Eighteen months into its tenure, the economic framework of the Muhammadu Buhari administration has yet to crystallise. With no clearly defined focus, the economy is just chugging along. The growth rate in the first three quarters of the year was flatly negative. Just two years ago, Nigeria boasted the largest economy in Africa with a Gross Domestic Product of $568 billion, which has now shrunk to $481 billion. As expected, there is a general feeling of disenchantment about the way the President is handling the economy.
Economic growth does not just happen by accident. It is always a result of conscious planning and diligent implementation of complex policy options. True, Buhari assumed office in 2015 with the economy already showing serious signs of decline. The pre-Buhari era witnessed an oil production of 2.2 million barrels per day, but Niger Delta militants sliced this with sabotage and bombings to 1.63mbpd in Q3, says the Nigerian National Petroleum Corporation. When juxtaposed with the mid-2014 crash in the price of crude oil and the shameless corruption of the Goodluck Jonathan government, the economy just got a ride into recession.
Buhari walked into a complex plot because Jonathan depleted the foreign reserves and savings at a time of high oil prices. In Q3, the GDP contracted -2.24, according to the National Bureau of Statistics. The IMF forecasts that the economy will shrink 1.7 per cent this year. Subsequently, manufacturing, which depends on imported raw materials, is the worst hit as factory closures multiply and job losses mount.
Investor confidence is at its lowest ebb because of the President’s perceived naivety when it comes to the economy. Simply put, Buhari scores poor marks in the big areas. In spite of three quarters of negative growth, the President still runs an outdated command and control system. Privatisation, which offers a real lifeline, is in abeyance. No economy can develop without private investment, local and foreign, as the resources and technical expertise available to government are limited.
Curiously, the government is still holding on to its four refineries, which are producing below par. It is bad economics to refuse to privatise them. The economy is collapsing on us because we depend on the imports of refined petroleum products. This gulps huge foreign exchange. Early this month, the United Kingdom government sold its majority stake in the National Grid, a public company that supplies energy to 11 million homes, to Chinese and Qatari investors for £13.8 billion. Buhari ought to follow suit. He should change his approach and privatise the refineries.
Although money is important, policy-making and implementation go a longer way in economic progress. Critical areas of the economy are waiting for liberalisation. The railways, electricity, aviation and export promotion go without mention. The Railway Act 1955, which vests the sole authority in the government, is an undisguised hindrance to private investment. By working with the National Assembly to repeal the law, he can breathe life into the sector, which has the capacity to move goods and services, generate income and create high-impact jobs.
But investors will not wait for eternity and Buhari has already spent more than a third of his four-year tenure. He should implement policies that will drive local manufacturing and boost exports. In Q3, Nigeria’s exports stood at a paltry N2.3 trillion, with crude oil accounting for N1.94 trillion. It is not surprising considering the absence of electricity to power industries, scarce forex and poor purchasing power of consumers.
Conversely, South Africa exported cars worth $7.53 billion in 2015. Estimates calculated by American NGO, the Economic Complexity Index, value United States exports in 2014 at $1.45 trillion. With our benchmark interest rates at 14 per cent, businesses are struggling to secure favourable loans. There is also the matter of insecurity, dilapidated infrastructure and multiple taxation. All this weighs down heavily on the manufacturing sector. A major effect is that factories are closing down. The job loss is huge: the NBS said that youth unemployment was 49.5 per cent in July. Inflation is battering the citizens. The NBS reported inflation to be at 18.3 per cent in October. This is caused by the outlay on production and the value of the naira, which has eroded sharply in recent months.
“This country is in a major crisis; we are in a state worse than war. What we need is a war cabinet in which we all as Nigerians come together to discuss what we can do to reconstruct the falling walls of Nigeria,” says Pat Utomi, a professor of political economy. He is spot on. It seems that the Buhari government has strangely closed the channels of communications with the public and stakeholders. It should not be so. The government needs to attract ideas from the outside.
A sticking point is the depreciating value of the naira. Although it was floated in June, some experts posit it was late in coming. So, the benefits have not materialised. In that period, the currency tumbled to N470 to $1 in the parallel market. Foreign investors, particularly airlines, have reduced their services because they cannot repatriate their dollar profits. In addition, the depreciation of the currency has made costs to soar. Often, Buhari reiterates his mantra about working to turn around the economic mess, but his body language and inaction say quite the opposite. The President should treat this as economic emergency.
Economic downturn is painful, but by applying creative solutions, Nigeria could come out better. For one, the idea of Big Government is absurd in a time of poor revenues. While the Federal Government receives an average of N120 billion per month as allocation, its monthly wage bill is N145 billion. So, it borrows every month to pay salaries. Really, the cost of running the government is just too high. In the 2016 budget of N6.08 trillion, recurrent expenditure far exceeds the capital vote, which is the real determinant of economic growth. The current capital budget is a mere drop in the ocean. Vice-President Yemi Osinbajo attested to this recently when he said that even the proposed N7.29 trillion budget for 2017 was not substantial enough to move the economy out of stagflation. We cannot agree more.
But what options are before Buhari, who seems to have a penchant for statist ideas? Any serious country must focus on producing complex products for export to be rich. Regrettably, Nigeria is a non-starter. Without significant electricity, no economy can grow. The government has to sit down and resolve the problems in the power sector. The 2013 privatisation was seriously flawed; it has to be reviewed so that, in the foreseeable future, industries can power their operations.
Nigeria must key into modern economic ideas to develop. And that include investing robustly in science, technology and innovation for productive knowledge. The Buhari administration must deliberately target some sectors for stimulus packages. The bailout to state governments to pay salaries is money badly spent. Low interest stimulus for sectors like textile, agriculture, SMEs and manufacturing is imperative for Nigeria to exit the logjam. Also, it is critical to improve the business climate. Out of 189 countries, Nigeria is rated a poor 169 in the latest World Bank’s Ease of Doing Business report. This has to change.
Time is running out. So, Buhari must be urgent in prosecuting his anti-graft war. The current fiscal system is an anomaly in a federal polity. It hinders development. The 13 per cent derivation principle should be increased progressively until it reaches 50 per cent. This was what obtained in the First Republic when each region controlled its resources. With this, the Niger Delta militants will have no choice but to cease their operations.
