DESPITE President Muhammadu Buhari’s reticence, a national debate on the economy appears to be underway all the same. In response to calls from influential quarters that the naira be devalued, the Federal Government has reiterated its resolve not to do so, while it plans an “emergency national economic conference” to chart a way forward. Above all, the government must urgently roll out short and long term programmes to manage the economy.
Key sectors of the economy are feeling the squeeze. The price of crude oil rallied slightly this week to the $36-$37 per barrel band, after the 18-month-long downward spiral that has seen over 70 per cent drop. Capital flight has also impacted negatively on the capital market where capitalisation of quoted equities dropped to N8.39 trillion by last week, down from N11.47 trillion on January 2, 2015. The naira has taken a bashing since late last year; from N165 to $1 early 2015. The difference between the official, Central Bank of Nigeria-moderated rate of N197 to $1 and the parallel market rate has widened, with the latter reaching N397 to $1 two weeks ago before a rally to N315 last week.
Job losses, according to the Lagos Chamber of Commerce and Industry, are mounting, hitting high paying sectors like oil companies and financial institutions. Manufacturers recently said they feared further 40,000 layoffs in the next few months if current problems of access to foreign exchange and power supply are not ameliorated. Businesses are groaning, with a good number hard put to pay workers’ wages.
Public sector workers at the state and local government levels have been particularly hard hit since 2014/15 as revenues declined and the previous government failed to take measures to prune spending, waste and corruption. Instead, it frittered away all fiscal buffers and painted a false picture of buoyancy. Only N370.88 billion was available for sharing from the Federation Account by the three tiers of government for December 2015, a far cry from the N731.13 billion for March 2014 or even the N580.4 billion for December of that year.
Details of the disbursement published by the Ministry of Finance reveal the precariousness of the states’ finances. A state like Oyo, whose monthly dole averaged N4.2 billion in 2013, had a net allocation of N3.17 billion but a monthly wage bill of over N5 billion. Oil producing states like Akwa Ibom and Delta that once averaged N17 billion and N13 billion, respectively, from the 13 per cent Derivation Fund alone, got only N8.77 billion and N6.67 billion from that revenue stream. Paying public sector workers has become a problem for most state governments. So many workers’ strikes are ongoing across the country that they no longer merit full press coverage.
There has been no shortage of suggestions, including an emergency economic summit to knock out solutions forcefully recommended by the literary icon, Prof. Wole Soyinka. But we fault the strident calls for the devaluation of the naira by the International Monetary Fund being faithfully echoed by a large tribe of “experts” who fail to take into account the structural deficiency of our economy. Without diversity of processed exports and with an overwhelming import dependency, devaluation simply depletes reserves and cripples local production. By fuelling inflation, it constricts domestic demand and production and forces mass workers’ lay-offs. The IMF itself admits that where devaluation causes inflation, the benefits – higher demand, production, exports and new jobs – are lost. It is when you have manufactured products to export that devaluation favours your economy.
Devaluation without simultaneously addressing the disarticulation of the economy will only worsen, not improve, our situation. As a first step, we should move from rhetoric to truly diversify. President Buhari is wasting precious time. Unless he quickly privatises assets, such as refineries, steel, coal and railways, he cannot unleash private capital for infrastructure, investment and job creation. The government cannot effectively restructure until liberalisation policies are put in place to attract substantial Foreign Direct Investment.
Improving ease of doing business, slashing unnecessary budget spending to concentrate on public infrastructure, promoting agriculture, manufacturing, mining and small-scale enterprises make more sense than the current obsession with a national airline, holding on to the four state-owned loss-making refineries and maintaining an 11-aircraft Presidential Fleet.
Malaysia’s total exports of $234.1 billion in 2014, according to IMF’s Economic Database, were 31.4 per cent of the Gross Domestic Product and its top exports included electronics, machinery, plastics and wood, with oil and gas accounting for only 22.1 per cent of total exports, unlike in Nigeria where oil and gas accounted for 96.9 per cent of total exports of $97.9 billion in 2014.
Experience provides proven models that can be adapted. Today’s most successful economies used tariffs and levies to protect and nurture local industries like textiles, steel, furniture, basic tools, cosmetics, toiletries and white goods into competitiveness. We need to retool our Ministry of Trade and Investment and the export and investment agencies to drive investment and exports as the Japanese and Singaporean ministries of trade that made the former the world’s third largest economy and gave the latter the fifth highest per capita GDP of $85,700 on Purchasing Power Parity as ranked by the CIA World Factbook 2015.
Although the global oil crisis poses a big challenge, it offers the government another opportunity to put the country firmly on the path of significant import substitution/ export-oriented economic growth. There is sufficient empirical evidence that countries with diversified exports tend to grow faster in the long run. Nigeria has a lot to learn from Indonesia and the United Arab Emirates who have become substantial exporters of nonoil goods and services. Government needs to come up with a compact economic programme that will support export drive, attract foreign investment and remove anti-business and protective laws.
Urgently, Buhari should reconstitute his economic management team as the present one appears to have clay feet. When government at every level reduces costs and waste, invests in highways, water, sanitation, health, education and rural infrastructure, leaving the private sector to play a dominant role in the economy, real diversification will become a potent reality.
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