Economy
Although the Nigerian economy exited recession early in 2021, it remained fragile in its timid recovery with average monthly inflation still hovering above 15 percent, high food prices, high unemployment, insecurity across the nation still surging, huge debt profile and deplorable power supply.
By Goddy Ikeh
THE announcement early in 2021 that the Nigerian economy had technically exited recession and this development was welcomed by some economists who admitted that the economy was able to survive the ravaging impact of the twin shocks of Covid-19 pandemic and the downturn in oil prices. Some stakeholders were also excited that the economy was also able to defy all speculations that the clog in the wheels of economic recovery would linger far into 2021.
Signaling the technical exit from recession, the National Bureau of Statistics, NBS, had announced that “Nigeria Gross Domestic Product, GDP, grew by 0.11 percent in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.” “Though weak, the positive growth reflects the gradual return of economic activities, following the easing of restricted movements imposed to help contain the Covid-19 pandemic,” the NBS said in the statement on Thursday, February 18, 2021.
It would be recalled the Nigerian economy slipped into recession in the third quarter of 2020 due mainly to the twin effects of Covid-19 and the low oil prices, but the minister of finance, budget, and national planning, Zainab Ahmed, was optimistic that the country would exit recession in the first quarter of 2021.
Although some economists hailed the exit from recession, they, however, noted, that the growth was minimal and might not be sustainable with poor international crude oil prices. But they were quick to point out that with the steady rise in the international price of crude oil and the delivery and administration of Covid-19 vaccines, the growth might be sustainable.
They went on to suggest that insecurity across the country should be curtailed to help improve food production that would bring down inflation to a manageable level, while efforts should be made by the managers of the economy to diversify the economy, as continued dependence on crude oil would always produce a volatile economy as a result of fluctuations in the price of international crude oil price. And for some members of the Organised Private Sector, OPS, including the Lagos Chamber of Commerce and Industry, LCCI, the news of the exit was received with cautious optimism as they said that the output contraction recorded in the year 2020 further highlighted the country’s weak macroeconomic fundamentals and the persistent structural, policy and regulatory issues in the economy.
“Apart from declining growth, the economy is currently confronted with several challenges, including rising consumer prices (inflation now at a 45-month high of 16.47 percent in January 2021), weak employment level, persisting liquidity concerns in the foreign exchange market, high poverty incidence, weak investor confidence, and insecurity, among others. These challenges, which had been part of the country’s economic narrative prior to the pandemic, were amplified by the COVID-19 induced disruptions.
“We, however, recommend clarity in government’s policy direction is critical in deepening investor confidence. Mobilizing efforts in making the business environment more conducive for MSMEs and large corporates by addressing structural bottlenecks and regulatory constraints contributing to the high cost of doing business,” the Guardian report quoted the former director-general of the LCCI, Muda Yusuf, as saying.
The report also said that the chairman, Mobile Software Solution, Chris Uwaje, stated that it was instructive to ascertain if the value of Diaspora Remittance was a factor of the growth since the global economy is shrinking at a fast rate.
“Although the economic side of ICT is up and beneficial, this trade benefits accrue to ICT, manufacturers and solutions providers and not ICT consumer nations. Nevertheless, Nigeria’s ICT infrastructure, network solutions providers, and related ecosystem players must be commended for their ability to withstand the tough challenges of COVID-19,” he said.
Uwaje noted that world merchandise trade volume was forecast to fall 9.2 percent in 2020, adding: “the projected decline is less than the 12.9 percent drop foreseen in the optimistic scenario from the April trade forecast. Trade volume growth should rebound to 7.2 percent in 2021 but will remain well below the pre-crisis trend.
“Many ICT SMEs have gone under with erased employment. Indeed, only the mega ICT companies have tried to survive. Unfortunately, we don’t have those types of mega ICT entities out here. The global business was indeed held together by the business side of COVID-19 and investment in PCR tests and vaccines,” he said.
Unfortunately, with the average monthly inflation still hovering above 15 percent, high food prices and insecurity across the nation still surging, deplorable power supply, the nation’s economy cannot be said to be far from being fragile.
Recall that at the heat of the devastating impact of Covid-19 pandemic, the Lagos Chamber of Commerce and Industry, LCCI, said in its review of the impact of the COVID-19 on the core sectors of the Nigerian economy that “We see the short to medium-term outlook for the economy as bleak, as the pandemic has led to an unprecedented collapse in commodity prices, capital flight, turmoil in the capital market, supply chain disruption across sectors and destabilization of commercial and economic activities. Hence, we resonate with the International Monetary Fund’s position on a looming severe contraction of the economy by year end-2020.”
But the chamber believed that the Covid-19 experience presented an ample opportunity for the Nigerian government and policymakers to pursue structural reforms and put in place home-grown policies. “Reforms such as the liberalisation of the petroleum downstream sector, exchange rate convergence, securitizing government’s equities in joint ventures, privatizing government’s redundant assets, Public, Private, Partnership-led infrastructural development, export diversification, agro-based industrialization and cut in governance costs are direly needed to aid the rebound of the economy going forward and especially in times of adversity,” the former President of the LCCI, Toki Mabogunje, said in Lagos on Wednesday, May 5, 2020.
The Oil and Gas Sector was not spared by the pandemic as the slump in crude oil prices due to weakening global demand for Brent crude, Nigeria’s benchmark grade, dropped by over 60 percent since the beginning of that year. The crash in global oil prices has necessitated the downward adjustment of the reference price of crude oil from $57 per barrel to $30 and further down to $25 per barrel for the implementation of the 2020 budget.
This survey was carried out more than a year and half on the Nigerian economy and not much has changed, especially in implementing some of the policy recommendations by the foremost chamber of industry in the country. However, some of the changes observed, which are outside the influence of any government policies include the oil price, which has been hovering between $80 and $81.93 per barrel as at November 11, 2021, according to OPEC report and the apparent reduction in the effects of Covid-19 pandemic on the economy.
Presently, the Federal Government is now thinking along the line of reducing the cost of governance by merging or outright scrapping of some ministries, departments and agencies of government. Indeed, implementing the other recommendations, such as exchange rate convergence, securitizing government’s equities in joint ventures, privatizing government’s redundant assets, Public, Private, Partnership-led infrastructural development, export diversification, agro-based industrialization should be urgently and rigorously pursued to return the economy on the path of sustainable growth.
Unfortunately, the impact of the billions of naira announced as palliatives by the Central Bank of Nigeria, CBN, in 2020 to assist the industrial sector and other core sectors of the economy is yet to fully felt since some of the operators are still lamenting of high cost of production, policy trust deficits, negative effects of insecurity and deplorable state of poor supply chain among others.
For instance, the LCCI has lamented that policy inconsistencies and rising insecurity in the country are two of the major factors driving away investors from Nigeria. Local media reports quoted the Director-General of the LCCI, Chinyere Almona, as saying recently that “Some investors make pledges or applications to establish businesses or invest in Nigeria and later renege on their applications for reasons that may not be far from policy somersault, worsening insecurity between the time of announcement and real investment, and the cumbersome registration and regulatory procedures.”
Almona, according to the reports, advised that the federal and state governments should take urgent steps at addressing the issues that had made the Nigerian economy too risky for investors to have confidence in.
“The insecurity situation, rising inflation, unfriendly regulatory environment, worsening corruption perception, and weak infrastructural base are critical factors turning investors away from Nigeria.
“These issues need to be dealt with and a conducive business environment created by the government to attract foreign investors. There is a need for more legal and regulatory frameworks like the recently approved Petroleum Industry Act for the oil and gas industry,” Almona said.
According to the LCCI boss, international standard regulations are critical ingredients for a sound business environment where investors are confident of contract enforcements, ease of registration and documentation, and maximum investor protection.
This development has attracted the attention and intervention of two eminent Nigerians in the World Trade Organisation (WTO), Dr Ngozi Okonjo-Iweala and the African Development Bank (AfDB), Dr. Akinwumi Adesina.
Speaking at the meeting organised recently by the Manufacturers Association of Nigeria (MAN) in Abuja, Dr. Adesina, lamented that the paucity of energy was negatively affecting the growth of Nigerian industries.
“Today, no business can survive in Nigeria without generators,” Adesina said. “Consequently, the abnormal has become normal. Unless Nigeria decisively tackles its energy deficiency and reliability, its industries will always remain uncompetitive,” he warned.
In her intervention, Dr. Okonjo-Iweala said that trade was a key part in the global economic recovery and called for more support for micro, small and medium enterprises.
“Poor countries need access to bigger markets to grow rapidly,” she said. “With trade projected to grow at 10.8 percent this year, more than twice as fast as GDP, external demand will far outpace domestic demand for many countries, especially those on the wrong end of the k-shaped recovery.
“For Manufacturers, trade is also important because they need better access to imports as well as competitive logistics and other services critical to international competitiveness.
“Digital is very important here, especially for young Africans and the businesses they create; many businesses have been able to weather the pandemic because they were able to access the Internet and sell online.
“We should work harder, first to understand the barriers facing micro, medium and small enterprises in global trade and then to lower these barriers.
“At the WTO, different groups of members are seeking to do just that. One group is working on an e-commerce agreement. Another is working on empowering MSMEs to trade; and a third is working on lowering barriers facing women in global economic trade,” local media reports quoted the WTO boss as saying.
Speaking on the state of the country’s economy, the Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, noted that the present administration has performed well in the last six years.
She told Channels Television’s Politics Today on Thursday, November 11, 2021, that the degradation of the country did not happen overnight and as such, “improving the present situation of the country involves a process that the government is working on”.
“It is not right for any Nigerian to suffer, but will the government be able to solve everything overnight? No; but does the government have a responsibility to make sure that they provide foundational infrastructure to make sure that the country grows on a sustained basis? Yes,” the minister said.
“I think this government has been unfairly assessed and unfairly treated; the government of President Muhammadu Buhari has done extremely well. If you look at the growth indicators of the country, they are all positive.
“Things are improving; it is just that people want to see improvements like between today and tomorrow, it doesn’t work like that,” she said.
On the high cost of food, especially rice, the minister said that smuggling was responsible for the rising cost of rice in the country.
According to her, smuggling is affecting the market and hurting the citizens.
“Unfortunately there is a lot of distortion and the distortion is arising from smuggling of goods into the country,” the minister said.
“We have unpatriotic Nigerians that will bring rice that is poor quality, some of it not even fit for human consumption and come and dump it in the market.”
She also reiterated the Federal Government’s efforts in fighting smuggling, noting that there is a combined team of the Nigerian Customs Service, NCS, Police, the Department of Security Services (DSS) among others to rid the nation of economic saboteurs.
Speaking on the fresh borrowing request by the Federal Government, which was recently approved by the National Assembly, the minister explained that the Federal Government has created a Medium-Term Debt Management Strategy and that “the borrowings are not being done by fiat”.
The borrowing that was approved by the lawmakers, the minister noted, has been in the National Assembly since early this year.
“It is encapsulated in a plan, we are guided by the Fiscal Responsibility Act that sets the limit of how much you can borrow at any particular time.
“We have also structured the borrowing to make sure that we have the balance between domestic borrowing as well as external financial borrowings,” she added.
On the removal of subsidy on petrol, the minister said that it would not be effected until July 2022 and the Federal Government was considering some form of palliatives like transport allowance to be paid to cushion the effect of the removal of petrol subsidy.
Meanwhile, some policies and programmes of government that made headlines in 2021 included the controversies that trailed the Federal High Court pronouncement that the state governments should be responsible for the collection of the Value Added Tax, VAT in the states. Although the issue has not been fully resolved, it is gathered that the issue may be resolved politically. The federal government in 2021 inaugurated the eNaira project that is expected to raise Nigeria’s GDP by $29 billion over the next 10 years.
President Muhammadu Buhari, who unveiled eNaira at the State House on November 8, 2021, said that Nigeria was the first country in Africa and one of the first few countries globally to introduce the digital currency.
According to him, the new payment system, which took the CBN four years to roll out, is expected to drive financial inclusion, serve as a backbone for electronic payment in Nigeria and also enable the movement of more people from the informal to the formal sector, hence scaling up the tax base of the country.
Buhari also said that the new payment system would enable the government send direct payments to citizens eligible for specific welfare programmes as well as foster cross-border trade.
Another programme of note is the unveiling by the CBN of the its wheat value chain intervention programme captured under the Nigerian Brown Revolution, which seeks to save $2 billion spent on importing five million metric tons of wheat annually.
The scheme, according to the CBN, involves over 150,000 farmers cultivating 180,000 hectares of land in about 15 states and targeting 60 per cent first year import substitution and ultimately saving $2 billion per annum.
Speaking at the event held in Jos, the CBN Governor, Godwin Emefiele, revealed that the brown revolution was an offshoot of the Anchor Borrowers’ Programme (ABP).
According to him, the ABP has recorded successes in supporting smallholder farmers to increase the cultivation of different commodities across the 36 States of the Federation and the Federal Capital Territory (FCT). “Through the programme, N788.035 billion has been disbursed to about four million farmers through 23 Participating Financial Institutions (PFI). So far, 4.796 million hectares of farmlands have been cultivated under the programme covering 21 commodities,” he said.
The approval by the Federal Executive Council on Wednesday, November 10, 2021 of the 2021-2025 National Development Plan, which is a successor programme to the Economic Recovery and Growth Plan is another policy instrument to watch. The plan, with an investment size of N348.7tn, will be funded by the federal, state governments and the private sector.
According to the minister of finance, budget and national planning, Zainab Ahmed, the plan is structured on economic growth and development, infrastructure, public administration, human capital development, social and regional development.
She explained that for the investment size, the public sector would contribute N49.7tn, while the private sector would supply N298.3tn. The funding strategy, she explains, includes broadening the tax base and expanding the capacity of the private sector through creating investment opportunities and delivering quality engagements and incentives.
Recently, President Buhari embarked in what could be called economic diplomacy that took him to France, South Africa and the United Arab Emirates, UAE, where he attended a Summit and international trade fairs and signed some Memoranda of Understandings. Although government officials have hailed these efforts as capable of attracting foreign investments to the country, but they failed to realize that such trips to Saudi Arabia, Russia and Germany in the past raised the hopes of Nigerians that the trips would result in speedy turnaround of the country’s ailing refineries, steel plants and the power sector. However, apart from the huge costs attached to such diplomacy, some stakeholders believe that the provision of conducive business environment, security and the right policies would attract more foreign direct investments to the country.
Perhaps, if the managers of the Nigerian economy will feel the pulse of the people on the harsh economic conditions in the country, which have been largely blamed on worsening insecurity, rising inflation, unfriendly regulatory environment, worsening corruption perception and weak infrastructural base, which can be addressed by improving good governance and implementing policies that are critical in turning around the economy and attracting foreign investors to the country.
Dec. 01, 2021 @ 15:36 GMT
A.I
Tags: Dr. Okonjo-Iweala Mrs. Zainab Ahmed Nigerian Customs Service
