Economy
Apart from Buhari’s huge promise of ‘change’ and assembling the most dazzling collection of economists and economic policymakers in Abuja in decades, the economy performed woefully in the last seven and half years.
By Goddy Ikeh
DESPITE the promise made by President Muhammadu Buhari to turnaround the Nigerian economy and tackle the high unemployment, especially youth unemployment in the country in 2015 when he was first sworn in as President of the Federation, and less than 5 months into his 8-year tenure, the country’s economy is in dire stress and youth unemployment and other economic indices have gotten worse.
In his inaugural speech on May 29, 2015, Buhari said: “Unemployment, notably youth unemployment features strongly in our party’s manifesto. We intend to attack the problem frontally through revival of agriculture, solid minerals mining as well as credits to small and medium size businesses to kick – start these enterprises. We shall quickly examine the best way to revive major industries and accelerate the revival and development of our railways, roads and general infrastructure.”
And following the failure of the administration to accomplish most of the campaign promises by the end of the first four-year tenure, Buhari decided to declare with his party, the All Progressives Congress (APC) that they would take the nation to the next level, which evidently produced no tangible results in the economy, which is one of the key sectors of interest to the party and most other sectors of the Nigerian society.
Some industry stakeholders have not hidden their disappointment at the performance of the Nigerian economy, including the 2022 budget. For instance, BudgIT, foremost civic-tech organisation leading advocacy for transparency and accountability in Nigeria’s public financial management, has expressed concerns over the poor fiscal performance of the Nigerian government’s 2022 budget and the growing subsidy payments.
According to BudgIT, the most pressing concern is the debt service-to-revenue ratio, which has reached alarming levels within the first four months of 2022. In a statement recently in Lagos, the organization said that the country’s current debt service, which stood at N1.94 trillion from January – April 2022, was over 100% of Nigeria’s revenue, which was N1.64 trillion, within the same period.
This is in spite of warnings given by the International Monetary Fund (IMF) that Nigeria would be spending over 100% of its revenue on debt service in 2026. Unfortunately, those predictions are Nigeria’s current realities.
It recalled that the organization, in a Consultation Memo released in February 2022 titled: “Leveraging Budget Reforms for Economic Development”, had articulated several reform issues bordering on Nigeria’s public financial management regime that affect the very core of governance, separation of powers, expenditure efficiency, and the livelihoods of millions of Nigerians; 83 million of whom live in extreme poverty. Four months later, some of those same challenges exist, with additional ones that-if not properly managed, spell fiscal crisis for an already impoverished nation.
“In particular, the debt service spending is only N93.6 billion less than the combined total personnel and capital expenditure for the period under review. Also alarming are the expenditure targets for the Tertiary Education Trust Fund, (TETFund), which have only been 15% (of the total N5.10 billion) for the period under review. There is no gainsaying that the fortunes of the most populous black nation on earth, Nigeria, have worsened in the last 8 months after the 2022 budget was passed,” it said.
According to Gabriel Okeowo, BudgIT’s Country Director: “Despite being confronted with a myriad of challenges ranging from: the five-months and counting ASUU strike, which has crippled Nigeria’s tertiary education; to an 13-month high inflation of 17.7%, which has pushed millions of more Nigerians into poverty; a drastic decline in Nigeria’s oil production, which has displaced Nigeria as Africa’s biggest crude oil producer; a massive increase in the country’s petroleum subsidy liabilities, which has crowded out investment in critical areas of the economy, obliterated federal transfers to subnational units, and skyrocketed the country’s debt to over N41.6 trillion); a complete breakdown of law and order in several cities across the federation, which has encumbered the inflow of foreign direct investments and increased the cost of doing business; Nigerians are waiting with bated breath for the national budget to begin to bring about the relief and positive change it was claimed to have harboured.”
BudgIT posits that, with 2022 being a pre-election year, alongside the growing fiscal threat posed by subsidy payments and the debt service-to-revenue ratio; all the latter will negatively impact Nigeria’s budget credibility, cripple service delivery in critical social sectors of the economy and impede needed investments in productive sectors, thereby stunting economic growth.
The organization therefore called on all well-meaning Nigerians, CSOs, media, the private sector, the international community, and reformers to join the call for the Nigerian Government to do the following:
Discontinue indiscriminate borrowing through Ways and Means, which is creating a ballooning set of interest payments, running parallel to the external debt, as well as increasing the money supply and creating more monetary volatility.
Check the oil theft that is now commonplace in the petroleum industry, and has encumbered the country’s ability to meet its production quotas-the latter having fallen to 1.25 million barrels as at May 2022.
Ramp up the remittance of operating surpluses by Ministries Departments and Agencies (MDAs) and GOEs to boost government’s independent revenues which are currently underperforming.
And take considered action to reform subsidy, this achieves the twin objectives of having citizen buy-in and revenue savings that are channelled into priority areas.
In the same vein, The Lagos Chamber of Commerce and Industry, LCCI, lamented that rising inflationary pressure, forex challenges, debt servicing and weak revenue generation have put a serious strain on the Nigerian economy.
In a statement released in 2022 entitled titled, “LCCI statement on Nigeria’s economic growth performance,” and signed by its Director-General, Chinyere Almona, the chamber noted that even though the economy recorded an impressive recovery from the recession induced by the COVID-19 pandemic in 2020, it might drift into stagflation if these issues were not addressed.
According to LCCI, the 3.4 per cent Gross Domestic Product growth recorded in the second quarter of 2022 paled in comparison to 5.01 per cent growth posted in the corresponding quarter of 2021.
The Nigerian economy has recorded an impressive recovery from the recession induced by the COVID-19 pandemic in 2020. The economy has recorded growth rates in recent quarters.
The statement read in part, “However, the economy has continued to struggle with many inhibiting burdens like inflation, weak revenue generation, degenerated infrastructure, forex challenges, unsustainable cost profile seen in debt services and subsidy payments, and the daunting threats of worsening insecurity. The Chamber is concerned that if we continue in this trajectory, the economy may bleed away into a stagflation which will impact on production cost, job losses, worsened forex crisis, and dampened growth in the medium term.”
The chamber also noted that the oil sector had consistently recorded negative growths for the ninth consecutive quarter, contracting again by -11.8 per cent y/y in Q2 2022 following a higher contraction of -26 per cent y/y in Q1.
It advised the government to dedicate more attention and resources to tackling the menace of oil theft and pipeline vandalism since the oil sector made up about 80 per cent of the government revenue.
While noting that the growth of 1.2 per cent recorded for agriculture and three per cent for manufacturing are comparatively low as against other sectors that grew at above five per cent, it advised the government to dedicate more attention and resources to tackling the menace of oil theft and pipeline vandalism since the oil sector made up about 80 per cent of the government revenue.
According to LCCI, these are indicative of the threats facing these sectors powering Nigeria’s real sector, adding that the woes in these two sectors were responsible for the frightening rise in the inflation rate.
With the excruciating burden from debt service, subsidy payments and worsening insecurity, many more production activities might be constrained in the coming months, it noted.
For the Manufactures Association of Nigeria (MAN), the persistent scarcity of foreign exchange for businesses to conduct their operations is now threatening their existence. Speaking on this development, the former President of MAN, Mr. Mansur Ahmed, lamented that the current forex regime where forex is allocated to both importers of finished goods and raw materials importers at the same rate in the same window is a disincentive to the real sector.
He noted that most of the raw materials that manufacturers use were imported “because we don’t have a very big raw materials base in this country. “We cannot source the foreign exchange to bring in the raw materials, because the dollars have gone too high. Today, the exchange rate is at over N620/$. How would you be able to produce at that exchange rate and still be able to sell? There will be no market. “We are appealing to the government and its agencies to take a second look at the situation.
He berated the fact that the letter of credit which is submitted to the bank for funding is no more funded, saying the situation is bad. “A lot of manufacturers, especially those depending on foreign import may end up winding down. Some have shut down operations especially due to the inaccessibility of forex for raw materials importation and more are shutting down.
The International Monetary Fund in its report of the Nigerian economy, noted that the long-term rate of the depreciation of the naira equates to a loss of 10.6 per cent of its value annually since 1973. According to the IMF, this rate is 1.5 times higher than the long-term rate of the currencies of other emerging market and developing economies at 7.2 per cent, and Sub-Saharan Africa at seven per cent over the same time period.
The other concern of the IMF is the suspension of the planned removal of subsidy on petrol. While urging the Federal Government to stop subsidising petrol, it also advised the Federal Government to remove the official exchange rate.
Apart from the poor management of the economy for over seven years the 2023 budget proposal, which is a transition budget has come under serious criticisms by some stakeholders. The 2023 budget of N20.5 trillion has as its highlights as a recurrent expenditure of N8.27 trillion and N5.35 trillion as capital expenditure. The budget proposes an oil benchmark $70 per barrel and daily oil production of 1.69 million barrels (inclusive of Condensates of 300,000 to 400,000 barrels per day) with exchange rate put at N435.57 per US Dollar, while GDP growth rate of 3.75 percent is projected and 17.16 percent inflation rate.
According to the budget proposals, the planned expenditures are as follow: Statutory Transfers of N744.11 billion; Non-debt Recurrent Costs of N8.27 trillion; Personnel Costs of N4.99 trillion; Pensions, Gratuities and Retirees’ Benefits of N854.8 billion and Overheads of N1.11 trillion.
Others are; Capital Expenditure of N5.35 trillion, including the capital component of Statutory Transfers; Debt Service of N6.31 trillion; and Sinking Fund of N247.73 billion to retire certain maturing bonds
But reacting to the 2023 budget, the Lagos Chamber of Commerce and Industry and the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture have urged the National Assembly to critically review the 2023 Appropriation Bill in order to weed out unnecessary allocations contained therein.
The Director-General of the LCCI, Chinyere Almona, advocated for the use equity to fund the 2023 deficit proposal. She noted in a statement, that the overall spending proposal of N20.51 trillion reduced to a non-debt spending proposal of N14.21 trillion once the proposed N6.3 trillion interest payments from the overall spending plan were deducted.
“We are of the view that while nothing is wrong with the N10.78 trillion deficit, everything is wrong with the plan to issue N10.57 trillion (N8.8 trillion in new commercial loans and N1.77 trillion drawdown on bilateral and multilateral loans) new loans to finance the deficit, at a time that we are already placed on the watch lists of some of our foreign bondholders, and the world is still trying to process our president’s well-publicized call for debt cancelation at the last United Nations General Assembly.
“It is comforting that the 2023 budget is still at the proposal stage. It behooves all well-meaning stakeholders to make constructive inputs to the Presidency and the National Assembly now. Can we consider more efficient alternatives to new borrowings? Can we issue equity to finance the deficit instead of using debt? Can we break from the path in which the Federal Government only approaches the debt markets at home and abroad and never approaches the equity market at home or abroad? Investors invest in debt. But they also invest in equity,” she said.
According to the statement, Nigeria’s approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that exposed the country’s fiscal vulnerability.
But the latest Nigeria Country Economic Memorandum, CEM, entitled Nigeria Country Economic Memorandum: Charting a New Course, released on December 15, 2022, described the main trends, challenges, and opportunities for growth and job creation in Nigeria over the past 20 years and proposed the path forward with actionable policy options.
It noted that despite its vast natural resources and a young, entrepreneurial population, development in Nigeria has stagnated over the last decade and the country is failing to keep up with the GDP growth of its peers. Declining private investment and demographic pressure pushes young Nigerians to pursue opportunities overseas.
It stated that Nigeria was a rising growth star globally in the 2000s due to the implementation of several structural reforms in a context of increasing oil prices; yet this fast growth was not accompanied by robust job creation.
“Between 2001 and 2010, Nigeria ranked among the top 15 fastest growing economies in the world, with an average annual growth rate of 8.2. However, the hard-won income gains from the 2000s evaporated between 2011 and 2021, due to the lack of deeper structural reforms, global shocks, conflicting macroeconomic policies, and increased insecurity percent.
“Creating more and better jobs is a necessary condition for accelerating poverty reduction and economic transformation in Nigeria. Unlocking private investment will enable the creation of more and better-quality jobs in a sustainable manner. To catalyze private investment and offer more opportunities to the youth, the priority is to restore and preserve macroeconomic stability, which has weakened in recent years due to conflicting monetary policy goals, over-reliance on oil exports, limited fiscal space, and restrictive trade policies,” it said.
The CEM outlined several policy proposals focused on boosting Nigeria’s macroeconomic stability and overall business enabling environment, such as: improving the exchange rate system; removing barriers to trade; increasing non-oil revenues; and tackling inflation which has pushed an estimated 8 million Nigerians into poverty between 2020-2021.
In addition, the report highlighted the importance of strengthening the rule-of-law and social cohesion and enhancing Nigeria’s competitiveness by addressing key constraints to private investment, such as unreliable power supply, protectionist trade regulations, poor access to finance, and low digitalization. While there is no silver bullet to accelerate growth, Nigeria can become a rising growth star again if it implements a comprehensive set of bold reforms in a timely manner.
In its recent report on the Nigerian economy, the International Monetary Fund, IMF, stated that Nigeria and 72 other countries are at high risk of debt distress.
The report titled ‘Restructuring Debt of Poorer Nations Requires More Efficient Coordination’, the IMF said: “Low-income countries face fewer debt challenges today than they did 25 years ago, thanks in particular to the Heavily Indebted Poor Countries initiative, which slashed unmanageable debt burdens across sub-Saharan Africa and other regions.
“Although debt ratios are lower than in the mid-1990s, debt has been creeping up for the past decade and the changing composition of creditors will make restructurings more complex.
“Improvements to the Group of Twenty Common Framework for Debt Treatments—from which the 73 countries that were eligible for the G20 Debt Service Suspension Initiative (DSSI) in 2020-21 can now benefit—could clear a path through this increasing creditor complexity.
“So far, only a handful of countries have requested to use the common framework, which was launched in November 2020, underscoring the need for change to build confidence and encourage participation at a pivotal moment for heavily indebted low-income countries,” the global financial institution said.
IMF stated that the debt ratios of DSSI countries have increased, partly reversing a decline seen in the early 2000s. It added that this was spurred by low-interest rates, high investment needs, limited progress in raising additional domestic revenue, and stretched systems for managing public finances.
It said the economic shocks from the COVID-19 pandemic and the war in Ukraine were adding to the debt challenges faced by low-income countries, even as central banks begin to raise interest rates.
“About 60 per cent of DSSI countries are at high risk of debt distress or already in debt distress—when a country has started or is about to start a debt restructuring, or when a country is accumulating arrears,” the report added.
“Among the 41 DSSI countries at high risk of or in debt distress, Chad, Ethiopia, Somalia (under the HIPC framework), and Zambia have already requested a debt treatment. Around 20 others exhibit significant breaches of applicable high-risk thresholds, half of which also have low reserves, rising gross financing needs, or a combination of the two in 2022.
“On the domestic side, difficult trade-offs will exist between the need to restructure sovereign debt owed to domestic banks, in some cases, and the impact of such restructurings on financial sector stability and the capacity of domestic banks to finance growth.”
According to the financial institution, local currency debt for the median DSSI country doubled from seven per cent of Gross Domestic Product (GDP) in 2010 to 15 per cent in 2021.
It stated that for those DSSI countries with market access, the share more than tripled from eight percent to 28 per cent in 2021.
“Many of these DSSI countries have also experienced a tightening of sovereign-bank links, with larger holdings of domestic sovereign debt at domestic banks.”
On the way forward, IMF recommended putting in place mechanisms that ensure coordination and confidence among creditors and debtors.
It added that improvements to the G20 Common Framework could play an important role by ensuring broad participation of creditors with fairer burden-sharing.
Despite the gloomy outlook of the Nigerian economy in 2022, the nation can turn around its economy if the right leadership is place in 2023 that will focus on policy proposals that will boost Nigeria’s macroeconomic stability and overall business enabling environment such as: improving the exchange rate system; removing barriers to trade; increasing non-oil revenues; and tackling inflation which has pushed more than 8 million Nigerians into poverty as well as enhancing Nigeria’s competitiveness by addressing key constraints to private investment, such as unreliable power supply, protectionist trade regulations, poor access to finance, and low digitalization.
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Tags: BUDGIT Gabriel Okeowo Lagos Chamber of Commerce President Muhammadu Buhari
