“Economy could slip into recession, CBN warns.”
News report, September 23, 2015.
BEING ECONOMICAL WITH THE TRUTH
The report went on to state: “The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday warned that the country’s economy could slip into recession next year if proactive steps were not taken by the Federal Government to revive key sectors” .. Ordinarily, people reading that statement, and believing it, would be excused for thinking that the CBN and Governor Godwin Emefiele don’t already know some truths which render their statement more political and self-serving than economic. Unfortunately, the CBN and the Monetary Policy Committee already know that a recession in 2016 is inevitable.
The call for “proactive steps”, meaning vital fiscal policy, betrays their failure to level with Nigerians and the international community – the latter has a vital interest in our economy and its confidence in Nigeria is crucial to our recovery from impending recession.
The CBN knows better than anybody else that, as China goes, so goes much of the global economies. A most recent survey showed that Chinese factory output had fallen to its lowest level in six and a half years. Big economies on the skid cannot be turned around in a hurry.
The same CBN is aware that exports of crude are expected to fall to 56.66 million barrels in November. That is 1.89 million per day instead of the 2.04 million planned. December shipments are not expected to be significantly higher.
What sort of “proactive steps” can be taken between now and December to avert a total year decline from last year? Economics is not magic. Even if it is, where is the magician now?
THE ECONOMIC FACTS CONFRONTING US
The CBN and keen watchers of the economy are aware that the National Bureau of Statistics, NBS, announced that our Gross Domestic Product, GDP, grew by 2.35 per cent in the second quarter of this year – which ended in June. It was the second quarter in a row that the economy will record less than budgeted performance. Incidentally, 2.35 per cent growth, when the population continues to grow at close to 2.85 per cent, means that the average Nigerian is getting poorer.
Furthermore, the NBS projects that year-end GDP growth will be about 2.63 per cent. That is still less than half of the budgeted growth. Additionally, the third quarter is over and there was no economic stimulus to accelerate the rate of GDP growth from the abysmal 2.35 per cent recorded in the second quarter. As we enter the fourth quarter, the focus of the Buhari administration has been to fight corruption and Boko Haram. Economic policy makers are not required for those.
There has been a distinct absence of focus on the economy as we can see in the fact that neither a Chief Economic Adviser, CEA, nor a Minister of Finance, has been appointed. By contrast, one of the first major appointments made by former President Obasanjo in 1999 was the CEA. Like it or not, a strong economy is the bedrock of the nation. Neither corruption nor Boko Haram can be successfully fought if the economy is in shambles.
Vice-President Professor Osinbajo, SAN, apparently, has been saddled with the economic policy portfolio at the moment. Professor, yes; Senior Advocate of Nigeria, certainly, but he is not an economist. Nobody knows better than the CBN Governor that only experienced economists can develop the “proactive steps” required to stave off a recession next. At any rate, there can be no “proactive steps” hereafter because, with the fourth quarter upon us and the first quarter of 2016 on its heels, nothing done now can prevent the GDP from growing at less than 3.00 per cent in the last quarter of 2015.
THE GLOBAL PERSPECTIVE
Nigeria, being heavily dependent on trends in the global economy and especially export of crude oil, cannot escape the downturn worldwide. Apart from the United States (US), which grows steadily at about 2.6 per cent per annum, driven by near zero interest rates by the Federal Reserve Bank, the rest of the world presents a scenario in which governments all over are grappling with economic reversals.
China, the world’s second largest economy, has experienced GDP growth slowing to as low as 5 per cent from the previous double digit of a decade ago. Japan, the third biggest economy, has now adjusted to the fact of recession. Russia, tucked between Asia and Europe, has also slowed down. Brazil slid into recession last quarter and South Africa’s economy is stalled. Altogether, the BRICS (Brazil, Russia, India, China and South Africa) countries, which had powered the global economic surge in the last 15 years, are either slowing down or failing despite active government intervention in their economies.
At the moment, there is no discernible Federal Government plan to avert the threatened economic decline.
PROSPECTS FOR 2016
Nothing hurts an economy and the people of any country more than self-delusion of its top officials. In that news report, the following was stated in the final paragraph: “On the exclusion of Nigeria from the JPMorgan Index, the Governor said the Central Bank would continue to play its role of engendering growth and impacting the lives of the people”.Emefiele must be dwelling in his own self-constructed paradise.
The economy grew at 6.54 per cent in the second quarter of 2014; the growth dropped to 2.35 per cent this year. The final year projection for 2015 is expected to be 2.63 per cent compared to 6.22 per cent last year. Last year, we were strongly listed on the JPMorgan index, enabling Nigeria to obtain loans/credit at favourable rates. Now, we are out of it; and the country will pay more to borrow.
The Treasury Single Account (TSA) policy imposed on banks by the Buhari administration is already having its predictable effect. Liquidity is low in the banking sector and interest rates are escalating – portending lower investments. Foreign investors are divesting from the Nigerian Stock Exchange (NSE) and crude oil prices are likely to remain low for the whole of 2016.
Meanwhile, there is no discernible fiscal policy which should drive the “proactive steps” which the CBN is advocating. Everything, mostly government inertia in responding to external and domestic threats, is combining to ensure we start 2016 in a recession.
THE BUHARI JINX?
When President Muhammadu Buhari took over power in December 1983 as military Head of State, the price of crude oil was plummeting so fast; from its record highs under President Shehu Shagari, the nation started defaulting on repayment of its external loans. There was scarcity of most “essential commodities”, then called ESSENCOs. Rationing of foreign exchange, through the later discredited Form M policy, was introduced; counter trade was also established to circumvent OPEC quotas and export more crude oil.
The government equally stubbornly refused to devalue the currency which most economists knew was over-valued. Nothing attempted prevented the economy from negative growth. By the middle 1985, it was clear that the nation’s economic policy makers had run out of ideas.
Perhaps, it was pure coincidence that the focus of the administration in 1983-85 was war against corruption and indiscipline – both of which were pursued with vigour. But, as the recession in the 1980s got worse, the two wars lost appeal to the more pressing problems of jobs and personal income.
The Babangida administration, which succeeded Buhari’s, abandoned the Form M policy and introduced the Structural Adjustment Programme, SAP. It was a total overhaul of the economic policy which introduced reliance on free markets to determine exchange and interest rates, as well as prices. Unfortunately, even SAP was eventually subverted by IBB’s political ambition and his ambivalence when it came to taking tough decisions to make SAP work. Nigeria’s journey to recovery took longer than expected.
In 2015, thirty-two years after his first coming, Buhari is, once again, confronted with an economy whose mainstay, crude oil, had fallen on hard times, debts are mounting and becoming increasingly difficult to pay; the global economy is in recession and he has no economic management team in place.
He will be well-advised to learn from his own history as Head of State. Fighting corruption is vital; but, that alone will not sustain the goodwill of voters. Providing food, jobs, health, education, transport are also imperatives which must be addressed quickly. Otherwise he will soon be listening to Nigerians saying as in 1985: “Na discipline we go chop?”
A word is enough.
SUPPOSING “PROACTIVE STEPS” ARE TAKEN NOW
Since the CBN has taken the position that “proactive steps” will avert recession, perhaps, it is best to examine that proposal which is fallacious. Any measure designed to prevent an economy from going into recession needs time to show results. Nothing known to economics suggests that any step taken today will reverse the downward trend before the first quarter of 2016. There might not even be any significant improvement until the third quarter of 2016 – if that will happen at all. And most of such steps call for huge investments of funds – which Nigeria does not have at the moment.
However, the real bad news is: nobody in this government is thinking of any step, proactive or otherwise, to avert the recession. And the reason is simple. There is nobody in charge of economic policy. Not a single one of the appointees made to date can take charge.
THE ADVICE BUHARI NEEDS
“There is no good arguing with the inevitable.” James Russell Lowell, 1819-1891.
With recession all but inevitable, the advice Buhari needs is not the one given by the CBN. That is like asking government to start building protective walls after the tsunami had started barreling down to the sea shore. It is too late for that.
The advice Buhari needs should address how to manage the recession to minimize the damage to the economy and the hardship which Nigerians will suffer.
In that regard, the President needs to know that his three predecessors, Obasanjo, Yar’Adua and Jonathan, appointed economic policy managers who could manage relative surplus or affluence. He faces a sea-change. His group of economic advisers must be people who can manage a lean purse. Okonjo-Iweala surrounded herself with Dangote, Otedola, etc — people not known for managing “empty” treasuries. The next Minister of Finance must be accompanied by people who can achieve a lot more with very little. Otherwise no “proactive steps” will work.
VANGUARD
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