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Friday, October 21, 2016

PULLING NIGERIA OUT OF ECONOMIC QUAGMIRE II

    Let me begin by saying that President Buhari has started heeding to calls to change the economic direction his government has taken in the last one and half year. Already there are positive signs that our economy is responding positively to government economic stimulus. Price of food stuffs have started to decline, thanks largely to harvest of this year's farm products. In the manufacturing sector there is an indication that our manufacturers have started looking inward for local inputs and are retooling their machinery to adopt to local materials as well. Figures from CBN show credit expansion in the third quarter (Q3) of this year despite the widely discussed lack of liquidity in the economy. Rating agency Fitch in it just release report has projected Nigerian economy to grow by about 2.6% next year, a welcome development. The IMF in it latest World Economic Outlook report has rated Nigeria as Africa's largest economy ahead of South Africa and Egypt. This came after Nigeria was estimated to have been overtaken by South Africa last year. I really appreciate current government initiative of securing upfront payment from buyers of our crude oil. The plan initiative will help us built our foreign reserve and reduce our borrowing cost. If the Indian government plan of paying $15 billion upfront against future supply of crude oil from Nigeria materialized it will really help our way out of recession. The Indian government also benefit from the deal in forms of Indian companies participation in Nigeria's oil and Gas industry, building of infrastructures, and guarantee of future oil supply. Buhari government efforts to sell some national assets in order to finance this year budget if done in the most transparent and efficient manner will compliment borrowing from external agencies and other existing innovative methods created to get Nigeria out of recession. Even prominent economists and businessmen as well as former President Obasanjo have supported the sale of national assets to get Nigeria out of recession.


     Multinational institutions such as the IMF have already warned that Nigerian economic crisis risk spilling into other West African countries. Already our immediate neighbors such as Niger, Benin and Chad have started feeling the impact of Nigeria's economic crisis.  IMF also forecast that economic growth in the whole of Sub Saharan Africa for 2016 will  grow by only 1.6% a figure far lower than expected. One of the major factors responsible for that according to IMF is declined in commodities price that most of these economies depend on and failure of their governments to diversify the economies. But, both IMF and World Bank expects Nigeria to start recovering from next year. Latest figures from IMF put Nigeria’s GDP at $415.080 billion in 2016, from $493.831 billion at the end of 2015, this affirm Nigeria as the biggest economy on the continent. The decreasing level of our foreign reserve, falling revenue from oil sells, and weak export base have continued to exasperate fall in Naira value against Dollar. Already holders of external loans domiciled in dollar are feeling the heat, as the value of their debt skyrocketed and become difficult to service. Those who fall victims include federal and state governments, Banks and other major corporate entities. I still can't understand our minister of finance Mrs. Kemi Adeosun, whether she is ignorant of macroeconomics or it is just lack of competent hands to assist her on the matter. In an interview with the media recently he was quoted as saying that "I don’t want to predict when we will get out of recession. Let me tell you that we will get into growth and that’s how you get out of recession, because of the stimulus that we are providing". With the most advanced macro-econometrics packages you have today and availability of reliable data any one can predict when we get out of recession or not, but IMF and World Bank have done that for her.

     IMF has also called for more structural adjustment and tight fiscal and monetary policies, though some analysts may have reasons to disagree with this recommendation in face of need to inject money into the economy in order to pull it out of recession. World Bank on it part has also called for tight monetary policy to help fight inflation, seeing it as a good move to boost real interest rate and attract investment into the country. A Price water house Coopers (PwC) report shows that Nigeria is on her way to become $1.4 Trillion economy by 2030 on the backdrop of sustain fight against corruption and implementation of good policies. But, Buhari major plus for the future of Nigerian economy is his desire and determination to built sustainable institutions, a corrupt free Nigeria, as well as his fight to institute property right. These factors are very important for building of strong Nigeria with equally strong economy. Institutions such as the judiciary, military, police, civil service as well as the business community must be purged of corruption for Nigeria to reach the dream land. Property right on it part is very important for the development of private sector and attraction of foreign investors, because no investor put his money where he is not sure of  title of his property tomorrow. With good institutions Nigeria's journey to become one of the largest economies in the world is assured. Our current bureaucratic system must be reformed in order to put Nigeria on the top in world bank's Ease of business ranking. Nigerian judiciary and civil service are the most affected by the bureaucracy virus. Only thorough reforms in these sectors will rid Nigeria of the problem.


    Our current foreign exchange regime, the manage float, is increasingly being adopted by countries around the world and remain the most popular foreign exchange regime. On the sliding value of Naira against Dollar CBN must take measures to ensure transparency in Dollar trading. Government shall take immediate measures to address the activities of currency speculators who have contributed in fueling the current problem. But, in the long run the only way to ensure efficiency in distribution of Dollar is to increase it availability and that will only happen when we increase the total value of our exports as a major source of foreign exchange. Policies such as the recent sale of Diaspora remittances to Bureau De Change (BDCs) are making positive contributions as indicated by recent improvements in the value of Naira against Dollar. The combine annual remittances from diaspora Nigerians runs into billions of Dollars, therefore policies that ensure maximum utilization of these Dollar remittances are good for the economy. If what CBN is telling Nigerians that it is working to renew Naira-Yuan swap deal abandon immediately after it was announced materialized, it will help reduce Nigeria dependence on Dollar and restore some level of stability to the exchange rate. Nigeria has adopted the Chinese currency as one of its reserve currencies during tenure of Sanusi Lamido as CBN governor , it is therefore more logical to take the relationship a bit further. As it looks now, CBN decision not to lower interest rate is good, as it was done with the intention of helping Naira regain it value against Dollar. As Nigerian stock exchange recovers more investors will return to the market. For those Nigerians dreaming of Naira returning to its 1980s to 90s value they need to quickly catch up with the existing realities, that nothing like that will happen in the next five years. Naira will do well if it at least return to its value of 100 plus to the dollar of the last fifteen years in the next five years. Foreign exchange is a reflection of major economic fundamentals which as at now are in favour of low value of Naira against Dollar.

  This government needs to get it tax collection system right, because without that all efforts to maximize government revenue will meet obstacles. It is not a matter of charging high taxes but charging the optimal rate  in order to allow for efficiency in the process. A situation where tax payers are colluding with tax authorities to avoid paying tax or pay lower than the amount they are expected to pay is bad for any government. Thus, Buhari government need to wake up and fight the bureaucracy and corruption in Nigeria tax administration. This will go along way in increasing revenue generation and help reduce deficit in this year's budget. Agriculture requires more than Buhari's government is allocating to it at the moment, if at all we want to diversify our economy away from dependence on oil. Africa's fastest economy Ethiopia, depend on agricultural export for most of it foreign earnings, why can't we do the same. If you look at our rural agriculture it is in very bad shape, rural farmers still use hoe to farm their lands, they cannot access fertilizer instead resort to using manure, and they are ignorant of the latest developments in modern farming. The whole government's agriculture policy is not well spell out leaving prospective investors in the sector in darkness on directions the government is taking. For production of large quantities of agricultural output government must develop rural areas and reduce rural urban migration, emphasis mechanize farming, woo larger private investors into the sector and make fund available for onward distribution to actors in the sector in forms of soft loans and assistance. People shall not expect significant improvement in current agricultural output without changes in the existing technological and policy base on which our agricultural sector depends. To reduce current level of unemployment in the country agriculture and manufacturing must be prioritized. Hence, the emphasis on farming here.

    
    The current focus on infrastructural development is most welcome, all the major countries of the world that made it to the league of developed nations had first tackled their infrastructural shortages before they reached the point of being called developed nations. Thus, the ongoing initiative by federal government and World Bank to establish Nigerian Development Bank is timely. With the right kind of infrastructures this government will be able to attract the right kind of foreign investors into the Nigerian economy. For example, our FDI figure for 2015 is put at $3.4 billion which is lower than in 2014 with  $4.7 billion, a fall of 27 percent, the figure must rise for us to realise our ambitions. At the heart of previous governments slow responds to infrastructural investment was long term nature of large capital projects, whereby government that started these projects are not the one that finished it and enjoy the benefits. Hence, the nature of democracy which promise short periods for leaders in position of authority. The fact that voters on their part are not patient enough also explain the behavior of people in power to projects that brings immediate benefits at the expense of long term projects. Though, power supply has begun to improve concrete measures must be taken to ensure it long term sustainability. This will come only with huge capital investment in the sector which normally take long time to materialized. Power projects like Manbila hydro power, various other thermal power works currently going on must be pursued and finished on time. Renewable and Nuclear energy sources must also be explored in order to meet our current and future energy needs.The next two biggest economies in Africa have power generation of 52,811 MW and 24,700 MW for South Africa and Egypt respectively, while the biggest economy Nigeria has only about  4,500 megawatts. This show that we are far below our actual potential as a nation.

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