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Nigeria’s Economy: Pressing The Reset Button, By Soji Apampa

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Without pressing that reset button and accepting that this is now crunch time – time to fix the fundamentals but have the state invest in expanding local production and processing to create jobs, provide income for the youth and women, and facilitate export markets and the earning of FOREIGN EXCHANGE, we would continue to live a lie, in a fool’s paradise.

It seems the Jonathan administration handed Buhari a pyrrhic victory after all. Going down in history as the president under whose watch the unprecedented growth run was broken must be a very painful thing. Over the last decade, Nigeria’s presidents have boasted of six to eight percent growth in Nigeria’s economy year on year. Jonathan presided over the re-basing of the economy and the consequent pronouncement of Nigeria as the largest economy in Africa, ahead of rivals like South Africa and Egypt but this was short-lived as it was achieved on very weak fundamentals. Every one knew before the 2015 elections that it would be about the economy in the end. Yes, insecurity had to be dealt with and corruption had to be curbed but in critical terms, the real test of the Buhari administration would have to be its ability to resuscitate a dying economy – Okonjo-Iweala having already put everyone on notice by saying, “Nigeria is not broke, we are only having cash flow problems.”

On how well the administration has dealt with insecurity or curbed corruption, the jury is still out as the debates rage on, however we are very much concerned about the handling of the economy at this point. A review of progress with the economy is crucial at this juncture since President Buhari keeps complaining to anyone who would listen that his predecessor left things in a worse state than his administration could have anticipated. The clever retort to that so far has been, “yes we know, and that’s why we hired you. Kindly get on with the job of revamping the economy, else step aside and let those who can take on the task do so” or words to that effect. However, this is perhaps the more superficial view of what the president’s consistent whine may be signaling.

Dwindling oil revenues (and the Minister for Budget and Planning is warning that only 50 percent of the budget will be achieved this year), along with generally low levels of internally generated revenues, mean that there is very little opportunity for patronage payments to be made by anyone so inclined, whether at Federal, State or Local levels, and so there is serious discontentment amongst Nigeria’s elites. The cynics contend this is why many so called “reformist” governors are plugging revenue leakages from ghost workers and ghost pensioners; reforming structures and costs of governance; trying to be more prudent with overheads and promising to reform budgets to ensure more is spent on capital projects than recurrent expenditure – this, of course, will free up some money for patronage payments by those so inclined but squeeze out civil servants through pay cuts, the streamlining of ministries, departments and agencies and all the former beneficiaries of leaking revenues. This is now pitching “reformists” against the civil servants. To top it all, youth unemployment is hitting unprecedented levels and Nigeria’s youth are becoming increasingly restive – those who are clever are working hard to introduce social safety nets and take the edge off the pressure on the system.

…the economy has gone from bad to worse and the phlegmatic approach to economic decision-making by a president who appears not to be particularly interested in the economy or the plight of businesses or those suffering from the lack of stimulation of local production, is further exacerbated by the growing confusion within his team.

These are some of the factors translating what was an economic challenge into a political imperative, as all over the country at every level of governance, Nigeria runs the risk of tilting towards political instability. Palliatives are only short-term pacifiers and the country is fast running out of alternatives to facing the fixing and rebuilding of the economy squarely. It is time for the new administration to reach out figuratively and press the reset button on the economy, preferably, get it back to “factory settings” where food was sufficient and Nigeria was a net exporter of foreign-exchange-earning goods and services.

But who will give Mr. President the confidence to press that reset button when he does not have an Economic Management Team, and there is no Economic Adviser to the President? Some have alleged that Mr. President is not keen on weekly Executive Council meetings because he doesn’t want to discuss procurement (a serious indictment), and by slowing down this decision-making organ, Nigeria’s foreign reserves are growing. This is similar to what pundits suggested happened in the first six months of the administration when the new government realised just how broke Nigeria was: the president held back on appointing ministers and key aides thereby delaying appointment of those that would seek to spend money, presumably till there was actually some money to spend.

In the meantime, the economy has gone from bad to worse and the phlegmatic approach to economic decision-making by a president who appears not to be particularly interested in the economy or the plight of businesses or those suffering from the lack of stimulation of local production, is further exacerbated by the growing confusion within his team. Monetary policy making by the Central Bank (who has totally mismanaged our foreign exchange regime) is totally divorced from fiscal policy making by the Minister of Finance (who is seeking a reduction in interest rates). The planning on the expenditure side done by the Minister of Finance is divorced from the activities of the Minister for Budget and Planning and a coordinated approach to much-needed economic reforms is yet to be felt.

Nigerians for a long time have lived in a fool’s paradise: previous central bank governors used our foreign reserves to intervene in the FX market and that is how they kept the value of the naira steady. This was an easy strategy in the years we had crude oil selling in excess of US$100 pbbl and investors consistently questioned the sustainability of such a strategy. Economics 101 tells you if you do not produce for export you will not earn foreign exchange; if your consumption far exceeds your production, you will end up with a deficit; if you do not stimulate local production and cause it to expand, your people will struggle to find employment; if you depend only on oil, you will suffer when there is a downturn – a diversified economy is better than a mono product economy. Nigeria must restructure the economy and the federal government should take leadership in achieving this. We need a shift towards a developmental state where there is sound and constructive intervention in the economy by the State. What shape should these interventions take? Instead of pressing the reset button, the president is proposing emergency powers for himself (that enable him bypass the Public Procurement Act) and he is being asked to sell off some of Nigeria’s assets to raise funds ostensibly for strategic investment in the economy. Is this the fix we need?

If a man sells off some of his asset to settle some bills but does nothing to fix what got him into the economic mess he is in, what will he do when the next set of bills come in? Sell more asset? When you sell off some State asset like Nigeria is planning to do without fixing the fundamentals, what shall we have to do if the economic crisis deepens?

Nigeria did not fix the fundamentals, which is why her Sovereign Credit rating remained BB- (four notches below investment grade) for at least a decade (2006-2016) when ratings agencies expected Nigeria to have done much better. Nigeria’s US$31 billion debt repayment deal with the Paris Club of creditors; relative political and macro-economic stability; commitment to economic reform, including measures to improve governance, tackle corruption, accelerate privatisation and rationalise the banking system were some of the factors cited by ratings agencies as reasons for Nigeria’s first, but surprisingly high rating then.

In September 2016, Nigeria’s Sovereign Credit Rating from Standard & Poor’s has been further downgraded to B (five notches below investment grade.) It will now be more expensive for Nigeria to borrow funds for her development. But one could contend that failure to fix the fundamentals (extraordinary levels of corruption; weak institutions; slow reforms; vulnerability to oil price drops) has been extremely costly for Nigeria: the previous administration loved to cite ability to attract foreign direct investment as a measure of how well Nigeria was doing with economic reforms but little did citizens know that for every $1 of the very hot, speculative type of investment received, $1.4 was paid out when the investor was exiting and that this, though a major Public Relations coup for Nigeria, was a net drain on her foreign reserves, the same way our artificial propping up of the naira was.

If a man sells off some of his asset to settle some bills but does nothing to fix what got him into the economic mess he is in, what will he do when the next set of bills come in? Sell more asset? When you sell off some State asset like Nigeria is planning to do without fixing the fundamentals, what shall we have to do if the economic crisis deepens? Remember we were told that by allowing the EXCHANGE RATE to respond to market forces, the rates will stabilise and we would all be better off for it. Is that what it is panning out to be? Now, imagine giving the president emergency powers so he could sell off those asset without following public procurement rules, who do you think would be the buyers of our national asset for dirt-cheap? The same national elites who have struggled to make ends meet since this new government came into power!

Without pressing that reset button and accepting that this is now crunch time – time to fix the fundamentals but have the state invest in expanding local production and processing to create jobs, provide income for the youth and women, and facilitate export markets and the earning of FOREIGN EXCHANGE, we would continue to live a lie, in a fool’s paradise.

Soji Apampa, the co-founder of The Integrity Organisation, can be reached at Twitter: @sojapa, and email: soji.apampa@integritynigeria.org.

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