Salvaging Nigeria From A Parlous Economy
Nigeria's developmental bane remains linked to leadership failure. Yet our governance and economic challenges has thrown up another dimension. With our economy regressing, every excuse is being proffered, except the responsibility of our policymakers for the present downturn. Accordingly, our policy failings need to be revisited in the context of recent findings by David Dunning and Justin Kruger at Cornell University, “that the least competent people often end up in charge because they're overconfident about their own abilities.” The negative impact of this disposition is linkable to policy follies and the inability of our some of present leaders and policymakers to lift the nation out of its doldrums.
This much is known. Nigeria's economy is in a full blown recession. The downturn took a while to manifest and longer for our policymakers to acknowledge. But the facts are stark: For two consecutive quarters Nigeria has 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 governments borrow to pay salaries; and governmental efforts to head off the recession have failed. Convenient as it would be 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 the oil sector has admittedly flailed, the non-oil sector has grossly underperformed. The chasm between projected annual corporate taxes and actual income runs into billions. The only things on the uptrend are the inflation figures now at 17%. What remedial measures should the government pursue? From a practical and economic standpoint, government needs to admit that Nigeria's economy is hobbled not just by global drop in oil prices, but by domestic political uncertainties and foggy policy articulation and implementation. There's also the added burden of not carrying the nation along, and the 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 economy and the continuing drop in President Buhari's approval rating, which dropped 9% from 48% in May to 39% in June 2016; a downward spiral from a high 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 arising from the incongruence between Buhari's campaign promises and his governance methods, delivery and actualities.
These correlations aside, fiscal and foreign exchange policy vacillation have further compounded matters. Government unwillingness to engage with those proffering alternative policy viewpoints hasn't helped. The government's strategic communications still leave a lot to be desired. And the government seems not sufficiently focused or willing to pick up on mainstream recommendations that might assist 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, 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 trickledown 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 long-term loans, mostly to SMEs. The mopping up of public funds, while positive and critical to accountability and monitoring grossly diminished liquidity required to keep the economy running. The resulting cash crunch remains unaddressed.
Secondly, at the outset of the Buhari administration the CBN inexplicably tampered with the domiciliary account regime. Such tampering overlooked the longstanding cushioning effect and buffer being provided by Diaspora remittances since President Umaru Yar'Adua's administration. That policy move created dissonance and has proven 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 compelled Nigerians in the Diaspora to hedge on further remittances. Thankfully, the government confirmed recently through the SGF Mr Babachir David Lawal that Diaspora remittances remain high and presently stand at N21billion. What to do?
A forex bridge policy is urgently needed. A universal option, which allows money deposit banks to pay up 4% interest on dollar funds converted to time deposits of 30 to 90 days, would transform 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 access to official rate forex windows controlled by the apex 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%. Relatedly, the globally weakened US dollar will prove an asset.
Thirdly, Nigeria's ailing economy cannot recover without a massive infusion of stimulus funds. 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. The bulk release of the welfare programmes fund could be a starter.
To paraphrase my late friend, Peter Alexander Ashikiwe Adione Egom, (the motor park economist); 'if Nigerians are not buying or spending, the economy will never improve'. Rather than embarking on another 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. Government must offer other 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 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. This proposal is by no means welfarism but pragmatic. As such, whatever funds that are disbursed, must be directed at infusing the tanking economy with some energy.
The price Nigerians are paying now is not of their own making, except for their long tolerance of bad leaders. Accordingly, any salve from the federal government should go directly to 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!
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Obaze, is MD/CEO of Selonnes Consult Ltd.
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