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Thursday, September 15, 2016

PULLING NIGERIA OUT OF ECONOMIC QUAGMIRE I


      It was Lord Maynard Keynes that popularized the adage, in the long run we are all dead! This adage was coined on the back drop of great depression of 1930s when major world economies went into depression which was far worst than the recession we are talking of now. It takes the general adaptation of what is today known as Keynesian economic thought to get the world out of the great depression. Nigeria will equally need something like that to get out of it recession. The Keynesian school of economics believe that an economy needs government influence to get out of recession, while the classical school of thought believe an economy is capable of self regulation. The government interference Keynesian are talking about is in term of fiscal policies such as tax reduction and increase government expenditure to increase availability of money in the economy. Thus, an economy like that of Nigeria that is in recession need an expansionary fiscal policy to get the economy out of sluggish growth. This bring us to the question of whether we need TSA at this moment of crisis when government need to pump more cash into the economy? Central Bank on its part needs to pump more money into the economy for the same reason of need to increase liquidity in the economy. This is the stand of monetarist who called for use of expansionary monetary policies to get out of recession. To achieve macroeconomic stability in any economy there is always an interplay between fiscal and monetary policy; that is why it is wrong to put too much blame on Nigerian Central Bank who control monetary policy at the expense of the executive arm of the government that control fiscal policy. Central Bank alone through changes in interest rate and foreign exchange controls cannot pull the economy out of recession. Federal government must come-in through expansionary fiscal policy. This is the reason why many analysts see the delay in signing budget as very dangerous. Both the executive and legislative arms of the government were playing with fire that would come back to burn them which we have started to witness at the moment. Up to this moment we do not precisely know the nature of our recession and how long it is going to take; whether it is V shape that is short, U shape that is prolong, W shape which is double recession or L shape that is characterized by 8 consecutive quarters. 


$1,026 and $12,475

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htm.......are classified as middle income countries. What this means is that we have a lot of potentials for getting out of recession quickly. We can start by boosting consumer confidence who through increase in purchases will help our businesses back into profitability. Thus, more people that are out of job will be able to get back to work. As i have forecasted in my previous write up about the devaluation of Naira that it will lead to appreciation in capitalisation of Nigerian stock exchange, this has began to happen though it is happening gradually. Due to weak Naira relative to dollar foreign investors are now returning there money back to Nigeria. Nigerian authorities must stabilised the price of Naira if they want more invesors to come back and invest there money in the economy. It is the unstable nature of the currency that is scaring them from  coming to Nigeria. Here the federal government shall give CBN all the support it need to stabilised the value of Naira. This also explain why some wealthy Nigeria hoarded about $20 Billion in their account within the country, refusing to sell them to the market. Though, is not fair for any one to put the entire blame for the harsh economic situation we are in today on the APC government, previous government must take larger share for the current woes. For example, Jonathan government according to federal government left a debt of N65 billion owed to fertiliser suppliers.
countries with a gross domestic income (GDI) per capita of between $1,026 and $12,475 in 2015 and are classified as middle-income countries.

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lower Middle-Income Countr

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lower Middle-Income Countr

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htIn the figure just released by the National Bureau of Statistics (NBS), Nigeria’s export increased to N1.873 trillion in the second quarter (Q2) of 2016, an increase of N725.6 billion or 63.3 per cent, over the value first quarter (Q1). NBS attributed the  increased in the value to depreciation in the value of Naira compared to other major world currencies. Telecommunication sector has achieved positive growth adding N1,580 billion to GDP in the second quarter, i.e. 9.8% growth, representing an increase of 1.0 per cent relative to first quarter. with these figure telecom sector made the largest contribution to the economy during the quarter under review. Time is of essence here, democracy is the most time conscious system of governance in the world. Buhari has only four years for his first term and another four if he win re-election, because of this Buhari must quickly introduce policies that people will benefit from. Nigeria people have no patient for what his team is proposing like i heard finance minister was saying time and patient. Election is just about two and half years away.  As he wins the battle against Boko Haram the next big battle is the economy. Already the opposition PDP has noticed Buhari main weakness is in the economy, they are not fools that is where they will concentrate their criticism at him. President Buhari the earlier the better.The delay in signing 2016 budget shall carry part of the blame for the current recession. If those with the responsibility of passing it both among the executive and legislative arms of government have done their job on time, we would not have been in the current mess we found ourselve    
      Whenever i look at some of Buhari's economic policies i see a lot of policy inconsistencies and contradictions. Imaging introducing new types of tax such as the communication tax when the economy is in fact down in recession and badly need blood through injection of money into the economy to revive the critical sectors of the economy. What government should have done was to release more money into the economy and not to squeeze it the more. This has been the worst recession to hit Nigeria since 1987, according to data from IMF the economy will experience negative growth for the whole of 2016. Even the national leader of the ruling All Progressive Party has called for "economic restrategising and re-planning". At the current level of foreign exchange rate deterioration Nigerian economy will lost a lot if we continue with the importation of all kind of things. According to the minister of agriculture Audu Ogbe, Nigerian importers require the sum of $2.5 billion every week in order to pay for imports. Now consider a situation when there is no any source of getting those billion dollars used in paying for the import, what do we do?  This justify the need for domestic production of goods and the liberalisation of Naira in order to make our export cheaper. The move towards diversification of the economy is good in itself. It will take the economy out of the grip of the oil sector and make it dynamic. Thus, the revival of agriculture embark upon by this government is good. But, what is now being done is not enough. You can not revive agriculture by just closing your border and banning imports, it is not a mere mechanical thing. It is more than that. Government needs to carry every one on board, whether you are in PDP, APC, poor, rich, currently living in Nigeria or in diaspora. As we move towards diversification of the economy, federal government must equally find a lasting solution to the militancy in Niger Delta. Oil is still the major earner for Nigerian government anything that affect it will touch government revenue and it ability to execute it projects. 


     The government move to borrow from international creditors is not bad as it looks, but it must be done in the most efficient manner. The interest on the debt should be manageable not something that will return us to the era of debt overhang of the 1980s and 1990s. The borrowed money will help bridge the gap left by falling oil revenue and help inject most needed liquidity into the economy. Increase government spending on power projects, railways, roads, construction of dams, housing projects, and agriculture will help revive the economy in the medium to long term. The just release NBS statistics on the economy show that agriculture and telecom are the major movers of the economy in the second quarter of this year. A top IMF official Mitsuhiro Furusawa  in a recent interview observed that there appear to be a conflict between inflation and economic growth in Nigeria, just like i have observed in my last post on inflation in Nigerian economy. He called for Nigerian authorities to go for price stability as they strive to achieved economic growth. He also called for more independence for Central banks in matters related to monetary and foreign exchange policies, which has been the unanimous opinion of top economist around the world for about two decades now. Political interference of any kind in economic policies is at the heart of our current problems, so are other big economies such as Russia, Brazil, South Africa, and Egypt. The earlier politicians learn to appoint competent people and allow them to do their work the better. Too much interference is bad for economic progress. Among the measures being taken by government to diversify the economy includ attracting foreign investors in solid minerals, telecommunication and agriculture by giving tax holidays and import waivers. Nobody is condemning Buhari 1970s and 80s sort of economic policy of import substitution industrialisation, but it shall be done gradually inline with today's realities. we cannot just go back to those periods, the world has changed. Thus, we must take notice of the fact that at the same time we are trying to revive industrialisation through stopping imports, some people are suffering because of it through higher prices and scarcities of necessities. It therefore become necessary for Buhari government to adjust in such a way that it does not hurt the poor man that bring it to power.

  
    In a recent interview with Aljazeera TV, former minister of finance Ngozi Okonjo-Iweala advised Buhari to concentrate on achieving macroeconomic stability which involves controlling inflation, foreign exchange stability, and control of fiscal policy. Those that are calling for revert to import substitution industrialisation as solution to our current economic problems are also right but they should remember that you cannot start producing any substitute without putting the enabling environment on the ground. The needed environment here is macroeconomic stability. You also need stable power supply, good roads and rail line, security of investments, access to capital, highly skills workforce, to mention just a few. But, these cannot come in a single day they took time before they are put on the ground. Hence, the need for gradual approach to any kind of import substitution. You cannot just close your border and say let start producing rice without tractors, fertiliser, sending extension workers to farmers, making loan available, providing good seeds for planting, etc. If you do that there will be hunger in the land just as we are experiencing now. But, you can do that gradually as we have done in the case of cement production. For example, government can say let reduce import of rice this year by 25% another year by 50%, next 75%, in the fourth year you will stop importing any rice, as you are self sufficient. Buhari economic team is thinking like bunch of accountants whose main concern is bookkeeping. We are not dealing with how to keep government record properly here (though that is also important), but what we are dealing with is how to put economic managers who are creative enough to devise most accepted method of getting Nigeria out of  present quagmire. The minister of finance should have been somebody with track record of knowledge of macroeconomics and not a practicing accountant, who is more or less a bookkeeper. Government as i mentioned earlier shall make use of both fiscal and monetary policies to get us out of recession. Recently UNIDO classified Nigeria as a lower middle income country, this signal that demand boosting strategies will work in reviving our businesses back to profitability.