When the Federal Government admitted last month that Nigeria was “technically” in recession, it was only stating the obvious. All the signs of recession had been for long observable to the discerning, despite the culture of denial, among other negatives, that defined the immediate past federal administration. The onerous challenge for this government is to deploy creative policies to guide the economy through the turbulence and out of adversity.
The duo of Kemi Adeosun and Udoma Udo Udoma, Finance Minister, and Budget and National Planning Minister respectively, were candid, though guarded, when they appeared at the Senate recently to brief the upper legislative chamber on the state of the nation’s economy. “Technically, we are in recession,” Adeosun declared emphatically, a marked departure from her predecessors who were given to false assurances of growth, even when the key anchors of the economy were visibly headed south. Many analysts believe that the recession actually began early in 2014 when Goodluck Jonathan and Ngozi Okonjo-Iweala were President and Finance Minister respectively. Indeed, later that year and through early 2015, economists like a former Governor of the Central Bank of Nigeria, Charles Soludo, the IMF, and The PUNCH had stridently continued to warn of the need to take intelligent proactive measures as oil prices dipped, fiscal buffers were depleted and investors took flight, all to no avail.
Now, the full impact of economic illiteracy, corruption, a disarticulated economy and over-dependence on oil and gas revenues has come upon us. Experts generally define economic recession as a period of a drop in the stock market, rise in unemployment, shrinking production and a decline in the housing market. Some say that a developing country like Nigeria, with an overly large public sector, enters recession when government revenues drop sharply and consistently over a period of time. The causes of Nigeria’s recession are familiar: the crash in oil prices from over $100 per barrel beginning from August 2014, down to $28pb late last year before rising to $40-45pb this month, reduced federal, states’ and local government revenues by over 60 per cent; high interest rates that top 22-26 per cent, effectively squeezing out small and medium enterprises; inflation, reported by the National Bureau of Statistics to have reached 15.6 per cent (year-on-year) in May, and reduced real wages.
Economic adversity, however, need not lead to disaster. Indeed, it is in situations like this that great leaders and great nations are forged. The Buhari government can leverage the calm reassurances given by Adeosun that we can turn the corner soon. It won’t be easy: the critical test will be if the government can muster the skill and the guts to take the necessary tough decisions.
It will do well to be guided by the twin objectives of massive job creation and diversification of revenue sources in all its choices. Though it rightly insists on diversifying and infrastructure investment, our worries are over the strategies and the pace at which the administration is moving. Buhari should treat the economy as an emergency before recession turns to depression, a more calamitous shrinkage that a dysfunctional economic structure and divided polity like ours is not equipped to handle.
A series of stimulus programmes is urgently required to reflate the economy. This administration should avoid the ignorance of the immediate past two governments that simply drew down on savings for the three tiers of government to share – and labelled them “stimulus.” You don’t stimulate an economy by sharing unbudgeted billions to spendthrift governors and local government administrators. Experts rather define it as the use of monetary and fiscal policies to kick-start growth during a recession. In this light, the recent raising of the benchmark lending rate from 12 to 14 per cent is the opposite of lowering interest rates and quantitative easing that central banks elsewhere adopt to stimulate growth. Stimulus funds should support micro credit, agriculture and manufacturing, especially food processing, pharmaceuticals, textiles and personal care products, which typically generate mass employment.
We need desperately to secure large infusions of Foreign Direct Investment, that, according to UNCTAD, fell 27 per cent from $4.7 billion in 2014 to $3.4 billion in 2015. An accelerated, transparent privatisation programme that will bring in targeted global players for the steel, railways, oil and gas, petrochemicals, mining, airports, seaports and agricultural sectors should be accompanied by liberalising laws. Such investors will bring in the money and expertise.
There should be tighter restrictions on consumer imports to conserve foreign exchange for capital goods. Outright bans and prohibitive tariffs should be imposed on goods like matches, candles, toothpicks, toothpaste, toys and textiles. Higher tariffs are also required for luxury goods: the affluent should pay a minimum of 200 per cent duty and above for their imported “toys” – Rolls Royce, Bentleys, Gucci leather accessories and wristwatches. A closer partnership with the private sector, effective policies to encourage SMEs and start-ups, an effective plan to stimulate housing, as well as a drastic reform and pruning of the bloated, corrupt and inefficient public service should headline reform efforts. The meeting between the government’s economic team and some economists on Tuesday was long overdue and should continue, taking in the private sector groups.
President Barack Obama’s signature $787 billion (later, $831 billion) stimulus package of 2009 was designed primarily to save and preserve American jobs; then, provide welfare for the most vulnerable, infrastructure, education, health and renewable energy. Singapore’s $13.7 billion stimulus in 2009 was also programmed to save jobs, contain unemployment, provide welfare to the poor and accelerate infrastructure to create jobs. The latest $45 billion stimulus unveiled by Japan on Tuesday combines monetary and fiscal measures, including welfare, infrastructure, credit schemes and subsidies to reflate the economy.
We should stop dithering and take decisions very fast. Buhari should drop all statist ideas and free the economy from its bureaucratic stranglehold. The National Assembly should get serious and realise that Nigeria is on the brink; lawmakers should support and initiate bills to enhance job creation, liberalisation and competition. For the government, time is running out: it should act now!
