Burdened by debt, record level unemployment, rising inflation and a bare treasury, Nigeria’s future looked bleaker after emerging data revealed a bigger than predicted economic contraction in the second quarter of 2020. The report by the National Bureau of Statistics that the Gross Domestic Product contracted by -6.1 per cent is not only the sharpest decline since 2004, but also coincides with revenue shortfalls, a deepening global recession and an insecurity crisis that drains meagre resources away from recovery efforts. The situation requires creative thinking and uncommon courage to implement the required hard decisions to avert a collapse.
Across the world, short-term stimulus projects have been deployed to save jobs, boost consumer demand and reopen economic sectors that employ the most vulnerable. For long-term recovery, Global Citizen, a global NGO against poverty, advises moving beyond mere GDP growth as the measure of progress to focus on human wellbeing, revamping infrastructure, agriculture, transport, small businesses and healthcare.
Nigerians are paying a heavy price for clueless leadership. Afflicted by a crash in crude oil prices, its mainstay, since mid-2014, resulting in five consecutive quarters of negative growth and a recession in 2016/17, sluggish recovery since then has taken a battering from the COVID-19-induced global downturn that has spared no country, but has savaged commodity-dependent and disarticulate economies like Nigeria’s harder. The NBS Q2 report was grim: both the oil and non-oil sectors shrank in real terms, by 6.05 per cent and 6.63 per cent respectively. Thirty-three subsectors out of 46 reviewed recorded negative growth, with only 13 activities bucking the trend. In nominal terms, compared to Q1 2020, GDP contracted -14.81 per cent. Debt servicing drained 99 per cent of revenues in Q1 and projected inflows fell short by N1 trillion. With this, many businesses are hanging on by their fingertips.
But the Major General Muhammadu Buhari (retd.) regime has still not got smarter with the economy. It has responded to the economic shocks by retreating into its default mode of denial. By seeking comfort in citing the sharper contractions in the world’s major economies, such as the sharpest contraction in 300 years in the United Kingdom or the deepest fall in Germany since 1970, it ignores the grave structural weaknesses of the Nigerian economy, widespread poverty and its lack of buffers and institutional capacity to ameliorate privation and restart productive activities.
Nigeria is not in the same league with high-end economies either in robustness and diversity or in the clear-headed leadership that accords priority to rational, scientific considerations in governance. The UK has a £5 billion investment plan underway and is raising £12 billion to build 180,000 affordable homes. Germany’s recovery plan is a hefty €130 billion. Rather, according to the IMF, “the GDP contraction does not fully represent the sufferings of Nigerian households.”
Realistically, the country has entered into stagflation, described as a dangerous zone combining persistently high inflation, rising unemployment and flat or negative growth. This combination, says the Corporate Finance Institute, an online trainer, “is feared and can be a dilemma for governments since most actions designed to lower inflation may raise unemployment levels, and policies designed to decrease unemployment may worsen the inflation.”
The NBS had earlier reported a sharp rise in the jobless rate to 27.1 per cent, with combined youth unemployment and underemployment at 63 per cent. The estimated 13.1 million youth with no jobs is higher than the population of fast growing Rwanda. Inflation surged for the 11th straight month in July to 12.82 per cent, fuelled by rising food prices and with massive unemployment, slowdown in farming and ineffectual policies, the figure of 82 million persons (40 per cent of the population), living on less than $1 a day is believed to have risen significantly. Experts have forecast a second more devastating recession in four years. Foreign reserves dipped to $36.12 billion by mid-July amid a forex crisis that has seen the naira depreciating further and official reluctance to aggregate the official rate with realistic market-driven rate. This has denied businesses badly needed forex while brokers and speculators exploit the distorted market. Too often, politics, religion, private interests and corruption interfere with policies and their implementation.
And what has been the official response? The Federal Government pins its hopes on its Economic Recovery and Growth Programme among others; on increased borrowing and sundry money-guzzling schemes like TraderMoni, the 774,000 jobs and the N75 billion Nigerian Youth Investment Fund designed to support youth entrepreneurship. It also touts its new emphasis on mining. Some sector-specific support funding schemes have been rolled out by the Central Bank of Nigeria to boost agriculture, manufacturing, health and food processing.
But while policymakers may not be able to control the changing global economy, they can choose how to prepare and how to respond. To get the economy on its feet, the Buhari regime should initiate and implement radical structural reforms to achieve the desired V-shaped recovery. As Alassane Ouattara, current President of the Ivory Coast and a former IMF deputy chief, explains, economic growth rests on three pillars: good economic policy; a legal and political environment that is conducive; and attention to equitable social development. Bringing down food inflation, injecting liquidity, stimulating the financial sector and resolving the exchange rate crisis are some the measures recommended by the organised private sector. Others strongly advocate leveraging technology to drive productivity across all economic sectors as a possible game-changer.
Policies and success should be defined by the number of jobs created, how much money is put in the hands of consumers and the diversity of the productive activities, revenue and exports. Buhari needs to bow to the compelling logic of reaching for the low-hanging fruits: scientific reasoning should guide decisions, not politics or primordial interests. Unleashing the private sector through liberalising policies and corruption-free privatisation will free public funds from inefficiently run enterprises, attract local and foreign direct investment and create jobs. Nigeria should stop the heedless borrowing for rail projects and instead, repeal the 1955 Railway Act to open the sector for local and foreign investors. Concession and privatise airports, ports and the steel assets. Globally, privatisation of airports has reduced the dependency on public sector investment, and with increased funding and professional service providers, has usually resulted in operational efficiency.
Implement the Executive Orders designed to improve the ease of doing business that are currently implemented in the breach and tame corruption that drains over 40 per cent of all public procurement funding. Emphasis should shift to mining, agriculture and SMEs; the states should devise economic programmes and all tiers of government should undertake drastic cuts in the cost of governance.
The World Bank recommends urgent measures in five critical areas, including “enhancing macroeconomic management to boost investor confidence; safeguarding and mobilising revenues; reprioritising public spending to protect critical development expenditures and stimulate economic activity; and protecting poor and vulnerable communities.“ While experts support the CBN’s microeconomic interventions in the credit market, they urge a review of its “dirty float” intervention in the forex market with its multiple-windows and concessionary lending.
Insecurity and corruption have to be tamed. Buhari needs to bow to critical thinking, drop his statist and parochial tendencies and empower competent hands to run the economy.