The dreaded R-word – ‘Recession’ – is in the air as everyone seems to have become familiar with the word following the recently released report by the National Bureau of Statistics (NBS).
Mr. Bismarck J. Rewane, a respected Economist and CEO of Financial Derivatives Company Limited, rightly pointed out at the tail end of 2015, that the economy was slowing down and that a recession was imminent if the necessary steps were not taken to address it. As a guest of Channels TV news programme, he talked about the current economic slowdown and the possibility of it turning into a recession. Sadly, we have moved from a slow down to a recession as affirmed by the NBS report.
Traditionally, Economists define a recession as two successive quarters of decline in the growth of the Gross Domestic Product (GDP). Going by the report of the NBS, economic recession is upon us. The double quarters of negative growth, High levels of inflation, worsening purchasing power of the naira and the increasing levels of unemployment are all strong indicators that all is not well.
What could have caused this? What could have happened all of a sudden? In as much as casting aspersions won’t be of any good at these trying times, it is vital to know some of the causes of this imbroglio. Our over reliance on oil has comes back to haunt us ‘unexpectedly’. (Analysts have always predicted this though!) Over the years, we have paid lip service to the development of the Non –oil sector. A significant drop in oil prices has depleted our revenue earnings and the effect is visible to all; less money for the Government to spend and undue pressure on the available foreign exchange! As a country heavily dependent on imports, this has been our albatross.
The new CBN’s foreign exchange policy is worthy of note. However, the time taken to do the needful cannot be overlooked. Considering the dearth of foreign exchange available to manufacturers and business people, there was an urgent need to announce a flexible exchange rate regime aimed at making foreign currencies more accessible. It was a well thought out policy but the timing left a lot to be desired. Many analysts have also questioned the wisdom of announcing a major shift in policy without spelling out how to implement it.
Government is a continuum. A transition in government should not stall any meaningful development in the real sense of it. Placing governance at a standstill in order to checkmate corruption didn’t do us much good. A delay in constituting key or relevant bodies was an impasse. Six months without ministers in key sectors placed us in a precarious position. The UK economy was under threat following the Brexit vote. The uncertainties that arose from the vote needed to be addressed swiftly. The Bank of England was prepared irrespective of the outcome and they did the needful by injecting billions of pounds immediately. Following the resignation of David Cameron and the subsequent appointment of Theresa May to head the government, Cabinet ministers were announced immediately. Countries that can’t afford to experience an economic crisis are that proactive! That is why if Nigeria needs to take its rightful place among nations, we have to build institutions that outlive governments; institutions that insist the right thing has to be done irrespective of the political affiliations of the leaders in government.
Recently, I was chatting with a group of friends on a BBM group about the state of the Nigerian economy. A friend raised a vital point. If some of our refineries are working at a reduced capacity, how come the price of fuel is uniform in Nigeria irrespective of the fuel source? This is an anomaly that can’t be understood by many of us. What is wrong with the oil sector? Is it in dire need of a complete deregulation and not a just a flexible pricing mechanism?
Unbundling the NNPC is a necessary evil which has to be done. Doing this with relevant consultations with the oil workers and the National Assembly to avoid a repeat of the chaos it created earlier in the year is key. Rather, many were concerned about the legality of the action as opposed to the benefits of the exercise. NNPC is the pillar of Nigeria’s economy, accounting for over 80 per cent of national foreign exchange earnings and revenue. Ideally, it should hold its own against top oil corporations like the British Petroleum, Saudi Aramco etc. since it serves a large nation like Nigeria. It should have even extended its operations to serve and meet the needs of the West African sub –region, if things were done properly from the outset. For the NNPC to be a major player in the West African region, it needs to be reformed into dynamic units that can deliver exceptional results. That will also block the loopholes in the system and truncate any form of economic sabotage. Though, I am an advocate of unbundling for greater efficiency in the oil sector, I am totally against an arbitrary action that won’t protect the interest of all relevant stakeholders. Unbundling the NNPC should not result in job losses as widely speculated except a cogent reason necessitates it. Passing the Petroleum Industry Bill and its derivative – the Petroleum Industry Governance and Institutional Framework Bill will even address wider issues than just unbundling the NNPC. You can’t take Politics away from Governance. However, when Politics saturates every action taken by the government, the citizens won’t get a fair deal.
Some of the predictions for rapid growth out there seem a little optimistic but it is possible to bounce back from a recession within three years. Our GDP is dependent on consumer goods. We need to change that if we are to overcome this recession. In history, many countries have bounced back stronger from an economic recession. The USA has had undergone series of recessions in their history and they have come back stronger!
The key to overcoming a recession is to pump money into the economy. But how can this done? We need to create well thought out policies that will be of benefit to the average Nigerian and also boost investors’ confidence. Then we can attract significant foreign direct investment. Worthy of commendation is the Agriculture, Trade and Investment and Solid minerals policies of the current administration. They have shown that they are ready to boost the non-oil sector of the economy. All ministries need greater policy coordination and a more definite road map to ensure smooth implementation. This way, investors will be more confident.
Two classes of people can increase the cash flow to the economy. Wealthy individuals can be encouraged to create businesses that will employ people, deliver goods and services that are export worthy and also improve government’s revenue. Ease of business registration, tax holidays and creating an enabling environment can serve as motivating factors for intending entrepreneurs. People in the diaspora can also be supported to do the same.
Inevitably, we have to borrow to cushion the effects of the recession. The best we can do is to make best use of the funds we get. Borrowing to fund capitals projects can be beneficial in the long run. On the other hand, borrowing to pay salaries especially those of the Federal civil servants, who contribute little to the GDP, is not sustainable. When you have an over bloated Federal civil service with a monthly wage bill, which runs into billions of naira, with little contribution to the overall country’s revenue, it doesn’t make economic sense to continue!
Lagos state is a classic example of a well-managed state in Nigeria. During the administration of Asiwaju Bola Tinubu , he cut down the work force of the civil service. Though it caused uproar in certain quarters, it stabilised Lagos state in the long run and made the state financially stable. Lagos state is capable of managing its affairs without any bailout from the Federal Government! The government at the centre has to do the same but they have to create jobs from the non-oil sector first.
People losing their jobs during a period of recession will further lead to depression. What is the way out? Key parastatals have to do more to help the non-oil sectors that will need their services. For instance, the Transmission Company of Nigeria needs to deliver optimally for the needed industrialisation of the economy.
Why keep something that takes more from you than it can offer? Our refineries have been built decades ago. They are not capable of meeting our energy needs of today considering the fact that they are obsolete. We need to sell them off and work towards building new ones to remove us from the chains of fuel importers.
Many states cannot pay salaries. Yet, money is needed to act as a stimulus in a period of recession. You spend out of a recession and not apply austerity measures. If people don’t have money to spend, manufacturers will produce goods in vain.
History shows that tax increases during a recession are a recipe for greater unemployment and economic loss. – Pete Sessions.
The Federal Government through the Ministry of Communication is planning to introduce a tax of 9% on all calls, texts and data packages. In as much as revenue generation is for our common good, this policy will simply do more harm than good at this moment. The effect of the economic recession would have been more detrimental if we had a socialist system like Venezuela. We are on track with privatisation especially in the power sector. However, we need to stick to the Power road map of the previous administration or improve on it, not neglect it in its entirety. The road map resulted in significant improvement in power generation and distribution. The recent finding of Nickel in Nigeria can also be a potential revenue earner. We can engage with for example, The Australians (one of the best in mining globally) to fully exploit it.
At this point, it will be out of place to blame anyone for our economic woes. Poverty is not selective of its victims. Mismanagement of our commonwealth has been on from time immemorial. Now is the time to move forward. A recession like this can be a blessing in disguise if we do the right things promptly. Nigeria’s population is growing at 2.8% annually. The GDP has to increase in like manner. Hopefully, we will get it right.
This article was first published on the 10th of september, 2016.