Salvaging Nigeria From A Parlous Economy
Nigeria's developmental bane remains linked to leadership failure. Yet our prevailing governance and economic challenges has thrown up another dimension. With our economy regressing, every excuse is being proffered, as if to justify our present economic challenges. Every excuse, except the responsibility of our policymakers for the present downturn, even if vicariously. It's not farfetched that those selected to manage change may be totally clueless about what constitutes real change and how to go about it.
Accordingly, our policy failings needs to be revisited in the context of recent finding by David Dunning and Justin Kruger at Cornell University, which affirmed "that the least competent people often end up in charge because they’re overconfident about their own abilities." Clearly, we can trace the negative impact of this disposition to past policy follies and the inability of some of our present leaders and policymakers to lift the nation out of its present economic doldrum and political morass.
And of the present, this much us known. Nigeria's economy is now in a full blown recession. The downturn took a while to manifest. And it took a longer period for our present policymakers to admit as much. But the facts are stark: Nigeria has for two consecutive quarters failed to meet projected revenue targets, thus making nonsense of the Fiscal Year 2016 Budget.
The budgetary gaps are alarmingly huge. Both the federal and state government borrow to pay salaries; and governmental efforts to head off recession, if any, has certainly failed. Inasmuch as it would be convenient to blame global factors and the past government for the present economic ills, it was the fiscal policies of the past year or lack of it that stoked the unfolding recession.
While oil sector has flailed discernibly, the non-oil sector has grossly underperformed. The chasm between projected annual corporates taxes and actual income runs into billions. The only thing on the uptrend are the inflation figures now at 17%. What this means is that the economic crunch is now a full blown crisis. So what remedial measures should the government pursue?
From a practical, if not strictly economic standpoint, Nigeria's economy is hobbled not just by the global drop in oil prices, but by domestic political uncertainties and foggy policy articulation and implementation. There is the added burden of not carrying the nation along, and indeed, the seeming unresponsiveness to the pervasive outcry that Nigerians are suffering.
A multiplicity of correlations accentuates the recession mosaic. Three are noteworthy. There is a clear correlation between the stressed out economy and the continuing drop in President Buhari's approval rating, which dropped 9% from 48% in May to 39% in June 2016. The downward spiral is from a high approval rating of 80% in the autumn of 2015. There is also a correlation between the Nigeria's tanking economy and dissatisfaction among Nigerians on the. President's "performance" in areas conflict resolution, agriculture, and food security, healthcare, education, economy and job creation. To most Nigerians "he was rated poorly in these areas". Finally, there is a correlation prompted by the incongruence between Buhari's campaign promises and his governance methods, delivery and actualities.
Beyond these correlations, fiscal and foreign exchange policy vacillation have further compounded matters. Government unwillingness to engage with those proffering alternative viewpoints and policies hasn't helped. The government's strategic communication standards still leaves a lot to be desired. And the government seems not sufficiently focussed to pick up on mainstream recommendations that might assist in enhancing its change agenda and programmes.
Last September, I recommended that "the cost of resurfacing, restoring and rehabilitation of federal highways should be jointly funded by the federal and state governments on a 90-10 ratio per mile, with the States retaining responsibility for the maintenance of highways within their territories." That recommendation, it seems have belatedly found favour with President Buhari, who recently asked states,"to consider taking over the repair and maintenance of federal roads to reduce the burden on the federal government." Asking states to do so is good but not enough. Earmarked funds for such road maintenance must devolve directly to the states. The trickle down effect will help ginger the badly ailing economy.
The Treasury Single Account (TSA) policy was well-intended, given the prevalence of sharp practices in handling public revenue. Multiple domains for public funds held by MDAs, meant that public policies and projects for which such funds were allotted, often fell prey to transactional considerations rather than public interest considerations. Yet, in corralling all public funds into the TSA regime, government overlooked that such funds enabled money deposit banks (MDBs) to underwrite short, medium and longterm loans, mostly to SMEs and the organized private sector (OPS). The mopping up of public funds, while positive and critical to accountability and revenue monitoring, grossly diminished liquidity required to keep the economy running. The resulting cash crunch, remains unaddressed. Tangentially, the policy stoked economic crunch and recessionary values.
Secondly, at the outset of the Buhari administration the Central Bank inexplicably tampered with the stable and supporting domiciliary account regime that was providing the economy a buffer. Such tampering overlooked the longstanding cushioning effect being provided by Diaspora remittances since President Umaru Yar'Adua's administration. That policy move created dissonance, backfired badly and in the end, has proved counterproductive.
Resultantly, despite over $20 billion being held in private Nigerian domiciliary accounts, the FGN could not tap into that fund or leverage on it to address the scarcity of foreign exchange. Hence the supply of forex credit is continually constrained. More damaging is that government's disposition and attending concerns, compelled Nigerians in the Diaspora to reflexively hedge on further remittances. But all seems not lost, as government confirmed recently through the Secretary to the Government of the Federation, Babachir David Lawal that Diaspora remittances remain high and presently stand at N21billion. So, there is still hope. But, what to do?
A special-needs forex bridge policy is urgently needed. A universal option, which allows money deposit banks to pay up 4 percent interest on dollar funds converted to time deposits of 30 to 90 days, would transform the funds presently sequestered in domiciliary accounts into liquid assets for borrowers, importers and for salary remittances. CBN could further incentivize MDBs, by allowing them privileged asses to official rate forex windows controlled by the bank. This gesture has two positive stimulus strands: it will ease the forex liquidity pressure, and also bump the funds held in domiciliary accounts, by up to possibly 30 percent, considering the paltry interest rate presently paid by US financial institutions for savings accounts and certificates of deposits. Relatedly, the globally weakened US dollar will prove an asset.
Thirdly, Nigeria's ailing economy cannot be wished into recovery without a massive infusion of stimulus funds that would jumpstart the stalled economy. Because Nigeria is predominantly dependent on oil exports, it will not benefit from the recent surge in which emerging markets index outperformed its developed markets counterparts in the last four quarters. FGN must then devise means of infusing domestic funds into the system, even at the risk of temporarily stoking inflation. The bulk release of the welfare programmes fund could be a starter.
To paraphrase the thought process of my late friend, Alex Ashikiwe Adione Egom, (the motor park economist), 'if Nigerians are not buying or spending, the economy will never improve'. As elemental as it is, rather than embarking on another succession of fiscal bailout for distressed states, there should be a one-off Udoji type award disbursed directly to public servants in the thirty-six states and the federal system. The symbolic and psychological impact will prove magical. Moreover, with the rise in petroleum products, which has curtailed the spending power of Nigerians, government must offer incentives akin to a tax break.
Since Nigeria's tax regime is generally despoiled, such a break can be in form of a moratorium on the excessive tariffs being charged for electricity. For most Nigerian parents with school age children, a onetime tuition voucher for their enrolled students will be magical. For those who do not have children in schools, a programme of conditional cash transfer (CCT) would do. The goal would be to use such "helicopter fund" to augment the purchasing power of the disenfranchised masses, rather than support the rich and comfortable elite. This proposal is by no mean welfarism but pragmatic. As such, whatever funds that are disbursed, must be directed at infusing the tanking economy with some energy.
We must remember that the price Nigerians are paying now, is not of their own making, except perhaps, for the fact that they have long tolerated bad leaders and self-serving policymakers. Accordingly, any salve from the federal government should go directly to the the people. Nigerians deserve a break, while waiting for the longer term benefits from Buhari's change policies. We must begin salvaging Nigeria's parlous economy by restoring the confidence of the man on the street in the economy. We must put extra disposable income in their hands. It is that simple!