The year 2015 was quite a busy year for Nigeria; perhaps it can be dubbed to be one of the most eventful years for the country’s recent political history. Prior to the year a lot of predictions had been made describing 2015 “a year of distinct quarters”, “a momentous year”, among others. The year however did not fail in living up to the expectations and predictions in terms of activity. There were indeed series of monetary policy statements, government and private sector actions and inactions, as well as a severely charged and intense political atmosphere. While the events of the year can be categorised into various groups in manifold context, it can however be broadly grouped into two categories: The “electoral veil” and the “economic reality”.
The first half of 2015 saw Nigeria focusing more on the general elections, thereby dividing the country along paths of political allegiance and empathy. This indeed veiled a lot of economic shifts occurring both domestically and internationally, which had grave implications for the country. The nation’s attention at the point was rather focused on the ongoing electioneering which in many quarters was perceived as a “make or mar” election and upon which the continued unity and economic progress of the nation wholly rested. Perhaps when oil is controlled for, politics dictated the pace and direction of the Nigerian economy in the first half of the year 2015. The resultant uncertainty effect of this did lead to unprecedented volatility in the nation’s financial market resulting in significant fluctuations across all facets of the fixed income securities.
The continuous downward trend in the governments’ revenue alongside shortage of foreign exchange within the economy led to a sizeable contraction in fiscal abilities which was followed by a substantial slowdown in the nation’s economic growth. As a form of response to these manifestations, the Central Bank of Nigeria employed an array of policy instruments to prevent a looming Naira devaluation, as well as reduce demand for foreign exchange within the economy. Some of these policies included a foreign exchange access restriction placed on a list of 41 items published by the apex Bank, as well as a ban placed on banks from accepting foreign currency deposits from customers among others. However, the acceptance, appropriateness and effectiveness of these policies remain largely debated across board. Despite the measures and instrument utilised by the apex Bank, the nation’s external reserves dipped to a recent all-time low of US$ 29.04 billion by December 2015. This lent some more credits to the critics of the Central Bank of Nigeria in its continuous defence of the country’s currency. While some economic schools of thought believed that a free trading
Naira remains a panacea to the foreign exchange shortage in the economy, the Apex Bank insisted an official exchange rate of 197 Naira to the Dollar, post its February devaluation from 168 Naira to the Dollar. As a matter of fact by the last month of the Year 2015 the Naira had fallen to its lowest ebbs of value in its entire history at that time of 282 Naira to the Dollar in the parallel market.
Basking in the aftermath of becoming the largest economy in Africa, sequel to the rebasing of the nation’s GDP which was done in the Year 2014, electioneering kicked off in the country. This indeed gave an albeit “false” impression of the structure of the economy to quite a lot of Nigerians, which made some sect of the citizenry think the economy was gradually gravitating away from over dependence on oil and gas resources based on perhaps, misinterpretation and miscommunication of the rebased GDP. An understanding of performance of sectors of an economy may however be unable to explain how a developing economy’s service sector would continue to succeed without an initial and sustained success in other tangible sectors. Nigerians however, woke up to the ongoing economic reality that was veiled by the attention given to the election, and failure of political parties to debate and campaign on real issues, when the newly elected regime realised the underlying economic performance and the enormity of job to be done. The economy recorded an average GDP growth of 3.05 per cent in the first three quarters of the year 2015 in comparison to a 6.33 per cent of similar period of 2014. Indeed this weak performance has highly been attributed to the steep decline in the international oil and commodity prices, falling investor confidence as a result of delay in the new cabinet appointment and the governments strong stance on the nation’s currency vis-a-vis the foreign exchange, as well as continued policy inconsistency.
Subsequent quarters have however, seen the country record one of its most felt recession in its recent democratic sojourn. The government and really all Nigerians are looking for a way out. While the government initially failed to accept and come to terms with the economic reality presented by statistical figures, leading to a lot of controversial statements and arguments leaving the everyday Nigerian not necessarily in the dark, but perhaps more confused than in the dark with statements such as “technical recession” “official recession” “economic slowdown amongst others. Just recently the government has agreed that the economy is indeed in recession, the throwing around of terminologies however still continues. Recently an affiliate of the CBN termed the current situation to be a stagflation perhaps one may choose to argue further that what the nation is in, is a bit more than that and dub it is a “contraflation” since it is commonly argued that Nigeria is completely unique in all of its economic phenomenon.
In a bid to come out of the current situation which is been presented as an unexpected predicament to the populace leading to continued trading of blames and advices across board between political parties and loyalist and economic enthusiast on various platforms. Suddenly it appears that Nigeria has become a nation of over 180 million economists. One thing that rather remains a call for more concern is the continuous policy contradictions and dispute between the fiscal and monetary arms of the economy. Whatever happened to the “ISLM” curve propositions in a time like this, when one would expect adequate coordination between both arms, to ensure the right mix of policy to stimulate the economy out of the current situation remains a question that bothers the mind.
It has however become the habit of both arms to communicate concerns to each other via the media, sending out the wrong signal to business owners as well as potential investors. If there is anything more important for the economy today, it is perhaps stability and policy coordination. One would expect the government to have an economic “war room” made up of the both the fiscal and monetary arms as well as the finest and experienced economists which Nigeria certainly does parade perhaps the most decent army of in the developing world, as against the continued trade of words and fancy appearance of officials of both arms in media houses, communicating contradictory views and causing more chaos. It however appears that there is a rather unhealthy relationship between both bodies of the nation’s economy with each trying to shift the blame to the other or at best clear its name in the situation, which will indeed do the country no good than further economic fall, as time is of essence. For example due to this continued media trips the CBN has been castigated on their various policy and forced to shift stance quite a number of times without any rigorous basis or explanation.
While on the one hand a popular rhetoric of criticizing the monetary stance of the CBN for not controlling for the high cost of credit is widely spreading, on the other hand, an understanding of the Nigerian money market and how it has fared over the years may provide an explanation to their continued monitoring of money supply through the various transmission mechanisms available to them in an attempt to keep inflation in check. Understanding that the current inflation experienced in the country is largely cost push type inflation and not originally demand pull, hence a supply deficit, it would be expected that policies to ease availability of credit will be pursued. The current pressure on consumer prices are however more closely associated with structural factors such as infrastructural deficit, shocks associated with energy price hikes and shortages, reform related legacies as well as forex supply deficit to facilitate import based on the high import dependence of the
nation. It however becomes imperative for the fiscal arm to ensure ease of structural cost of production to boost domestic production to enable a reduced pressure on consumer prices and forex demand as well. Perhaps more interesting is some new data put out by the CBN that opines that only about a meagre 100 accounts account for over 40 percent of the credit facilities accessed within the Nigerian financial market of over 40 million account holders. This gives an understanding of the monetary policy stance and context within which it operates.
A careful trace of how the nation got to where it found itself today suggests decades of wasteful spending but primarily the reduction in foreign earnings and government revenue leading to reduction in government expenditure and ultimately a fiscal disequilibrium. If tackling the root cause is anything to go by, forging a way out of this current situation therefore has to not be left to the monetary arm but finding a way to stimulate or substitute for government revenue falls as well as foreign earnings. Indeed various quick fix options have been put on the table by the government to surge up revenue such as the suicidal sale of national assets which perhaps only begs the question but fails to address any fundamental challenge that has brought the nation to its current situation. The discovery of oil accompanied with its resultant sudden gush of “free money” which is similar to that of the foreign aid ineffectiveness scenarios creates incentives for inefficiency and reduces incentives for accountability. This then accords a deleterious shunting of learning by doing process, which is embedded in incremental development process that will engender waste, inefficiency and ineffectiveness. This is so, owing to the natural resource “money gush” that comes in magnitudes that the machineries of governance and the economy is not ready to cope with as seen in the “Dutch disease”. This which explains as when an economy experiences a resource boom, production in the non-traded sector expands at the detriment of the traded sector. This shrinkage in the traded sector would lead to a socially inefficient growth, as seen in the current situation of Nigeria. However it remains fundamental to understand that the word which readily comes to the mind of anyone who has a basic economic understanding when commodity market of any such is mentioned is volatility.
A closer look at the narrative suggesting sale of assets suggests one thing and one thing alone, that there is an assumption in some quarters that the price of oil would pick up soon. Sale of asset at this current point in time where both the oil market and the Nigerian economy is down will only lead to what is often termed on the Nigerian street as “Bad Market” as the
asset will grossly be undervalued. Going further, in the situation where the price of oil fails to pick up and which remains a viable possibility after the proceeds from the initial sales have been expended or in future oil price crashes will the country sell its people or what will it sell this time?
Another viable option which can be easily put on the table is to increase internally generated revenue through increasing taxation base, and giving of targets to agencies. However a careful analysis of this may reveal that this may be doing the nation more evil than good at the current point in time, as the original problem emanates from the fall in government external earnings and not internal. A sudden rise in the level of stimulation of internal revenues in the face of an already contracting economy may possibly end up having an undesirable effect on the living standards of the everyday Nigerian. A classical analogy of a small business producing little home-made products, which can serve as an alternative for imported brands, that hither to, required little or no agency registration, will due to the overzealous drive of agencies in meeting their target be shut out of the market, with outrageous compliance requirements. This indeed will not only worsen living standard for the households whose breadwinners work in such businesses, (which account for a large portion of the under-employed population) as some of them may lose their jobs, but will also continue to put pressure on the exchange rate as there will be no substitute for imported goods. While an increased taxation base and effective and efficient taxation framework remains a welcome idea as it not only increases revenue but it also has potentials to stimulate demand for accountability, the timing however may not be right considering the survival difficulties faced by everyday Nigerians at the moment.
However, any effective roadmap to recovery for Nigeria will be such that addresses the initial root-cause of dwindling revenue as that can insulate the economy against future market busts. This however becomes impossible without massive investments. While alternative revenue sources such as taxation can be adopted after recovery, as its implementation at the moment may only lead to more contraction and worsened living standards, recovery however becomes impossible without initial investment. Indeed all growth models have agreed on the role of investment on capital in key sectors in driving growth, new growth models have also emphasised the role of investment in human capital to transform capital investment to growth. This will not only lead to growth but also reduce dependence on importation thereby easing pressure on the Naira. Perhaps a suitable option available to the government which may eventually become inevitable is to obtain foreign credit from the most friendly
development finance creditors available that will not hold the nation down with too much unfriendly conditionality. With a debt to GDP ratio of less than 12 percent making Nigeria the least debtor nation in the major emerging markets (BRICS and MINT economies). Ostensibly, apart from Russia and Indonesia with debt to GDP ratios 17.7 percent and 27.20 percent respectively as at the end of 2015, Nigeria remains the only emerging market with less than 30 percent debt to GDP ratio. This indeed gives room to incur some more debts, on the premise that it will be judiciously utilised to stimulate domestic production and reduce import dependence to save the Naira. Also comparing of notes by both fiscal and monetary arms to ensure policy coordination and direction thereby restoring confidence in the economy remains crucial.
Incurring of foreign credit however does not hold any solution in itself to solving the current situation as it actually poses a threat to the nation’s future economic prosperity in the absence of good and rigorous economic management philosophy. This and indeed in most serious sense of it can however only be functional if there is a well-articulated plan on REASONABLE investment in critical sectors, devoid of the waste culture that has up till date continued to batter this country. Perhaps if there is anything more disgraceful is the unexplainably high cost of running governance alongside with the waste culture in the country and which has made the country to be the “Nitrous oxide” in the committee of nations. If there is anything that can help in this current situation is putting an eternal stop to this high governance cost as well as its resultant waste habit and the culture that emanates from the free “oil money”. Perhaps if this is checked and the nation looks within the enormous amount going to wasteful government consumption expenditure can be enough to retract the nation to a brighter future. Nigeria as it stands today not only engages in wasteful expenditure but also lacks rigour in thinking process of its people and policy formation. This can however only be so as the education system in itself has not been able to effectively optimise its existence. It therefore becomes sad when employers lament the “unemployability” of Nigerian graduates. However this can only be explained by taking a trip to the Youth Service corps camps and realize the inability of a larger percentage of Nigerian graduates to engage in intellectual discussions and the very basic and utter lack of rigour in their thinking process. More interestingly is the role religion is playing in this whole setting. Religion posits that life is but a mere passage consoling weakling mind of Nigerians, and explaining that contentment is key however this only holds for the everyday Nigerian. While religion in itself is good and contentment is crucial for a happy life, its misinterpretation in nation building can only be explained by snap-shotting the Nigerian economy. Rigour remains a vital word that should be stamped in the hearts of Nigerians in forging a way forward for the nation as can be seen in all prosperous nations today from Malaysia, Norway, Germany, China, Singapore and the rest. The level of rigour that goes into anything will reflect in its output at both micro and macro scale and this is perhaps what Nigeria lacks, hence our continues vulnerability to exogenous variables. For example, the level of rigour that goes into thinking will reflect in the quality of policies that the nation will have. Similarly the lack of rigour to add Value to Oil and other raw material we export (if any, apart from human-beings) hence our continued vulnerability to commodity market busts and import dependence.
Certainly, there are tested frameworks on exiting a recession, however in the face of lack of an economic structure, the performance of these frameworks cannot be guaranteed. A lot of calls have been made towards diversification, but exactly what the nation should diversify to have not been clearly stated. Calls towards going back to agriculture certainly is crucial but this in itself does not secure the Nigerian economy from any international fluctuations and will still leave price stability difficult to achieve, as agriculture in itself remains in the commodity market. As a matter of fact the nature of agriculture that is needed today in Nigeria is such that is machinery intensive. There is need for serious policy coordination to ensure that the economy becomes productive not just in primary products but to ensure that value addition processes are stimulated within the economy coupled with self-sufficiency in largely food and basic manufactured products to reduce pressure on Naira and stimulate job creation. This coupled with favorable incentives targeted at such sectors have potentials to stabilize the economy and reduce unemployment.
While on the one hand there is urgent need for government to find effective channels through which it can reflate the abysmally contracting economy, on the other hand, there is need to control the astronomically rising inflation, as prices in this context tend to have a “roof-sticking” nature, which therefore makes it difficult to control in the “prosperous” future. Evidently, it can be said that the Nigerian economy is in dire times as it deals with these seemingly divergently parallel phenomena. Considering the structure of the Nigerian economy which is unequivocally skewed towards the informal sector, policies however require more rigour than anywhere else to effectively accommodate the informal sector. It indeed remains germane for the government to understand that Nigeria is a fragile state and any economic policy being considered by the government must equally factor in the manifestations of the various dimensions of fragility exhibited in the country into its considerations as the contexts of growth and development in such economies have continued to evolve in recent times.
Laniran Temitope Joseph
Ph.D. Candidate Economics and Development Studies, University of Bradford
Research Associate John and Elnora Ferguson Centre for African Studies, Bradford, and Centre for Petroleum, Energy Economics and Law, Ibadan
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official stance or position of any of the above named institutions.