Every New Year offers the government a window of opportunity to reset the economy on the path of growth. For the Muhammadu Buhari administration, which is in its last full year before the next elections, 2018 will not be an exception. Its resolve to jump-start the economy after a period of stagflation has been buoyed by positive forecasts from multilateral organisations, which predict a better outlook for Nigeria this year. However, for the country to keep pace with the projections, Buhari’s lethargy and statist bent have to give way.
The gloomy horizon brightened somewhat towards the end of 2017, evident in the international organisations’ minimal growth rate projections for 2018. While London-based Fitch Ratings predicted that the country was unlikely to experience another recession, it also projected that Gross Domestic Product would grow by 2.6 per cent. On its part, the World Bank revised its projection from 1.9 to 2.5 per cent.
Likewise, the International Monetary Fund sees the Nigerian economy achieving a growth rate of 2.1 per cent this year. All of them base their predictions mainly on the rising prices of crude oil in the international market. A barrel of Brent Crude rose to $69.73 on January 11, well above the tentative 2018 budget benchmark of $45. The Organisation of Petroleum Exporting Countries sees the commodity, which is Nigeria’s major source of external earnings, maintaining that equilibrium in 2018. If it does, Nigeria’s capability to fund its recurrent and capital expenditures will receive a boost.
The impact of oil is already being felt on the home front. The Central Bank of Nigeria stated that the country’s external reserves rose to $40.4 billion on January 5. That is a four-year high, after oil prices crashed mid-2014. The reserves had plunged to $23.7 billion in August 2016. The Nigeria Customs Service boosted the economy by collecting N1.37 trillion in 2017. The stock market also appreciated by N517 billion on January 10, with 60 stocks gaining in prices.
Although oil prices might never ascend the giddy heights of the recent past, better management of the reserves by the CBN has restored stability in the foreign exchange market. In spite of regular interventions via the sale of dollars, the trend is unlikely to change on Buhari’s watch. With its Anchors Borrowers’ Programme, the CBN has redrawn the map of agriculture to the extent that Nigeria plans to ban, outright, the importation of rice by the end of the year.
However, there are serious impediments to keeping the economy on the path of growth. First, the IMF cautions that the expected gains will be wiped off by a population growth projection of 2.7 per cent, policy implementation and segmentation in the foreign exchange market. The three tiers of government are guilty of excessive recurrent expenditures to the detriment of capital outlays. In 2018, the Federal Government will spend 70 per cent of its budget on recurrent expenses. This is a faulty economic policy. The sensible template is to cut down on recurrent and reduce the bloated cost of governance.
Agriculture, which is growing, suffers from three main afflictions: because of poor rural social infrastructure, harvests rot away in the farms; farmers are also constrained by herdsmen invasions; and, lastly, smuggling is rampant. To boost food security, state governments must shift their focus to building rural roads and invest in storage facilities and other social amenities. The security agencies should also be up to speed in curbing smuggling, which is killing off several sectors, including textiles, and set up cattle ranches.
Growth projections are tempered by the flux in the oil sector. The nation opened the year with disruptions triggered by petrol scarcity. With Niger Delta militancy yet to be totally addressed, the threat of disruption to oil production is never far away. Government should do everything in its power to maintain the peace and attain the OPEC cap of 1.8 million barrels per day allocated to Nigeria. The toughest part here is how to achieve the 2.3 million bpd proposed in the 2018 budget.
Since 1999, the National Assembly has been an obstacle to economic development. Citing untenable arguments, it refuses to pass budgets as and when due. In 2017, it passed the budget in May, after major mutilations, especially as it concerned “constituency projects.” It is a source of corruption and altercation between the legislature and the executive. Unfortunately, this might subsist in 2018, disrupting economic projections further.
Buhari and his economic management team have some tough calls to make. Although a majority of state governments owe salaries and others borrow to pay, the Federal Government has promised to increase the minimum wage. This is a time bomb. Debt servicing will consume N2.23 trillion out of the N8.6 trillion 2018 budget. The Debt Management Office said that the debt service to revenue ratio was 33.94 per cent in 2016; and 34.02 per cent by August 2017. Instead of incurring further debts by borrowing to pay salaries, the savings from excess crude account should be deployed to boost power supply and infrastructure.
This can spur the monetary policy authorities to tame inflation, which, though has been coming down, is currently too high at 15.9 per cent, and the benchmark lending rate, which, at 14 per cent, is a disincentive to growth. The government can boost the currency by providing the environment to cut down on the culture of importation that is gulping huge FX.
Jobs determine economic well-being, but unemployment and underemployment are pervasive. At 40 per cent, it subjects the masses to hardship. To reverse this, Buhari should privatise the four loss-making refineries, the Ajaokuta Steel Company, the seaports, the aviation assets, and liberalise the rail and the solid minerals sectors. This will encourage global players to deepen economic activities and create jobs. State governments should be creative in the area of agriculture, especially for export, to earn more income. A recent report by the NCS stated that the export of agricultural products jumped to 150 per cent in 2017 from 2016. Cocoa constituted the bulk of the 162,285.72 metric tonnes in 2017 as against the 50,000 metric tonnes in 2016.
Government should not relent in its efforts to improve on the ease of doing business. Delays at the ports, chronic shortage of power supply, insecurity, weak enforcement of contracts, delay in issuing permits, and multiplicity of taxes need to be urgently tackled with renewed inventiveness.