Policy options for Nigeria’s recovery, growth
Nigeria’s economy thought leaders bared the hard facts to rescue the economy from recession. Below are the key contents of their presentations at the Vanguard Economic Discourse, held in Lagos on Friday, 10 March 2017.
New economic plan needs review before implementation – Soludo
A former Governor of the Central Bank of Nigeria, Professor Chukwuma Charles Soludo, and the Keynote Speaker at the Discourse, led the thought leadership campaign. He called for a review of the Federal Government’s Economic Recovery and Growth Plan, ERGP, barely three days after it was announced. The details of his erudite speech are published here. So we present just the highlights which set the ball rolling as follows:
In domestic currency terms, the economy is in a recession, but that in US dollar terms, the economy has suffered massive compression.
The last PDP government was blaming “external shocks” while the current APC government blames not only the fall in oil price/output but also the past PDP government. No one admits of policy errors, and that is the problem.
The current government is responding exactly like some did in the past: treating oil price/quantity fall as temporary while treating a rise as permanent/normal. It is merely embarking on short term demand management – just as “coping strategy” while waiting for oil price/quantity to return to “normal” and we get back to business as usual.
The Plan (Economic Recovery and Growth Plan, ERGP, rolled out by the federal government last week) envisages to continue the practice of the last government of borrowing to finance recurrent expenditure. The deficit will continue to exceed the capital budget, meaning that every penny of capital expenditure will continue to be borrowed as done by the last government. So, what has changed?
Every Plan however is a life document. Perhaps before it goes into full implementation, there is a need for Extended ERGP or ERGP Plus Plus!
Eight blind spots in national development – Mailafia
A former Deputy Governor, Central Bank of Nigeria, Dr. Obadiah Mailafia spoke on the blind spots.
“I don’t think the objective of the Plan [ERGP] is structural diversification of the economy. It was never really part of the plan. What they have is a fire fighting framework to get the country out of recession. So I don’t think we can accuse them for something that they really did not set out to do.
“But I will agree with you that they ought to have made it part of the Plan. But they have not. I will like to point out a few blind spots, that perhaps in a lot of our popular discussions and economy we hardly ever make mention to.
Broad national consensus: First, the absence of a national consensus. We have become a much divided country, more divided than ever. If you look at all the advanced emerging economy, the first thing that they had to get right was a broad national consensus with regard to national development. That was the case with in South Korea. That was the case in Indonesia; it was the same case in Singapore among others. We need to get that kind of broad national consensus if this country is to move forward.
Security and Rule of law: Secondly, I don’t care really much among economist especially, on the key issue of human security and crime. What is the economic cost of that to this country? It is very huge. As you know the flight to Abuja has been diverted now to Kaduna. Many of the international airlines say they are not going to Kaduna and this is mainly because of the fear and insecurity. If we are to become an industrial civilized nation we must get rid of this culture of nihilistic violence, rampant and unpredictable lawlessness. This must be stopped and of course added to that is the rule of law, respect to property rights and the rest of it.
Regional and Urban planning: Another blind spot if I may is the regional and urban planning. We have virtually forgotten that. Of course Lagos has made some huge improvement in terms of its mega city project, but many of our cities and towns no longer get involved in anything called regional and urban planning and yet this is very crucial to manage the massive increase in population, rapid rural-urban migration and the rest of them.
Youth development: I have read the EGRP and the reference to youth is very very minimal, yet they are the majority. The young people of this country are the vast majority and yet they don’t really have a voice. If we don’t plan for them, if we don’t build opportunities for them, definitely we will be sitting on a time bomb. And then linked to that of course is chaos. Many of these young people, many of them are graduates, with all respect, some of them barely literate, are in the job market and many are unemployable. They don’t have the requisite skills.
Women empowerment: And of course if I may also add the gender dimension of development. Women are slightly more than men in population. Ours is still a society that is very bias against women and I will say particularly the northern part of the country. We need to emancipate our women, empower them and re-engineer growth by integrating women into the development process.
Social Policy: And my last two points are social policy. The plan talks about inclusive development. I welcomed that. It is very important. My worry is that, like typical of many things in this country, it is done without clarity of policy, clarity of purpose. The way they did it in Brazil, they have to do very rigorous analysis to find out the geography and social strata of poverty in Brazil. It was much targeted, very rigorously administered and with zero tolerance to corrupt and rent-seeking behaviour in the process.
Industrialisation: And also the issue of industrialization, technology and innovation. Some of us are brought up in the western development classical paradigm but when it comes to Africa you never mention industrialization and you never mention technology. But I dare say we must industrialize or perish.
Civil Service: The government, the quality of government. Nobody talks about bureaucracy. I know that the Keynote speaker mentioned it in passing. But you see no matter how noble, no matter how visionary your policies are as a politician; you need the civil servants to implement them. And if they are not competent or if they are lazy or unwilling, they will simply sit there. That is really the big elephant in the room, the civil servants. The days where we have a high breed, well respected civil service, the days are long gone. We need to go back to that.”
More visioning needed in economic planning – Aremu
Vice President, Nigeria Labour Congress Frontline labour leader, Comrade Issa Aremu, said the following:
“I want to say that one hard fact on how to rescue Nigeria out of recession is a hard discussion.
“Maybe we need to be talking about not just economy but political economy. Why are we going up and down looking for hard facts when we have a good number of them written in the constitution of the country?
“With all its limitations, the 1999 constitution is clear about the direction and thrust of this Republic. Chapter two, Section 16, states that government will harness national resources to promote national prosperity. Government will ensure planned and balanced development and that is the key word. Government will promote the welfare of the people. I think we should relate the new growth plan to that. Politicians take the oath of office based on the constitution.
“I have always been saying that maybe we should not waste time to harass our politicians for non-performance, but we should charge them for what they refused to do to keep to the spirit and content of the constitution.
“One of the things we appreciate as labour about the Plan or growth is that there is an attempt to return to national planning because the bane of our development has been the absence of a road map. This government has done well in terms of security, anti-corruption to a large extent. But on the issue of the economy, we have not seen the real road map. But now we have plan and I am excited that we have a full blown ministry in charge of planning. The budget and planning are now put together.
“You cannot drive the agenda of the constitution of 180 million Nigerians based on lack of agenda for planning. But we must also do this within the context of a vision. There is no vision. A nation without a vision will definitely be operating blindly.
“What I am saying is that we need some visioning; we need to improve on this document to be within a broad contest with the vision to know where we are going within the next 10 years and thereabout.
“The second point I want to talk about is that we hear a lot about diversification, but I have not really seen the commitment to real practical diversification. As a matter of fact, this new Plan is still operating within the oil and gas paradigm. It is talking about 2.2 million barrels per day which I think is not really ambitious for the Federal Republic of Nigeria.
“I graduated in the 80s and we said Nigeria was the highest oil producer in Africa, but we have been beaten by Angola, and others are coming in. Saudi Arabia is talking about close to 6 million barrels per day. I think people like Nike Akande would like to know what do we want to achieve in terms of manufacturing value added and those indicators are not there.
“On job creation, I think we should take Soludo’s speech seriously. I am more optimistic that they will deliver and that is why we are here. I operate from the point of view that things can be done better. There are 10 critical sectors that I think we should look into.
“I think the one that concerns me is that we should look at textile and it is one quick win that we can achieve. It is capital intensive and it can absorb a lot of labour.
“Our current budget is N7.3 trillion. The question is, what do we use this money for? Is it for made in China or Nigerian goods? I think we can use this money to turn the economy around. I am happy that a factory in Umuahia is now producing booths for soldiers and that alone has provided over 3000 jobs for Nigerians. Our textile industry can produce uniforms for police, customs and children rather than going to China. Budget and public spending can be brought in to encourage local content.
“Yes we must fix exchange rate. I think the exchange rate policy must drive production, must be seen to be stable and should be such that will promote public welfare. The recent one we have on Naira was done by speculators and in the process we are suffering from it. CBN has done few things and I think they could do more. There is a lot of distortions that they must address. You see CBN-anchored borrowing for rice production. Today, we are more or less building food security in terms of rice production.
“We can target resources for productive sector of the economy. For the 41 items banned, I think it should be more than that, especially, where we have productive advantage at home. Why should we import textile materials from China? I think we should encourage Nigerian textile production and create jobs for the masses. That is the way to go.”
Present policies are anti-investment – Yusuf
The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, listed the challenges.
“You know that the economy has challenges, recession and all of that, and to get the economy out of the recession, we need to bring investment on the table. There are a number of investments: we have domestic investments, we have foreign direct investments, and we have foreign portfolio investments; those are the key components of investments. So, if the private sector has to be part of the rescue mission, we need to see how we can activate the private sector to move along this direction.
“But the key driver, just as the Keynote speaker said, is confidence in the economy. If there is no confidence, there is no way to get these investments to come into the economy. And the policy environment is a major driver of confidence. I will just briefly highlight some of the confidence effects of policy.
“The Keynote speaker dwelt extensively on the significance of the exchange rate regime. That for me is very central because no economy can live in isolation of other economies. That is why getting it right with the foreign exchange policy is very critical and very central.
“Now, the foreign exchange policy regimes that we have experienced in the last two years or thereabout have had a number of effects.
“First, critical scarcity of foreign exchange for the manufacturing and other critical sectors of the economy has been affecting the capacity of a lot of investors to move on with their investments.
“Then there has been very serious transparency problem in the foreign exchange market across the entire chains. All manner of under-hands dealing have been taking place in the foreign exchange market across the entire chains. That has been a major problem in the market. Investors have suffered significantly, either dividends, profits, revenue; the airlines, for instances, are good example. There have been major disincentives to inflow of foreign direct investments either from exporters, from foreign portfolio investors. People have suffered very serious losses especially from transition of the former exchange rate regime to the current exchange policy particularly transactions we referred to as matured obligations.
“There is a huge incentive for round-tripping. If there is any business now that is very lucrative, it is round-tripping of foreign exchange because the gains are so huge that it will take an angel to resist round-tripping.
“Of course, we have the exclusion of 41 items. I agree with the Keynote speaker that we need to fix the liquidity issue in the foreign exchange market and the way to do that is to allow the market to play a much bigger role in the foreign exchange market. We should move away from allocation of dollars, pieces of intervention, and so on; the economy doesn’t work that way.
“So we need to give more room for the market to play the rule in the foreign exchange market. Then there should be full liberalisation of foreign exchange inflows into the economy.
“Right now, there are too many restrictions on investors who want to bring money into the economy. It’s an irony; you have a supply crisis, you have people who want to bring in money into the economy to support you on the supply side, but you are creating problem for them. I mean one can’t really understand the rationale behind that kind of policy. So, as a rescue options, I think these are things that we need to tackle concerning the forex.
“Also, we have monetary policy effects on business confidence. The monetary policy regime has not been supportive of efforts to rescue the economy.
“So, one thing is to talk about wanting to diversify the economy, and yet the policies are moving in a complete opposite direction.
“Also, we need to look at our trade policy. No economy exits in isolation of other economies. It is good to protect but we need to be strategic in the way we protect and in the way we make our trade policy choices. Many citizens today are complaining of high cost; if there is any major cause of poverty today, it is inflation and the key drivers of inflation, first, the foreign exchange challenge; second, the trade policy because trade policy determines what comes in and what doesn’t come in. You have cases where the domestic capacity is so weak and yet we slammed a trade policy that pose a lot of restrictions. This has been driving up cost and affecting income and poverty up to every person on the street particularly those on the bottom of the pyramid. The greatest challenge of this administration is the high cost of goods and services and you need the right kind of trade policy frame work to address that.”
Ideological differences stall clear direction – Rewane
Managing Director, Financial Derivatives Company, Bismarck Rewane, reeled out several stumbling blocks that need to be cleared for development to happen.
“So, hard facts to rescue the Nigerian economy! Where is the Nigerian economy today? First and foremost the Nigerian economy is on the site of an accident. You can stabilise the guy, put him in an ambulance, put him on life support, or you can discuss how you are going to treat him when you get to the hospital. We are not at the hospital, we are at the site of an accident and we need to rescue the patient. The Economic patient is Nigeria and what are the symptoms of this patient.
“First the economy is under performing. It is projected to grow at one per cent this year, and targeted to grow at 7 per cent in 2020. This year, the nine French speaking West African countries are estimated to grow at 7 per cent. This year, Ivory Coast, post-conflict economy, is projected to grow at 8 per cent. This year, Nigeria’s labour productivity growth is minus 4%. This year the magnitude and quantity of the stimulus package in Nigeria is 20 per cent less in dollar terms than what it was in 2016. In nominal Naira terms there seems to be an increase but in dollar terms, Professor Soludo referred to it, actually contracted.
“Now coming back to the issue of the Nigerian economy, the fact is that if you do not reform the foreign exchange market and you continue to tinker with it, nothing will happen. This economy will remain in the doldrums forever.
“Now I say this again with all sense of humility, subsidies are reverse taxes. You either have a government-led, export-led or consumer-led strategy for growth and that is not development, growth is not economic.
“Now for you to have that, you need to have government spend on development investment, not government spending on wasted resources. Now the exchange rate and petroleum subsidy are the biggest drain on government resources.
“When you talk of taxes, Dr. Fayemi talks about the tax base, one of the ways to address the tax base is to eliminate or reduce subsidy so that the government will have more to spend. We talk about sale of assets; government should use the proceeds on impactful investment. The Economic Growth and Recovery Plan actually addresses some of these issues but the time frame is short, because we have a short frame which is recovering from recession, then we have the medium term frame and then the long term plan.
“But more than anything else, the structural subsidies in the economy comes to about $20 billion to $25 billion, that is significant. We have a price discriminating monopoly which thrives on an imperfect market, creating barriers to entry, which people will call round-tripping, we call it financial osmosis because you are moving in different directions buying in one market selling in another using influence peddling and connections. It’s like a fibroid in a woman, which is taking all the resources from the baby in the womb and leading to a still birth. That is what this misaligned exchange rate, the dysfunctional relationship, which we have, is doing to this economy. And we continue to run around in circles.
“But fundamentally there are ideological differences and this country is divided into three clear ideological schools of thought.
“One, those who believe in the patronising and anachronistic system of the past, who hold on closely to it. We have those who are reform oriented and market driven, and there are those who want a mixed economy. If we don’t resolve this ideological differences and come up with facts which allows a clear direction, then nothing will happen.
Also, because we have the interest rate, the exchange rate, all of that is monetary policy, monetary policy is for short term, structural or fiscal policy is for long term, but there must be consistency between the long term and the short term. If that is not addressed and we have these vested interests who are benefiting from the exchange rate system…. So you must remove what is called structurally induced corruption. Corruption is not about missing money, it is about taking advantage of position to earn rent and selling patronage.
“We have always assumed the oil boom will always be here, $100 per barrel will be here, and there are those who have positioned themselves.
“That vicious cycle, that political cycle, where you scramble for power, squabble for spoils of office, and use the spoils to fight for the next election. That is the cause of the economic crises we have in Nigeria. So if we do not fix the electoral system, and I am not talking about verification of votes, I am talking about electronic voting, this economy will go nowhere.”
We need massive economic, polity restructuring – Otti
Dr. Alex Otti, a former Managing Director/CEO, Diamond Bank Plc, one of the panellists, stated:
“There are things you cannot control; if you ban 41 items somehow they will still find their way to come in. If you mention a 100 items, they will still find a way to come in. So when you talk about control and speculators, the speculator will only operate when you create incentive for them to operate. So when you have multiple foreign exchange rates people will go and buy things in foreign currency and find a way to bring them back. Therefore you must do things differently so that they don’t operate.
“Of course government spending is very important. Stimulus package have been talked about. But I think the major point that I want to make is that you can get out of recession if there is a positive GDP growth tomorrow and yet nothing has changed. Oil price for instance, could for some reason recover and we begin to see another $100 per barrel of oil tomorrow. What will happen, we will be out of recession but whatever that has been holding us down will continue to hold us down.
I thank Professor Soludo for talking about some of the things that I thought we should be addressing. One of them is the structure of the Nigerian economy. But, we have come into this defeat, I call it the big defeat, where we like to eulogise ourselves, we are a big oil economy, we rebase our economy and GDP in 2014 and our GDP became $520 billion and there is nothing wrong with that.
“We should rebase our GDP every five years; we have not done that in the last fifteen years or so. It was a good exercise but we started celebrating too early, we were the biggest economy in Africa and 26th in the World.
“That was one part of the story but the other part of the story that we were not told is that what is important is not absolute GDP but GDP per capita. So we have 183 million mouths to feed, when you divide your $520 billion as at 2015 into about 180 million people, what you get is about $2,800 per head.
“And when you now begin to look at yourself vis-a-vis other countries, at least IMF did that. As at that time, we were somewhere about 145th or 146th out of the 258 countries that were rated. As at the end of 2016, we had dropped to 188th out of the 258 countries and I think that is important. It is not the absolute number. I do not think that there is anything wrong with our population. Because some people may feel the best way to do it is to shift people out of Nigeria and lets share the dollar. It does not work that way.
“When you look at the oil economy that we claim we are, you find out that oil contributes just about 7.15 percent of the GDP.
“Meanwhile, it also contributes over 90 percent of our foreign exchange earnings that means something is wrong. The part of the economy that contributes about 93 or 95 percent contribute less than 10 per cent of our foreign exchange earnings and that is where I come to the issue of structure.
“Our current situation has presented an opportunity for us to re-examine ourselves and begin to think of what we can do differently and I think one thing we need to do differently is to look at the structure of this economy.
“So as we are re-structuring the economy, we should also be re-structuring the policy. I do not agree that we need the kind of presidential system of government that we are currently running today, we cannot afford it.
“So, I think it is time for us to sit down and ask ourselves questions. My support for re-structuring is not to divide Nigeria. My support for re-structuring is for us to say what we can afford and what we cannot afford.
“There are still a whole lot of things we can do and is not just the political structure. I also agree with Isa Aremu completely. Where we are today is because we refused to plan and it is not enough for somebody to say what we are experiencing now happened today but several decades ago.
“It is not too late; we can sit down and plan this economy. Yes, the Economic Recovery and Growth Plan is a good start but we need a more robust economic plan. When you fail to plan, you plan to fail.”
We’re linking planning to budget – Fayemi
In defence of the Federal Government’s positions on all the issues raised, the Minister of Solid Mineral Development, Dr. Kayode Fayemi, had this to say:
“[W]hat is important for me is to say two things – first that the bulk of what [Soludo] has said is actually what the ERGP seeks to do.
“If you look at all the issues he has raised on stabilizing the macro-economic environment, on achieving energy sufficiency, foreign exchange predictability, driving industrialization – these are all points that we have in the Economic Recovery and Growth Plan.
“And the Plan also does not pretend that there was nothing beforehand. As a matter of fact, it refers to a range of other Plans. In fact, if you look at the sectoral issues, these are products of the roadmaps of the different areas – agriculture, solid minerals, infrastructure, it refers to the industrial revolution plan, integrated infrastructure plan, it even refers to NEEDS (National Economic Empowerment and Development Strategy) in one or two places.
“So, this is not a plan that has just come out of the blues; it’s something that speaks to some of all the good things that we can identify and that Nigerians already agree with around how do we take this economy out of recession, but much more fundamentally, how do we restructure the economy for sustainable growth rather than just consumption-driven growth. And I think these are things that the plan seeks to achieve.
“You refer to improving on implementation, it’s simply because these are the banes of previous plans. It’s not lack of plans that we suffer from, it’s lack of implementation of the previous plans that has gotten us to where we are now. Yes I agree that we haven’t had long-term prospective planning and this is what this government is attempting to do, particularly in linking planning to budget because that has been disconnected for too long in our previous occasions.
“Over the last year, let us look at some specific areas of restructuring that we are either taking for granted or that we don’t pay enough attention to, like the Anchor Borrowers Programme in the Agric sector which is leading us to self-sufficiency in some areas, particularly rice and other staple produce. What this government has done, for example, with cash calls in the Oil and Gas sector is not often talked about and we need to be much more open than that because this a problem that this country has faced over the last two decades – refusal to settle cash calls to companies and that in turn affects productive capacity in the Oil and Gas sector.
“And no matter how much we diversify, which is an agenda of this government, we still need oil revenue to diversify because the money that we are going to use for building the infrastructure, for improving exploration in the solid mineral sector, for supporting the farmers will come from somewhere. And one of the main sources of our revenue remains oil, so I don’t think we should make a light commentary of it that we are not doing enough on diversification because we are still focusing on improving on oil and gas production, we will continue to improve on it. And talking about diversification is not tantamount to talking about ignoring oil and gas; it is about deepening whatever benefits that come from oil and gas in other sectors of the economy. That for me is one key point that we can make.
“There is no doubt Nigeria is underperforming and that we need fiscal stimulus. And Soludo said something about what we have in the Plan not being enough, almost peanuts as he referred to it in terms of the stimulus, and I do agree with him. But that same Plan talks about two things which we don’t also often acknowledge. One is the reference to some assets sales; the second is the widening of the tax base because our tax base is one of the lowest on the continent of Africa, not to even talk about the world. And there are people who have the capacity to actually meet their own obligations to the State but refuse to do so because our tax system has given them the freedom to continue to shy, if you like, from meeting their obligation to the Nigerian State.
“I think on foreign exchange, that we have been hit by a double whammy; oil prices have gone significantly down, militancy has affected what is happening to oil production but this government has also taken significant steps to improve on the situation.
“Today, the figure that I have is two million barrels; the plan talks about 2.5 million barrels by 2020. I believe that is realistic, we are even going beyond that and given the current arrangement with States and the host communities, militancy is also going to go down and production will increase. And if you look at the big wins that the Minister in-charge is also pursuing, I have no doubt that these resources, by way of foreign exchange, will come. The challenge is what we do when this money comes back. Do we use it for consumption or do we use it for investment? That is a challenge that all Nigerians must confront because we all like this goody-goody things that we don’t want to get rid of, even though we really don’t need them in order to live a decent life. So, it’s a question back to values, what are our values and what is the consensus that we have as Nigerians in order to move this system forward? Unless we address these things, I don’t see how we can ever get to the point where we ignore the good because we are searching for the perfect; I think we should continue to work on the good in order to get to the perfect.”
Read the full article on the Vanguard website.