Battered by recession, Nigerians were buoyed recently by the optimistic appraisal that the economy will soon emerge from the woods. Governor of the Central Bank of Nigeria, Godwin Emefiele, expects the country to recover by the third quarter of this year, a more cautious prediction than the second quarter timeline given earlier by World Economics, a London-based research agency. For the Muhammadu Buhari administration, this is a fresh opportunity to re-tune the economy for sustainable growth beckons.
Nigeria moved into recession by the second quarter of 2016. Triggered by the crash in the prices of crude oil and gas in the international market, the structural weakness of the economy headlined by over-dependence on oil sales receipts, the squandering of fiscal buffers and unrestrained corruption, the recession has hit Nigeria hard. According to the Manufacturers Association of Nigeria, 272 firms were shuttered in 2016, while average industrial capacity utilisation crashed further to 20 per cent. Frank Jacobs, its president, put manufacturers’ losses arising from the adversity and the accompanying foreign exchange crisis at N500bn. Unemployment rose to a record high by the end of 2016, with 13.9 per cent of the working age population jobless and almost 20 per cent underemployed. Youth unemployment was 42.24 per cent by mid-2016, says the National Bureau of Statistics.
But, as negative growth slowed since the first quarter of this year, some pundits predict the economy to grow beyond the 1.9 per cent set by the International Monetary Fund by year’s end. The modest recovery has been helped by oil prices that once fell to $28 per barrel, down from the average $93-$114pb in the first half of 2014, before the crash that set in from August of that year.
More prudent management of the oil revenues from $40-$56pb prices has helped the government to build modest reserves from which it has been funding imports to firm up the naira that once exchanged for as high as N525 to $1, with disastrous impact on the productive sectors. Agreement on production cut-backs among OPEC member-countries and some other major oil suppliers has helped to stabilise prices, while reduced militancy and oil pipeline vandalism in the Niger Delta region boosted production levels.
The unbridled waste and plunder of the past has been reduced – not eliminated – to be sure. Finance Minister, Kemi Adeosun, attributes recovery to the “right type of policies,” among them the Treasury Single Account policy, cost cutting, infrastructure funding and an onslaught on corruption.
Our policymakers should not repeat the mistakes of the past. We should take the needed decisions today to launch the country onto the path of prosperity and the ability to withstand future shocks. Unlike most other members of the Organisation of Petroluem Exporting Countries, we could not ride out the latest oil price meltdown smoothly because we had very low fiscal buffers to fall back on. Saudi Arabia held $737bn in foreign reserves when oil prices began to fall in 2014, enabling it to withstand the ensuing $98bn budget deficit.
We expect the government to walk the talk inherent in the promise that Nigeria will no longer depend solely on oil revenues, which Adeosun says accounts now for only 10 per cent of the Gross Domestic Product. The United Arab Emirates has for years been investing its oil surpluses in the non-oil sector and on infrastructure. Going forward, diversification of revenue sources and exports should see very strong action and policies, not rhetoric.
With the economy struggling to recover from recession, the number-one economic objective would be to increase employment. Fiscal and investment policies at the federal or state level should be geared towards stimulating job creation and economic growth. The government should diversify its revenue stream away from direct commercial activities and commodity sales by an urgent privatisation drive to unload refineries, steel and railways to the private sector. Privatisation should be targeted at attracting the most reputable operators from the West, the South East Asian Tigers, Australia and New Zealand to these sectors and to mining, agriculture, manufacturing, construction and tourism.
Modern governments depend on taxation, not commodity sales. Adopting the right, investment-friendly policies should help bring in the much-needed foreign direct investment, which has been falling since 2014. Yet, Nigeria drastically needs an average annual $10bn FDI over the next 10 years, according to the United Nations Conference on Trade and Development, which said that the average $5bn to $7 billion inflows in the 10 years to 2014 were inadequate to redress our dire infrastructure deficit.
Reforming the tax administration system is long overdue. Too few persons are in the tax net, while many companies, even the multinationals, routinely evade tax. Value Added Tax on imported luxuries should be stiff and prohibitive tariffs imposed on non-essential items and imported food that can be produced locally. The government should be more innovative on agriculture that contributes 24.18 per cent to GDP, despite its depressed state, to ensure that the ongoing rice production revolution is sustained and extended to cassava, cocoa, palm products, groundnut, cotton, wheat, rubber and other food products for domestic consumption, processing, industrial raw materials and exports.
Nigeria cannot prosper without reforming the financial sector, while the anti-corruption campaign is essential to economic revival. Government should empower the private sector and concentrate on policy formulation, regulation, law enforcement and social services – education, health care, water supply, roads and security. Tourism and sports development are goldmines that remain unexplored.
But, in a federation, development begins from the states. The states should see themselves as self-sustaining economic entities, espousing self-reliance, job creation and regional integration. As long as the states continue to rely on monthly allocations, the national economy will continue to stagnate. All the states should imbibe the new thinking that is now adopted by Lagos State to create economically self-sustaining territories. They need not wait for federal handouts, but attract investment for agriculture, mining, manufacturing, transport and services.
The federal and state governments should never be caught napping again by oil price volatility.
