrowing and reset the rates. We cannot exit recession without a solution on the cost of borrowing for business and the MPR tools are becoming blunt.
We were here when the former administration with development partners started Youwin, a grant to small businesses to either start or scale up their businesses. We might underestimate the power of this but the model helped birth new businesses and provided risk capital for people. It might not have been perfect but why will the government stop that? The BOI support fund is still inadequate and the grant systems as put out by Youwin is big win to mobilise capital again. If we have nothing to do with recovered loot, this is where to begin. There was a time that Nigeria wanted to set up a technology incubation fund; why has this been taking so long? The Aso Villa Demo Day was great, but distributing that in a more structured manner is a key approach to resolving our current recession. This is also applicable to funding youth-focused agriculture, light manufacturing, entertainment and skills upgrading. Settling contractors will not be enough, you need to put money into the hands of people. Call it an intervention or emergency bailout by the Central Bank, Nigeria needs to do this and set up a proper monitoring framework.
Public Works Programme
I have also been a fan of public works project but do not see the unnecessary need to always wait till we monetise a barrel of oil or borrow from China before we can put down a road. In the New Deal package, a familiar tool to reset the American economy was the public works programme. Not that we are in shortage of bitumen, cement, sand and skills to tar every corner of our roads; it is time to set it up with also the efficiency standards that can be monitored by the private sector. We have a chance to put a lot of people to work rather than dole out billions of naira at N5,000 cash grants. We can set up a standards outfit managed by the private sector. Targeted spending that directly puts money in the pockets of people who can spend it is the antidote to recession, and this is the time to do it.
Public Sector Efficiency
The perception that government lives too large is right there in our face. A recent title I saw that baffled me is that of a Personal Assistant (Communication) to the Special Adviser to the President. For a second, how many personal advisers will a special adviser to the president have? A recent discussion was also on the Personal Assistant to the president on videography. No one has the official list of advisers of the president as anyone now can claim a title. The cost of governance has to come down and it has to reflect in how things are done and effectively communicated to the public. A presidential fleet of 13 airplanes, a N115 billion allocation to the National Assembly, and a large retinue of aides does not portray an economic emergency. A economy in recession goes straight for the public purse and brutally seeks efficiency.
Exchange Rate Conundrum
The nexus between inflation and the steep devaluation of naira due to the “floating” regime is clearly present. Fixing our inflows either comes from rising oil prices, massive foreign direct investment or portfolio investors who see a massive kill in our stock and bond markets. While Nigeria cannot control the price of oil, it is time we make FDI our intricate focus. Things like visa-on-arrival for investors, investment profile documents, ease of business and taxation should happen like yesterday. The Federal Government needs to explain to every potential Nigerian investor where the opportunity lies and also the steps to make that happen. If we are not keen on doing this properly, rather than drag forex to unappreciable levels, I am of the opinion that we seek short-term IMF loans. Ghana did it and has not left the face of the earth. Possibly if some good looking people with starched shirts, with briefcases and bottled water from IMF ask for reform in exchange for a forex bailout while our economy takes the adjustment, possibly we will listen.
The Government Revenue Challenge
Nigeria has an expenditure efficiency problem, I agree but a looming challenge is the size of our public revenues, a function of the abysmal low tax income. I see we quibble that the Federal Government spends N165 billion on personnel costs monthly but 60 percent of that is spent on doctors, the military, police, paramilitary units and teachers. We will have to fix the civil service efficiency but the time of recession is not appropriate to sack public workers. It is time for the country to properly price its other resources and actually take taxes or rent appropriately.
The solid minerals contribution to the National matrix is too woeful, our size of VAT relatively to our GDP because of a huge informal space is too small, and we have also not made tax compliance easy. Expanding the tax net is critical and it happens with formalisation of businesses and proper accountability. I hesitantly support the nine percent tax on communication but I feel the states need that more. Maybe it will raise civic interest in accountability in states, a current need to fix their fiscal woes.
The problem with this government is that it makes its hay at dusk when the sun has retreated. It waits for six months to appoint ministers, delays a currency devaluation and held off public contracting for over a year. If the recession does not portray that an emergency is needed to fix the economy, we might as well forget this opportunity. When confidence is lost, it takes a while with painful work to regain it as we currently see with desert of portfolio investors. If things are not handled with haste, this government is already expending away its goodwill and might be left with a empty account with its citizens.
Oluseun Onigbinde is the Lead Partner of BudgIT, a civic organisation that works to improve public sector accountability and civic engagement.