Nigerian economy in Intensive Care Unit

By Sheriffdeen Tella

We are often told that the annual budgets are derived from what they call Medium Term Expenditure Framework, which are not anchored on a long term national plan. It is clear that a huge country like Nigeria is run on an ad hoc basis, a planless economic model such that you cannot pin the expected outcome on any concrete value.

When I read the bold title on the front page of The Punch of Wednesday last week that ‘EFCC plans massive raid on forex dealers’, I was attracted to one of the subtitles which read “Naira’s free fall worsens, now N857.” I have lost interest in the naira depreciation since it was approaching N500 to $1 four months ago. With inflation hovering above 20 per cent; the debt climbing to the other side of over $100bn while the external reserves continued to go down, it is very clear that some urgent actions have to be taken to avoid dire consequences of incompetence and political maneuvering to save the country’s economy from total collapse. Even when the country was declared the poverty capital of the world, the statistics were far better than what we have today.

There is no doubt that nature has come in to intervene rudely in the path to recovery many times but what is economic management about?  The country has lost the steam to engage in production long ago, relying largely on rents from the oil sector and loans from domestic and foreign markets to run the annual budgets. Living on such variables promotes laziness. The rents by the oil companies are just paid into the federation accounts as agreed while the then Nigerian National Petroleum Corporation that was supposed to be involved in the production of refined petroleum was more into the politics of privitisation of the company than production. This created a serious output gap in the sector and promoted over-bloated oil subsidy, a major pipeline for corruption.

The non-oil sector, with current statistics, is always reported as filling the gap created by the declining oil sector but never able to do so sustainably. Agricultural practices and production remain in the hands of largely illiterate farmers whose lives are constantly threatened by bandits and herdsmen. No new dams built, no new river basins constructed or new silos for agricultural produce storage, and no breakthrough into modern or mechanised agricultural practices. Stone Age agricultural production cannot produce modern age outputs.

The industrial sector outputs continue to decline due to under-capacity utilisation arising from high cost of production, no thanks to the Central Bank of Nigeria’s induced high interest rate and restrictive monetary policy, as well as poor electricity supply with corresponding high cost of alternative energy and higher taxes. The sector became uncompetitive with cheaper foreign goods that are in high demand from the public. There were uncoordinated interventions that were based on no rewarding agreements. Huge investments in the steel industry promoted stealing instead of outputs. At the time Kayode Fayemi was leaving the project, having won election as Governor of Ekiti State, we were informed that the Ajaokuta Steel firm was over 80 per cent ready after sinking billions of dollars and naira. Fayemi has just completed four years as Governor, the news coming out now is that there will be a new award of contract to complete the same steel firm!

We are often told that the annual budgets are derived from what they call Medium Term Expenditure Framework, which are not anchored on a long term national plan. It is clear that a huge country like Nigeria is run on an ad hoc basis, a planless economic model such that you cannot pin the expected outcome on any concrete value. Nigeria’s population is around 65 per cent of the population of the United States and with abundant human and non-human resources, yet the GDP, when compared with that of the US, is less than 1 per cent!

When this government won election for the first time over seven years, the then Minister of Finance, Kemi Adeosun, explained that the country would have to borrow its way out of the pervading recession then. Some of us warned that it was a self-serving model of growth path. She raised all sorts of borrowing instruments including diaspora bonds with successes but without concrete growth out of the recession. The government continued to focus on debt/GDP ratio that was quite low instead of debt/revenue ratio as we advised. Despite the fact that the model did not work for the period Kemi Adeosun was there and the burden of debts was becoming apparent, the current Minister, Zainab Ahmed, who was her Minister of State, imbibed the same principle of borrowing. Today, it is difficult to obtain fresh external loans because the lenders know we are virtually bankrupt!

Instead of reviewing the strategy for fund management, the government resorted to borrowing from the CBN which is always the last resort because of its inflationary nature. Fortunately, there is a willing hand in the CBN. The CBN governor might know the implications of lending unsustainably to the government, but he is more of a politician than a technocrat. As a politician, at least he clearly declared to contest at the last All Progressives Congress primary; he remains more concerned about his survival as Governor than the survival of the nation. That singular act ought to have seen him out of the CBN seat and be replaced with a technocrat and central banker who would not turn our naira into a worthless paper that it is today.

I am not sure if the CBN governor takes decisions based on discussion of the Monetary Policy Committee of the bank or outputs from the Bank’s Research Department. There ought to have been some simulations or quantitative analysis of the implications of the current naira redesigning policy before finally adopting and announcing it. A simulation would have told the bank that naira will reach N1000 to $1 on or before December 2022, and advised that the policy be shifted to after 2023 elections or immediately a new government comes on board.

The naira notes that are in custody of individuals and groups today could largely be used for campaigns and elections. The inference that there is a humongous money supply in the economy can be true but such money is likely in the hands of few, possibly the politicians, as the common man in the public is crying of lack of money to spend. The politician will now off-load what cannot be quickly converted to foreign currencies in the black market into the banks to collect new notes that will be used for the same purpose from January, 2023. In the process, the looters at the end of the tenure of the present regime have been invariably protected, as they will loot the new money that cannot be changed in a short space of time.

There is no doubt the government has taken the citizens for a ride right from its ascension to power. All prices, except real wages, have moved up. In the street language, we have entered ‘one chance’ vehicle since 2015 but given the Nigerian resilience that has carried us thus far, we shall land safely but with injury. When the Minister of Education declared that he had failed with the way he handled his work, I expected his resignation or sack letter the following day. That is not in the spirit and nature of this government; given how many months it took the President to give us ministers at the inception of his tenure. But it is not only the Minister of Education that failed. What can we say about those in charge of the economy and macroeconomic policies or the man in charge of managing labour and many more as we do not even know the names of occupants of some of the positions?

Sheriffdeen Tella is a Public Policy Analyst.