Squeaking Under ‘Buharinomics’


…As economy slides further

Nigerians do not require any crystal ball to know that the Nigerian economy is seriously challenged, especially with dwindling government revenue in the face of falling global oil prices. Cobham Nsa and Chinyere Obiora put together facts, figures and comments from experts that Nigerians now groan due to debilitating economic downturn under the Muhammadu Buhari’s Presidency

There is no denying the fact that Nigerians have been exposed to very harsh and turbulent economic conditions in the last one year. The palpable hope and wind of change that blew with the advent of President Muhammadu Buhari’s administration on May 29, 2015 had positively swept across every sector of the nation’s economy, including the capital market, banking sector and the power sector, among others. Many were already looking forward to an Eldorado of sort with the new man on the block. But alas, this was not to be as the decline in private and public sector expenditures; non-payment of salaries by private companies, State and local governments continued to drain liquidity in the financial system and discouraged investment in the economy. Capturing events playing out today in the nation’s economic sphere, a Senior Advocate of Nigeria (SAN) and former President, Nigerian Bar Association (NBA) between 2006 and 2008, Dr. Olisa Agbakoba, warns that Nigeria is already sliding into recession, considering the negative growth witnessed in the last two quarters of 2015. Indeed, available statistics strongly support Agbakoba’s position, indicating that aside the deteriorating growth in the economy over two consecutive quarters last year, there were some policy actions that further aggravated liquidity conditions of banks, while slowing down activities in the financial system. These include elongation of the tenure of loans to state governments and the oil and gas sector, as well as the implementation of the Treasury Single Account, (TSA) that saw the withdrawal of over N2 trillion government funds from the banking system. According to the Nigerian Bureau of Statistics (NBS), economic growth in the fourth quarter of 2015 slowed to an all time low of 2.11 per cent from 5.94 per cent recorded a year earlier due to lower oil prices. The Gross Domestic Product (GDP) for the first quarter of 2016 grew by minus 0.36 per cent (year-on-year) in real terms – the lowest witnessed in 21years. The NBS explained that this was lower by 2.47 percentage point from growth recorded in the preceding quarter and also lower by 4.32 percentage point from growth recorded in the corresponding quarter of 2015. Also, business activities within the period witnessed a slump due to delay in approving and signing the 2016 budget as well as scarcity of petroleum products across the country. The picture painted by the Central Bank of Nigeria (CBN) is not soothing as many would have wished. Its current report said growth recorded in 2015 fourth quarter comes from the non-oil sector which grew by 3.14 per cent compared to 3.05 per cent in the previous quarter. The report explained that key drivers of growth in the non-oil sector were Services, Agriculture and Trade that contributed 1.23, 0.83 and 0.76 percentage points, respectively. However, the CBN attributed sluggish growth in output directly to certain fiscal uncertainties, which inadvertently hampered movement of labour and goods; fuel scarcity, increased energy tariffs, foreign exchange scarcity and slow growth in credit to private sector in preference to high credit growth to the public sector. Accordingly, this development raised year-on-year headline inflation to 11.38 per cent in February from 9.62 per cent in January 2016 and 9.55 per cent in December, 2015. By April this year, inflation figure had moved further to 13.72 per cent. For the NBS, the higher rate of increase relative to March was reflected in faster increases across all divisions that contribute to the index with the exception of the Restaurants and Hotels division which increased, albeit at a slower pace, for the third consecutive month. Core Index increased year-on-year by 13.35% from 12.17 per cent recorded in March while Food Index increased by 18.19 per cent from 12.74 per cent recorded in March. Amidst all the obvious turbulence in the economic space, the NBS lamented persistent structural constraints still manifest spill-over in April, as kerosene prices, electricity tariffs, Vehicle Spare Parts (VSP) and the impact of higher PMS prices emerged biggest contributors to the Core sub index during the month. Furthermore, the Bureau stated that Food Index was driven by higher food prices in fish, bread, cereals and vegetables. Projections from financial analysts also indicate that new demand pressure on foreign exchange at the secondary forex market, following the fuel subsidy removal, would be transferred on the prices of goods and services, thereby causing higher inflation in the economy by May and June ending. There are also expectations that in line with elastic pressure on foreign exchange, slowing GDP growth rate and increased inflation outlook, mainly from the petrol price deregulation and likely Naira devaluation, an upward adjustment is likely in the Monetary Policy Rate (MPR) from 12 per cent to 12.5 per cent, while still maintaining the corridor. In addition, there is an anticipated adjustment in the Cash Reserve Ratio (CRR) from 22.5 per cent to 25 per cent, principally with effective budget implementation projected to impact favourably on Money in circulation. Moreover, predictions from analytical report by Focus Economics on Sub Sahara African region, said Nigeria’s economy stayed on a soft patch in first quarter after economic growth slowed noticeably in the final quarter of 2015 as a result of oil price slump and the authorities’ willingness to maintain an artificially-strong Naira. While the situation continues to reflect the low–oil-price-environment and Nigeria’s disruptive foreign exchange policy, the report said persistent policy insecurity; low crude prices; security challenges related to Boko Haram insurgency; disruptions in oil exports fuel and power shortages are all weighing harmfully on Nigeria’s economic outlook. According to a financial analyst, Mr Ifeanyi Odunukwe, it is unfortunate the conditions that caused economic hold up in 2015 last quarter got worse in the first quarter of 2016. He listed these conditions to include uncertainties around economic policies; low electricity supply; scarcity of petrol products; the foreign exchange crisis; unfavorable external environment; and security challenges in parts of the country that affected production and distribution of agricultural produce nationwide. Mr Odunukwe said while delayed approval of an expansionary budget for 2016 in March did not go down well with efforts to revive the economy, President Buhari’s refusal to sign the bill into law due to bickering between the Presidency and the National Assembly negatively affected the entire system. He argued that this delay ultimately stalled the much-needed economic reforms and investment plans in the first quarter of 2016. For a stockbroker, Mr Mathew Ogagavworia, the last one year has seen Nigeria’s economy being on “tail’s pin,” with all the macro-economic indicators on a worrying slide. The business and management consultant, who said decline in foreign exchange earnings is bad for the economy, lamented that productivity level, still on downward trend, further deteriorated in the last 12 months because of local companies’ inability to access foreign exchange from official market for the purpose of importation. Insisting the current exchange rate regime by CBN has been less than transparent, Odunukwe said, “There is no transparency in terms of allocation of foreign exchange, and the criteria used for allocating forex are unfortunately not made public.” Another financial analyst, Mr Ade Adewale, believes the economy almost stood still in the last one year, arguing that “the situation we find ourselves today demands we devalue the Naira, if actually we want to revive the economy.” Maintaining that many Nigerians wanted deregulation of the petroleum products before now, Adewale said the economy would have been on the right path to recovery by now if petrol subsidy was jettisoned immediately the present administration took over last year. On arguments that we are in a situation where Nigeria may consider bowing to global bodies’ advice on the exchange rate management, the expert said, “Whether we like it or not, the CBN at the next Monetary Policy Meeting will move towards the devaluation of the local currency. Though we have trillions of Naira, we need foreign currencies back up to finance our transactions with other countries.” Speaking on stabilizing the economy, Adewale said government must take painful decisions and ensure private sector’s full participation in managing critical sectors of the economy, stressing, however, that aside the fuel subsidy removal, government should ensure all major infrastructures in the country are funded and managed by the private sector. Other measure proposed is to ensure all the consumable products by government are made in Nigeria goods, including cars. He said in pursuing recovery of stolen funds, government should evolve a technological framework to make it difficult for government officials to pilfer our commonwealth with impunity. “It does not make sense that we are pressing to recover our stolen funds, while some officers in the system are using same formula and methods to steal the little available fund”, Adewale posited. However, amidst comments currently enjoying lavished mention in public space that the Buhari’s administration does not have any economic blueprint for the country, Chief Agbakoba said such suggestions are far from the truth. Putting a lie on this commentary, the legal luminary said in a recent media interview, “This has been the argument. But it is not true. The administration has an economic policy and it is referred to as Strict Monetarism. It is an economic policy where government uses its money to control goods. This is a very difficult policy to use, because there are other major elements that must be present. So, what government has done is to slow down economic growth and development on a wrong premise.” He warned that government must urgently change its policy focus if the country must put in check the visible slide into recession. Hear him, “Buhari’s anti-corruption saving-money programme is, in my view, used the wrong way. The administration saving money by blocking loop holes and not spending it, internationally, is making the country slide into recession. Now, if this continues, we are likely to see depression, where growth becomes absolutely negative.” So, against the backdrop of Nigerians groaning under the harsh economic crunch, what should the government do to ameliorate these biting pains? The former NBA President answered thus: “The first good news is that the government’s understanding of the horizon of the business environment is most keen of all governments since 1960. It is good news the government understands that nobody will come to invest in Nigeria if the business environment is constrained. If it takes you as an investor about six months to start a business, why would you come in? If you have to pay kick-backs before you do business, why would you come to Nigeria to do business? If you are not sure that government gives you concession to do business and the same government breaks it, why would you come here to invest?” “So, it is a good thing that the Vice President is going to head this new business environment committee, with the Minister of Trade, because Nigeria is 168 out of 190 in the league table of countries with favourable business environment. This is terrible. Nigerians must applaud people like Alhaji Aliko Dangote for putting their money here, because the environment is a very bad one. I would assume that for government to put this committee in place, means they want to make the Nigerian environment conducive for businesses. This will make investors come into Nigeria to invest massively,” he further submitted. But Lead Director, Centre for Social Justice, Barrister Eze Onyekpere, takes his suggestions on the way forward down to all the tiers of government. He said in the face of current harsh economic realities, federal, state and local governments must embark on proficient review of their financial management, especially on the expenditures side as to cut down the costs of governance. The economic and social rights activist warned against “Maintaining bloated, frivolous, wasteful and unnecessary expenditure heads at a time state government revenues have declined due to low oil prices will surely build up another backlog of salaries.” He also insisted that “Further, continued borrowing from deposit money banks and the capital market is not the way forward for states that could not pay back their due loans and needed the intervention of the CBN and Debt Management Office (DMO) to reschedule their debts.”

Similar Posts

Leave a Reply