Unmistakably, Nigeria’s economy is headed for the rocks and signs of distress are everywhere in evidence. In its usual knee-jerk response to galloping inflation, depreciation of the naira and a revenue crunch, the Federal Government is mulling a supplementary budget anchored on even more borrowing and experts fear an imminent economic implosion. The President, Major General Muhammadu Buhari (retd.), should summon all other stakeholders, and the organised private sector immediately to map out an emergency rescue plan.
While Buhari and the 36 state governors luxuriate in office and globe-trot at public expense, the economy is crashing and the people feel the anguish. With the country besieged by criminals of diverse stripes, mass poverty, and corruption running riot, an economic collapse may trigger the federation’s shipwreck.
Courtesy of the blunders and mismanagement of Godwin Emefiele, the Governor of the Central Bank of Nigeria, by weekend, the naira was exchanging at N895 to US$1 and inching towards N1,000 to $1; the pound sterling reached N1,000 to £1.
Inflation is 20.77 per cent, and with food, energy and transportation prices galloping in response to the crashing naira, the budget plans of the national and sub-national governments have been upended. For businesses, energy costs, high costs and forex shortage to import raw materials, parts and equipment, have led to more factory closures and lay-offs.
Ordinary Nigerians are hardest hit and three million additional persons slipped into extreme poverty by September, according to the World Bank. Floods in 33 states, insecurity on the farms and highways and rising unemployment of 33.3 per cent worsen the plight of the stricken population.
In truth, economic headwinds are currently buffeting most countries worldwide. The effects of the COVID-19 pandemic linger two years on; the Russia-Ukraine war rages on eight months and counting, with its adverse effects on grain and energy supplies, while climate change is wreaking havoc everywhere through floods, storms and wildfires, and disrupting production, commerce and travel.
In Nigeria however, external pressure has conflated with domestic economic illiteracy, corruption, insecurity and an unworkable governance model that stifles production, initiative and fiscal autonomy. While Buhari lacks an understanding of how a modern economy should operate, Emefiele has superintended over the battering of the naira. Interest rates have similarly spiked. The deposit money banks are not only remiss in providing efficient financial intermediation to the real economic sectors, but they engage brazenly in unwholesome practices capitalising on the prevailing weak regulatory oversight.
At the foreign exchange market, multiple rates in a corrupt, rent-seeking, crony-driven environment encourage corruption and gargantuan profits through round-tripping, and starve the productive sectors and SMEs of forex.
Emefiele’s stoppage of direct dollar sales to bureaux de change operators last year in an effort to tame the forex market and rates was a right move; but ineffectual enforcement of regulations on the DMBs, coupled with lack of the institutional capacity to rein in errant public officials and the elite have frustrated the objectives of the ban.
The ill-timed decision to redesign and issue new N1,000, N500 and N200 currency notes has inspired a frenzied buying of foreign currencies and further damaged the naira. The well-heeled now prefer to hold dollars. Without question, Buhari and Emefiele are driving the economy towards disaster.
Alarmed at the rush for dollars, the International Monetary Fund warned Nigeria that a ‘bi-monetary’ system would trigger even higher inflation and necessitate unsustainable subsidies. It should be averted at all costs. “Dollarisation”, it stressed, once started, is difficult to reverse. Zimbabwe’s and Ghana’s economies among others have not fully recovered from dollarisation.
Urgently, the federal, states and local governments should drastically cut costs and luxuries. Nigeria can no longer afford an eight-plane Presidential Air Fleet, the frequent executive travels, and the large allowances of public officers. Irresponsible extravagance on political grounds such as the hiring of hundreds of aides by state governors and funding of religious activities by the northern states should be stopped.
With the fiscal anchors of the 2022 and 2023 budgets destroyed by current realities, Buhari has to think outside the box and stop relying mainly on borrowing to fix the fiscal hole. Apart from cutting waste and plugging leakages, he should urgently organise asset sales and concessions.
Learning from past privatisation mistakes, state-run commercial assets should be transparently privatised to raise funds. Ajaokuta Steel and the four loss-making refineries should be sold via the targeted sale option to reputable global producers in their respective fields. The airports should also be managed under well-structured concession arrangements with respected international operators.
The states should plan and implement robust sub-national economic plans; targeting agriculture, mining, manufacturing, SMEs and ICT, and invest in basic infrastructure in the rural areas.
Corruption must be tamed; the ongoing frenzied plunder of federal, states’ and LG funds must be stopped. Fiscal leakages should be plugged. The federal and state governments should collaborate and map out new strategies, anchored on state policing, to crush insecurity and allow economic and social activities to flourish.
Emefiele has run out of ideas; he needs to step down or be forced out in accordance with the law. At this critical time, Nigeria needs a CBN governor who can leverage the Bank’s statutory independence to manage inflation, interest rates and the currency effectively and save the economy.
The Bank of England reacted strongly to save the pound and calm the markets after the disastrous fiscal policies of the short-lived Liz Truss government in the United Kingdom. Russia’s central bank chief, Elvira Nabiullina, is credited with saving the rouble and moderating inflation after crippling international sanctions were slammed on Russia following its invasion of Ukraine.
Without further delay, the federal and state governments should shift to an emergency mode; summon experts and the OPS, professional and trade groups and jointly fashion a strategy to avert a general economic collapse.
