The
Lingering Economic Crisis in Nigeria
Being A Paper Presented At A Media Parley,
Organized By OneVOICE At the Centre for Constitutional Governance (CCG)
Conference Hall, 10 Afolabi Lesi St, Ilupeju, Lagos Nigeria. April 21, 2016
Nigeria is experiencing the weakest recovery in modern
history, even-though there is an economic recovery expansion, and we are almost
back where we started. Most importantly soaring inflation (12.4%, the worse in
four or five years), insipid youth unemployment, long chaotic queues at petrol
filling stations, paralyzing power outages, pipeline vandalism by
saboteurs, increasing depreciation of the Naira, excruciating economic hardship
by almost 90% of Nigerians etc ALL staring us at the face, with perhaps no
immediate solution in sight or at best government is losing grip of effective
management of the economy. And indeed, we have failed to get back where we
started.
Admittedly, Buhari’s administration inherited a sick
economy where all economic indices were on the downward trends. Equally it
appears Buhari and the APC-led government did not anticipate that they could
win the elections and as such did not quite prepare an economic blueprint that
can lead us out of the woods. Therefore, it appears that they were (and are
still) merely groping in the dark.
Given this scenario, could economic ideas (the Keynesian economics) from almost a century ago help us now? Is our economic situation, the so called economic hardship where there are no jobs, no businesses and money is very hard to come by, comparable to the Great Depression of the 1930’s?
Being the
most influential economist of the 20th century, British John Maynard Keynes
(1883–1946) postulations were adopted by Franklin D. Roosevelt to battle the
Great Depression and helped US to climb out of the economic disaster.
Keynes theorized that during
recessions, the public gets frightened and holds back on spending, resulting in
more layoffs, which in turn produces less spending in a vicious circle of
economic decline. The way to break the cycle, said Keynes, is to pump
government spending into the economy by building roads and bridges and other
public works including housing, electricity and rural infrastructure. America
under Franklin D Roosevelt even hired unemployed writers for a Federal Writers’
Project, traveling the country to produce guidebooks on states and cities.
Sadly, in Nigeria, Buhari’s government has
always complained of lack of money even in the face of stark realities: (a)
various monies recovered from looters of public treasuries amounts to over #1
trillion; Fowler the head of Federal Inland Revenue Service (FIRS) stated that tax
defaulters rushed to pay in, billions in 2015 and our tax has since markedly
improved; Colonel Alli (rtd) the head of Customs & Excise also posted more
than #1 trillion by December 2015; and
the introduction of Treasury Single Account (TSA) has brought more billions of
naira into government coffers from all the 81 Revenue Collection Agencies
(RCAs). Yet this government is holding money back from the economy. Worse
still, government has plans to squeeze the already over-squeezed Nigerian
masses further: (a) electricity tariff was increased from #13.2 per unit to
#21.2 per unit consumption; (b) Tollgates collections on Nigeria road highways
are coming back; (c) Fuel price increase is also being contemplated (d) Vice
President Yemi Osinbajo is canvassing for higher VAT and other taxes.
However, John Keynes overturned
classical economic theory which said that free markets produce full employment.
Keynes argued that aggregate demand determines the level of economic activity.
If demand falls short, it leads to recession and high unemployment, which is
what is affecting Nigerian economy here: The purchasing power is decreasing
coupled with scarcity of money. Apart from President Reagan, most American
presidents since 1980’s particularly from George Bush senior to date brought
back Keynesian economics, ramping up spending in order to pump up aggregate
demand.
Government Efforts since March 17, 2016
Government was able to convene a National Economic
summit made up all the State governors, federal ministers, Vice President and
the President. But it appears it was a jamboree of sort, as the outcome did not
provide any clear-cut economic blueprint for the country.
Fuel importation & refineries,
The current
nationwide fuel scarcity reached a crisis point with a litre of petrol selling
for between N150 and N300 against the official price of N86.50 in many parts of
the country. Despite repeated assurances by the Nigerian National Petroleum
Corporation (NNPC) that the scarcity was artificial, most petrol stations were
shut down with no fuel to sell. The few that opened witnessed long queues of
desperate motorists and citizens who needed fuel for their vehicles,
motorcycles and generators
The government’s reaction typified
by indecision, bureaucratic vacillation and avalanche of promises made to
mollify the public only worsened the situation as crowds piled up at fuel stations.
Expectedly, fuel hawkers had a field day as black market thrived with many of
them selling petrol in residential areas and along major roads in the country.
These hawkers as racketeers ripped off desperate motorists willing to pay any
price.
Effects of fuel crisis are seen in
hike in transport fares. Also, stranded commuters suffered untold hardship. The
prices of commodities have also gone up as a result of the astronomical hike of
fuel prices, which invariably has increased the cost of living generally such
as foodstuffs, detergents and other household items, even a sachet of
pure-water is now N10.
Meanwhile, the power sector is
facing its lowest moments which has plunged the nation into suffocating
darkness, as fuel scarcity denies domestic and commercial consumers from
operating private power generators.
The official promise was that the
fuel scarcity would end by the first week of April but it may take about four
more weeks to get fuel into the country due to the long process of ordering
petrol from refineries. This crisis was inevitable, when the NNPC, in a fit of
bad judgment reduced the import allocation ratio of private companies from 60%
to 22%. In that event, the NNPC was expected to import the entire balance in
supply of petrol requirements for allocation to oil marketers for eventual
distribution. Indeed, the NNPC even argued that this option would not only be profitable
but also checkmate the antics of oil marketers over the volume of fuel
imported.
That standpoint provoked
widespread speculation in certain quarters that the NNPC was short-changing the
oil marketers. And going by the recent fuel crisis, the decision was a bad
miscalculation as NNPC failed to meet its obligation of fuel importation. This
opened the window for private marketers to frustrate supplies at depots and
filling stations in order to get a higher import allocation and ensure
government cancels its price modulation mechanism and resumes subsidy
payments.
However, the market
fundamentals neither support a return to subsidy nor an upward review of prices
at the pump. The NNPC is grappling with fresh challenges as its operational
deficit rose to N24.23 billion in February, from N3.55 billion in January.
Ultimately, the NNPC reversed course with a new allocation formula that reverts
the bulk of importation to the private marketers in exchange for a commitment
not to engage in sabotage and hoarding. The decision to give a greater
allocation ratio back to private companies will allow NNPC to focus on the key
task of building domestic fuel reserves.
It is so
unfortunate that fuel, rather than be a major part of the solution, has become
part of the problems of Nigeria to be solved. There
is administrative inefficiency at the highest level of the oil industry
management. This must be corrected before any policy thrust can work.
Besides, the high degree of policy inconsistency also remains a major
problem affecting the industry. The
contradictions and confusion inherent in the downstream sector have remained
intractable. The four existing refineries are still grossly under-performing
below capacity. What then is happening to the huge allocation of crude to the
NNPC? If this allocation is effectively refined and the products released, it
should go a long way to meet local demand and reduce dependence on importation.
Therefore, the oil allocation to the NNPC should be discontinued since it ends
up being managed in ways that are far from satisfactory or transparent. The
fact of the matter is that NNPC’s opaque management system can hardly be said
to have changed under Ibe Kachikwu.
The NNPC
symbolizes the endemic and systemic corruption that has become second nature to
Nigeria. Because of the huge and varied opportunities the oil industry offers
political leaders to lubricate the wheels of their extended patronage networks
and fill their pockets, it would seem there is a deliberate ploy to keep the
sector down. Over the years, successive administrations seemed to cash-in on
the corruption in the sector to further their political and economic interests.
With all the machinery at the
disposal of government and its agencies, all that is needed to make fuel
available is good planning and transparency. Whether it is granting of licenses
or the actual importation, proactive planning would ensure the availability of
petrol and avoidance of embarrassment as well as the untold hardship visited on
hapless Nigerians. The usual excuse by the NNPC that the scarcity is caused by
panic buying is no longer acceptable. The country has had enough of the buck-passing.
Power sector,
The power sector is another
problematic area. Power generation has
been dropping in the last two months particularly to an all-time low of less
than 1,080.6 megawatts, MW, and most
Nigerian households now live without electricity as they have also run out of
fuel to power their generators.
Captains of industry and small
scale business owners scrambled to hold talks with government after a
debilitating power and fuel crisis escalated, threatening hundreds of
companies. Business leaders have described the situation as grave, warning that
crippling power cuts, caused by decreasing electricity generation, were already
undermining the competitiveness of local products, and also worsening the low
productivity levels in the manufacturing sector.
Nigeria’s continued power and fuel
supply crisis is posing the biggest obstacle to growth, the Business chieftains
asserted. Analysts warned that the projection that the economy would grow at a
slower pace of 1.5 percent in 2016 now appeared too optimistic.
Industrialists, economists and
consumer watchdogs hit out at government, accusing the authorities of
pretending that all was well when the fuel, electricity crisis was blowing out
of control. Indeed, the lack of availability of power is likely to further
raise the product prices as manufacturers recover overheads over a few number
of units.
Within various homes, meat, milk and other
perishable foods have gone bad due to constant blackouts
Unfortunately,
there is no end in sight; rather, the government’s response has been to blame
past administrations for their present failures. This raises fundamental
questions over the managerial capabilities of those in charge, and vindicates
criticisms that the APC was not prepared for governance. Nigeria’s continuous
dependence on a corruption-ridden fuel importation regime is baffling, Indeed,
for an oil producing country to refuse apparently to build and operate
functional refineries preferring importation is most pathetic and disgraceful
ON THE NIGERIAN ECONOMY
The Finance Minister Kemi Adeosun espoused an economic
vision for the government. With reference to the impact of the falling global
oil prices on the Nigerian economy, Adeosun was of the view, “in the past we
have the means but not the will. Now we have the will but we no longer have the
money to invest. The safety blanket of oil has been ripped away, laying the
poverty of Nigerian institutions bare.” For
decades, government has only been tinkering at the edges of its institutions,
infrastructure and economy committing grave mistakes of about 40 years of
economic maladjustment and fiscal imbalances.
Adeosun argued that collective government’s economic
blueprint must therefore equip the future generations to be creative and
dynamic, a blueprint that allows us to articulate a vision of a Nigeria with a
strong educational foundation; rich in depth of knowledge with a breadth of
skills; an expansive infrastructure capable of servicing the needs of
Nigerians. Describing the 2016 as an expansionary budget for investment and
growth, Adeosun espoused, “we must find the money and create a system that
enables targeted expenditures, based on the nation’s priorities. Expectedly,
the expenditure must be efficient and impactful, focused on creating wealth for
the majority.”
Indeed, the finance minister’s economic vision is hinged on three
tripods:
(i)
Structured borrowing:
About N1.84 trillion is being outlined for borrowing in 2016 budget to
invest in priorities of Transport, roads, Housing, Power and Health. But I
believe education ought to be included as a priority as well given its enormous
potential and real contributions to national development. It must be emphasized
that this type of borrowing will not fiscal indiscipline, but rather there will
be “aggressive programme of fiscal housekeeping,” to plug leakages in the
system and avoid wastages. While being careful in borrowing we must equally be
prudent in spending.
(ii)
Targeted
Investment.
Government intends to increase its expenditure through heavy investment
in infrastructure, and fund budget deficit and negative trade balance cost
effectively. There will be substantial increase in gross capital formation;
acceleration of GDP growth and infrastructure development to unlock economic
growth.
(iii)
Diversified Growth
While there will be heavy diversification into non-oil sector,
particularly solid minerals and agriculture, Economic growth will be stimulated
to achieve a real Gross Domestic Productivity (GDP) growth rate of 4.2 percent
in 2017 which is more than the average population growth rate of 3.2 percent
annually. Secondly, government intends to reduce the cost of governance and
strengthen institutions to frontally combat corruption; and extract efficiency
in public service.
All the three structural segments are, in fact, predicated on what the
minister called ‘Counter-cyclical budget expenditure model’, which enables
government to offset the risks of economic recession and create an economy that
is not based on either fragile consumer spending (mostly import-dependent) or
over-reliance on oil.
The Missing Links
In all the places or events or fora where President
Buhari, Vice President Osinbajo and Finance Minister Kemi Adeosun have visited and
spoken about Nigerian economy, they have all espoused mere ideas, mere economic
visions, mere imponderables lacking the actualizers, the targets and the
deliverables. Government needs to set targets achievable within a time-frame of
three months, six months or one year and so forth. But government is not
keeping the public well informed about how it wants to implement and actualize
the economic vision so set out. The information management here is highly
defective and requires total effective overhauling. Lai Mohammed (along with
Kemi Adeosun) needs to embark on weekly or monthly briefing on the state of the
economy, and should welcome suggestions or constructive criticisms from
Nigerians. Secondly, there is an urgent need to set up economic implementation
team to give vent to the vision.
However, from our end here, we want to provide the
missing links. Fiscal (or Financial) house-keeping is a 21st century
economic model of finding ways to plug spending leaks, and adopt tight fiscal
measures. Ultimately, it is based on sound proactive financial planning and tax
advisory regime. Embedded in this are policy measures like:
The Treasury Single Account,
The advantages of TSA are: It enables efficient cash
management; allows complete and timely information on government cash
resources; improves appropriation control; and also improves operational
control during budget implementation.
Discovery of ghost workers
The finance minister was able to discover 34,000 ghost
workers thereby saving about N2 billion for the government. Indeed, newspapers’
report this week however point out that the figure has increased to 37,395
ghost workers on account of further discovery by the EFCC. It will ultimately
continue to save more money for the government.
Cost Effectiveness
The finance minister announced the ban on ‘first class
trips’ by top government officials. They are to fly only ‘Business class’ while
their aides accompany them would fly ‘economy class’. This is to cut down
considerably the cost of air-tickets by public servants, about N62 billion in
2015. Besides, government is also negotiating partnering with some airlines to
bring down the cost of air-tickets, which hopefully when consummated, will save
about N13 billion for government.
However, our suggestion to government is that it can
save more billions by cutting down estacodes approved for public servants on
foreign trips.
To further reduce the cost of governance, government
must consider complete reduction of the 18 different allowances being paid to
members of the National Assembly. Most of these allowances (hardship,
ward-robe, furniture, car, travel, constituency, sitting etc) are unnecessary
and a complete drain on the tax payers’ money.
Applying Financial housekeeping to the capital market
provides a sound
investment policy that helps to reduce risk and maintain investor confidence.
So how can we help Nigerian
economy NOW following Keynes economics? Let us speculate:
1. Clearly, we would advise the
federal government to invest in infrastructure, building roads and bridges, improving
the electricity generation and distribution,, and developing alternative energy.
Following Adeosun, government is already planning to do just these and even
more. OneVoice is equally suggesting to government to include greater
investment in education and social welfare, in addition to what is being
planned for health and housing.
2. In the face
of worsening unemployment workers will not accept pay-cuts, neither will they
allow government owing them months of salaries. Therefore, we would rather support
drastic cutbacks in emoluments and other pecks to political office holders, as
well as drastic reduction in the use of government resources by these
officials.
3. We would favor lowering taxes
for Small-medium enterprises and would certainly support tax breaks and other
incentives for corporations to build new factories, hire new employees and ramp
up research and development.
4. Keynes felt that countries should
not run large trade surpluses or deficits. We are in agreement with him. Therefore, we are in support of
measures that will boost Nigerian exports, give Nigerian companies a competitive
edge, and adopt measures that will help reduce any trade deficit or imbalance
with other countries doing business with Nigeria.
5. There are super rich Nigerians
(especially high profile politicians and captains of industry) who are hoarding
"too much" cash—we (following Keynes) are in favour of increasing taxes on these
super-rich, and maybe even the near-rich, to help pay for venture capitals,
finance infrastructure investment, and narrow the budget deficit.
6. On March 17, 2016 we made some
suggestions to government. They are still very relevant today:
(a)
On transportation: government must take advantage of the waterways and
railway to cargo the hinterland distribution of petroleum products, instead of
relying on trucks to haul the fuel products across Nigerian roads. The inland
waterway from Port Harcourt to Lokoja is begging for attention, to be used by
NNPC. The Nigerian Railway corporation can be made to provide rail-coaches for
fuel haulage from south-northward. However, this is a temporary measure to ward
off constant vandalism of the oil pipelines, and also allow more time for
the modular refineries to take off.
(b) On Road rehabilitation,
reconstruction and repair: We have canvassed oil-for-cost swap deals,
reminiscent of the Abacha days. Under Abacha regime, Construction companies
like Julius Berger, Dumez, Arab Contractors were all settled with crude oil in
exchange for repairing and maintaining major Nigerian roads. This again can be
replicated by Buhari’s administration instead of paying these companies from the
scarce or limited money available to this government.
(c) On Agriculture: There is need
for the creation of more agriculture extension service centers for cereals, cocoa, rubber,
plantain, cotton, groundnut, yams and cassava etc to aid the various farmers
with quality information, support and best crop yields. Secondly, we suggested
that government should set up regional commodity exchanges to facilitate inter
state or inter regional commodity trading based on state or regional
competitiveness. Interestingly, some states - Kebbi and Lagos States have signed
agreement on commodities. Osun and Ogun states are also shopping north for the
supply of different commodities. This is a good development which must now be
complimented by the creation of Marketing Boards for the different commodities,
especially for export purposes. Also, government needs to establish Agriculture
Bank to take care of loans to farmers, financial facilities and intermediation
to Regional commodity Exchanges, Marketing Boards and Agriculture extension service
centers etc.
(d) Electricity: This is a critical
concern of every Nigerian. Because the commanding height of the Nigerian
economy and other sectors, including small and medium scale enterprises, and
the various Nigerian homes depend on electricity. Indeed, it must be stated
that no country, apart from Nigeria, has ever subjected its power generation
and supply to the private sector, much less to an unpatriotic, selfish, and
destructive Nigerian private sector. The new owners of GENCOs and DISCOs had
thought (when they bought PHCN) electricity sector will be just like GSM phone
sector where MTN, Airtel Globacom, Etisalat etc (including the ancillary
industry operators) are all smiling to the banks daily. They had expected
windfall profit from electricity. Little did they know that the sector requires
huge billions of dollar investment which they do not have. Hence, they are now
arm-twisting the government to give in to more tariff increases, non-compliance
on metering of every household, and complaints on irregular supply of gas from
NNPC to power the turbines to generate electricity. It is becoming constant now
to experience power outages throughout the country than to have electricity.
OneVoice believe government should
reconsider a buy-back of these GENCOs and DISCOs before considering new
investment intervention in the sector. Secondly, government must commit all
multinational companies selling generators in the country to a Treaty Agreement
on Power Stabilization, otherwise any of them caught in shady deals with
officials of GENCOs and DISCOs to plunge this country into darkness in order to
sell their products will be prosecuted.
7. Constant Communication: There is a
disconnect between Buhari’s Administration and the Nigerian public because
government (especially relevant officials and agencies) has refused to brief
the public of its intentions and how it wants to carry them through, even
setting targets and time-frames to achieve those targets. Government assumes it
has the moral authority to carry on with governance without the people’s
inclusiveness. Lai Mohammed, Ibe Kachikwu, Emefiele of CBN, Adeosun etc all
need to buckle up and begin on constant public briefing to carry Nigerians
along on government programmes and activities.
Otherwise, tempers are flying over
the hardship caused by fuel and power crisis that has refused to abate. This
could snow-ball into discontent that government may find difficult to handle.
Many thanks for your
attention.
Pastor Adedeji Adeleye
(dejiadeleye.blogspot.com)
Executive
Director, IAP and Chair, OneVoice Media Committee
No comments:
Post a Comment