RECESSION: Buhari’s New Thinking - Vanguard Special Report
*2017 Budget to focus on inclusive growth
*Udoma, Adeosun speak on way out
*Obadiah Mailafia, Bode Augustus, Ayo Teriba, Bismarck Rewane suggest stimulus package to revive economy
Nigeria
can be likened to the prodigal son, who grabbed much of his rich
father’s assets and went to what the Bible described as a ‘far country’
and squandered the wealth with women of easy virtue and returned home a
wretched man, bemoaning his fate.
But the good thing about the
prodigal son is that he quickly realised his mistake, returned to his
father, who pardoned him for his recklessness and restored him with full
rights to his sonship.
President Muhammadu Buhari may not be an
astute or a celebrated economist like Thomas Sowell, Joseph Stiglitz or
Adam Smith, to dish out theories on fiscal and monetary policies, but
with experience, he knows when an economy is in serious trouble.
And
it has been a baffling coincidence that while as head of state between
1984 and 1985, and now as a civilian president, Buhari has had to
contend with a deflated economy, which may take a long time to rejig. To
worsen matters for him and his team, the citizens are seriously upset,
because they cannot readily understand why the economy, which was
recently ‘rebased’ and branded as the ‘largest in Africa and only 26th
globally by the previous administration, could have inexplicably
nose-dived into a recession with a double-digit inflation and massive
job cuts as well as firms closing shop.
Indeed, the outlook is
scary, sending shockwaves across the nation and abroad, effectively
dethroning Nigeria from its enviable position as the largest economy and
watching in low self esteem as South Africa takes over from the ‘giant
of Africa’.
But the good news is that Buhari has been
humble and straightforward enough with Nigerians to admit that the
economy is in a very bad shape and that it requires urgent surgical
operation.
Contrived positive economic indices to show that the
economy is doing very well will not work and President Buhari has
reportedly rejected that. Even the suggestion in some quarters that
massive imports to meet the daily needs of the people so as to be seen
as ‘politically correct’ has been rejected.
Nigeria, like other
major oil producing counties like Venezuela, Canada, Iran, Algeria,
Ecuador, Brazil, Iraq, Russia, Libya, Azerbaijan, Kazakhstan are also in
recession while others like: Qatar, Mexico, UAE, China, Angola and
Saudi Arabia, according to the June/July edition of Worldatlas,
Bloomberg, are at the brink of recession.
This has come about as a
result of the continuous decline in oil price for close to two years.
From a steady $110 per barrel before 2013, oil price has dropped to as
low as $30 per barrel since 2014 but is barely moving towards $50 per
barrel, leaving oil-dependent nations with little or no cash to run
their economy.
Perhaps, as a practical demonstration of the
political will and determination to find answers to the beleagued
economy, Buhari sat down with his ministers and top government officials
for most part of Thursday, September 15, 2016, to holistically examine
the economy and proffer solutions that could effectively bail the nation
out of recession.
The session came on a one-day retreat
tagged: “Building Inter-ministerial Synergy for Effective Planning and
Budgeting in Nigeria”.
Declaring open the retreat, President
Muhammadu Buhari said that the nation requires what he calls
‘out-of-the-box’ thinking so as to get out of the economic doldrums.
Buhari
said, “The challenges we face in the current recession require
‘out-of-the-box’ thinking, to deploy strategies that involve engaging
meaningfully with the private sector, to raise the level of private
sector investment in the economy as a whole.
“We are confident
that the level of private investment will grow as we are determined to
make it easier to do business in Nigeria by the reforms we are
introducing under the auspices of the Presidential Committee on Ease of
Doing Business.
“This is why we have embarked on measures and
actions that will open up the opportunities we have seen in the Power,
Housing, Agriculture, Mining, Trade and Investment, Information
Communication Technology (ICT) Sectors, Tourism, Transport and other
sectors.
“While Government is taking the lead in the task of
repositioning our economy for Change, we cannot achieve this completely
by ourselves. We will need, and we ask for the support and cooperation
of the private sector’s domestic and foreign investors, the States and
Local Governments, the National Assembly and the Judiciary as well as
all well-meaning Nigerians in this important task. We are confident that
working together, we shall succeed,” Buhari assured.
Budget and
National Planning Minister, Senator Udoma Udo Udoma, explained that the
retreat was timely as it was deliberately arranged as part of the
government’s preparations for the 2017 budget, apparently to avoid the
problems noticeable in the previous budgets.
Udoma said: “We want
to make sure that as a cabinet, we have synergy and we look at the
priorities for the government for the 2017 budget and make sure that in
the light of the current economic situation that the budget is well
structured to take us back on the path of growth.
The minister
said that with proper synergy from the ministers and their respective
agencies, it would be possible for the cabinet to speak with one voice
regarding the 2017 budget.
Udoma traced the genesis of the
current economic quackmire to a number of factors but gave an optimistic
view that the adversity could be turned into an opportunity for growth
and development.
Finance Minister, Mrs. Kemi Adeosun, expressed
the government’s sympathy with Nigerians over the down turn in the
economy but was quick to add that the administration was more serious in
its intention and resolve to turn it around.
The minister said:
“We sympathize with the people of Nigeria but what is more serious is
our intentions, our resolve and plans to turn it around. We had said it
before that we knew we were going to go into a very difficult period. We
have not anticipated the impact of the much awaited crisis, which of
course is built on our revenue which is down significantly. We have a
credible plan and that plan is based on the need to invest in our
infrastructure and each of the experts spoke on that, saying clearly
that it was the only solution for Nigeria to take us out of this
situation and we are working on that”.
The retreat latter broke
into six syndicate groups with ministers and permanent secretaries
divided among the groups to examine the economy and suggest the way
forward. Leaders of businesses in the private sector and consultants to
government were also in attendance.
Among the papers presented at
the retreat were: “Weaning the Nigerian economy out of oil dependence”,
by Dr Obadiah Mailafia, “Fiscal and Trade Policy options to get the
economy out of recession”, by Dr Ayo Teriba.
But to effectively
wean the economy out of oil dependence, Dr. Malaifa, brought forward
both short and long term suggestions to be applied by the government.
Malaifa
said: “As a short term measure, we need bold measures through the
vehicle of a stimulus package and a people-based macroeconomic
stabilization programme that will reboot growth and return the economy
to the path of long term sustainable development. This is a fundamental
prerequisite for any credible programme of long term diversification. We
then discuss the key sectors for diversification, anchored on an
agro-based mass industrialization strategy; arguing that such an
ambitious strategy will not work without the concomitant accompaniment
of its necessary foundations.
“These foundations are an enhanced
role for the private sector as the engine and locomotive of growth; more
rigorous approach to implementation of energy and infrastructure
development; skills, training and human capital development and
enhancement of labour and productivity; and public sector reforms in the
context of a reinvented and re-imagined state that is smarter and more
entrepreneurial.”
Dr Teriba said, among other things, that the
government should strengthen the synopsis on Fiscal and Trade Policy
options to get the economy out of recession – getting the policies
right: there is a clear way forward for Nigeria.
He pointed out
that although it was regrettable that inflation, devaluation and
recession have dogged Nigeria’s economic news in 2016, they could have
been prevented.
But to get out of the dark tunnel, Teriba said
the government should apply the following strategies to bring about a
new lease of life: “These were avoidable, they should never have
occurred, and remain easily manageable. Indeed the silver linings are
the many useable, potent but yet to be used economic policy ammunition
that are readily at the disposal of government: The CBN could ease its
tight policy stance to give recovery a chance . Federal Government could
break its own monopoly and let foreign investment flood into all
infrastructure that could provide the big-push to boost recovery and
also improve Federal and States’ fiscal situation.
“It is also
true that the severity of the current downturn will only spur us to pull
some or all of the available policy levers, preferably based on a
convincing, holistic, coherent and well-synchronized economic reform
document that emphasizes supply push, rather than demand restriction or
price adjustment. This is why I strongly believe 2017 may hold a sharply
contrasting outlook to 2016, and most likely turn out to be a year of
many green shoots for Nigeria, with numerous bright shining lights at
the end of the tunnel,” he said.
Adding a voice to that, Mr.
Bismarck Rewane, who spoke on “Monetary and Exchange Rate Policy options
to get the economy out of recession”, maintained that the current
Nigeria’s state of affairs requires a robust plan backed by a
comprehensive implementation effort to turn around the economy.
Rewane
said such swift action in at least three areas will help address
Nigeria’s economic challenges: “In the fiscal/monetary sector,
government should reduce interest rates to unlock resources tied to debt
repayments that can be reinvested in capital expenditure; reduce VAT
rates to lower fiscal burden on wider citizenry; and boost federal
revenue capacity by improving on tax and Customs collection efficiency,
selectively liquidate low priority assets, concession strategic assets,
borrow at efficient prices.
Improving Social welfare and
stability by improving minimum wages in response to rising cost
inflation; creating social safety net to address impoverished community
and addressing security issues and controlling regional conflicts.
Deepening
Business Growth by launching pro-growth initiatives in under developed
sectors to diversify the economy and stimulate growth in the real sector
e.g. Agriculture, Mining, Manufacturing etc.); expanding credit supply
from banks by reducing CRR to incentivize higher levels of lending and
launching a fresh wave of sustainable asset relief programmes to improve
Banking sector NPLs and unlock capital for future lending.
“For
long term success, it will be critical for all actions to be supported
by a strong commitment and decisiveness from the government.
Government
should consider setting up dedicated teams to track targets/KPIs and
ensure timely execution of key milestones. This team will also be key
for managing public communication of key policies/actions and
harmonizing strategies advocated by the various ministries.
“To
address the risks, the government should employ a set of clear and
decisive actions, along with a cohesive and consistent communication
strategy for renewed and sustained confidence amongst key stakeholders.
Similarly, a realistic and pragmatic mind-set must be maintained as
positive results slowly emerge,” he counseled.
On his part, Mr.
Bode Agusto spoke on “How to grow output and productivity in the real
sector”, advising that the government should be pragmatic in choosing
the best model in growing key sectors of the economy – electric power,
railways and oil and gas – given the stark reality that the external
sector is weak and does not generate enough USD.
Augusto reasoned
that since government revenues are down with high debt service costs
and the government finding it difficult to fund infrastructure spending
without borrowing heavily, it should take steps to reduce debts to grow
the economy.
He said: “Government must therefore jump-start the
economy by increasing infrastructure spending in a manner that does not
increase debt and generate USD that will be used to plug both the
current account deficit and fiscal deficit. In each of these key
industries, government should be minority shareholders, allow the
majority t manage the industry so that she can act as an independent
regulator.
Government should also encourage competition, provide
fiscal and legal incentives to encourage investment and grow the tax
base. Finally, as these businesses grow, they must be encouraged to list
on the Nigerian Stock Exchange so that they can provide an exit for
investors who want to sell and a store of wealth for those who want to
buy,” Augusto said.
2017 BUDGET
According to
documents from the Budget Ministry, the key expectations of the 2017
budget will focus on reviving the economy and will emphasise on actions
to return the country to sustainable growth, keep a cap on recurrent
expenditure and focus on capital expenditure, especially infrastructure.
According to the document, the ultimate target is the attainment of strong inclusive growth.
Although
Nigerians are very critical of the way the Buhari government is
handling the economy, none of them can however accuse the government of
not being transparent enough to admit that there is danger in the
system, They have also been pragmatic in pointing the way forward.
But
the citizens must erase from their minds the fallacy that any
government or nation like Nigeria that does not produce and sell enough
goods and services for export to earn foreign exchange can easily
recover from an economic slum even if it is producing oil on a sustained
basis. Nigerians seem to have missed the universally acknowledged
position that oil is an unpredictable item of trade, the price of which
depends on external forces outside the control of the producers.
No
economy is nourished by heavy consumption of imported goods and
services, without a strong manufacturing sector. Nigerians must also
erase the notion that an economic team no matter how brilliant the
members may be, could salvage Nigeria from its current dilemma if the
different state governments do not begin to embark on provision of vital
small scale industry production to engage their citizens and desist
from ‘investing’ almost all their earnings on ‘security votes’.
Economic
theories and advocacy are clearly different from production and selling
of goods to earn cash and provide jobs. That is the way the new
thinking should go!
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