Before now, discussions at business and economic fora had centred on the frightening dimension of the Nigerian economic crisis and its implications for the living conditions of average Nigerians. But currently, the tide seems to be changing as stakeholders are now focusing on the pathways to economic recovery, reports Festus Akanbi
In recent times, Nigerians have expressed disappointment in the direction of the nation’s economy amid the pervading spike in the cost of living.
Apart from the sustained inflationary trend which manifests in the high cost of food and essential commodities, the spike in energy cost, crash in the value of the local currency, the Naira, and the biting effects of the continued implementation of the controversial policy on fuel subsidy have pushed Nigerians to the brink.
However, respite came the way of the Nigerian economy last week when the nation’s currency, the naira sustained two consecutive day rallies on the parallel market on Monday and Tuesday as it strengthened to N665 to the dollar after it had hit its lowest of N718 two Fridays ago.
The same feat was recorded at the I&E foreign exchange market where the naira appreciated by 0.03 per cent as the dollar was quoted at N428.88 against the last close of N429.00.
But the question raised by some watchers of the unfolding scenario included whether the moderation in the foreign exchange market is sustainable in the weeks to come. They also wanted to know how the federal government will tackle a host of other problems making life unbearable to Nigerians.
Nigeria’s economic potential is constrained by many structural issues, including inadequate infrastructure, tariff and non-tariff barriers to trade, obstacles to investment, lack of confidence in currency valuation, and limited foreign exchange capacity. Other issues confronting the nation’s economy include low capacity utilisation of crude oil production, the rising debt burden, currency depreciation, untamed inflation, and rising interest rate on Nigeria’s sovereign credit rating.
In the face of the emerging economic uncertainties, one of the questions begging for answers is how long can the federal government continue to patch the economy, given the costly transition programme ahead. Economists also want to know how redeemable is the Nigerian economy, the implications of the depletion of the excess crude account which would have naturally served as a buffer in a period of uncertainty, as well as Nigeria’s economic prospects in the face of the current borrowing binge.
In his contribution, Founder/Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf explained that the worsening insecurity in Nigeria is a major problem for investors in the economy. He added that many industrialists especially those who are in the agro-allied sector are grappling with challenges getting raw materials from the crop-producing areas of our country.
He said it is a matter of urgency for the government to address all factors which have continued to negatively impact capacity utilization, turnover, cost of production and the value delivery to shareholders. Some now source raw materials from neighbouring West African countries
Nigerian Economy Redeemable
Speaking on the fate that awaits the Nigerian economy in an interview with THISDAY, a Lagos-based economist who is also the Executive Director/Chief Rating Officer, DataPro Limited, Mr. Oladele Adeoye expressed optimism about the redemption of the nation’s economy despite its current uninspiring indices.
According to him, “There is no irredeemable situation. Countries around the world had one time or the other faced political and economic challenges. Through dedicated leadership and creative reforms, they overcame.”
He was quick to point to the successful handling of the global financial crisis a few years ago, in a manner that provided a safeguard for customers’ funds in Nigeria, saying that “the present challenges of insecurity, rising inflation, and scarcity of foreign exchange can be addressed by rethinking our economic policies and reorganisation of the security architecture.”
Depletion of the Excess Crude Account
Speaking on the implications of the depletion of the excess crude account which peaked at $ 20 billion around May 2007 only to crash to $380,000 as of last week, Adeoye explained that what it means is that Nigeria now has limited options for funding its deficit budget. He maintained that the ability to also support critical needs will also be impaired, saying consequently, borrowing will continue to dominate the strategy for funding government undertakings.
“However, where servicing of debts becomes a big burden, the government may begin to cut down on spending relating to critical assets supporting industrialisation. Therefore, production may be impaired and export constrained. This might lead the country resulting to importation with further deterioration in the value of the currency.,” he stated.
Accelerating Developments through Borrowings
The DataPro chief insisted that borrowing in itself is not bad, saying it might be a good funding option, especially for underdeveloped or developing countries like Nigeria. According to him, this allowed for the acceleration of developments and funding of the government capital expenditure.
He pointed out that the desirability of borrowing should therefore include three major considerations.
“These are the purpose of the loan, the cost of borrowing, and the conditions attached to such borrowing,” he said.
Adeoye believes that loans could be contracted if it is going to be put to optimal use. Not only that, conditions attached to borrowing as well as the cost to be paid will influence decisions on taking such a loan.
He noted that in Nigeria’s case, the worry today is about the burden of the debt.
“The measure of debt has always been touted as Debt to GDP. This for me has been misleading because GDP does not pay the debt. What pays debt is revenue. My worry today is the proportion of the government Revenue that is now applied to debt servicing. If not checked, it will not just affect capital expenditure funding but operating expenditure as well.”
Nigeria Can Exit Inflationary Stage
Quoting the National Bureau of Statistics’ latest report, Adeoye said rising inflation was largely due to the cost of food and energy. The DataPro chief, therefore, feared that the erosion in purchasing power might constrain demand and erode the incentives to produce. This, he added, might restrict economic growth in the nearest future.
He believed that Nigeria can exit the inflationary period but insisted there is no quick fix to Nigeria’s problem.
He said that to manage the problem of rising inflation, the root cause of the food, energy, and foreign exchange crisis must be given due attention. Regretting that the problem of insecurity has constrained the northern region which happened to be the food basket of the nation, Adeoye maintained the urgent need to tackle the security problem to avert severe food problems. According to him, an improvement in security among other reforms will increase food supply leading to price stability for food.
He believed that the solution to Nigeria’s economic problems revolves around the issue of security, saying the priority today is security. “There is no meaningful development without peace. With the security situation firmed up, agro-based activities will be encouraged. This can also influence direct foreign investment within the country leading to considerable improvement in the unemployment rate,” he said.
Another low-hanging fruit according to him is the urgent need to industrialise the country. “There must be the establishment of industrial parks spread across the country. These should be complemented with the resolution of the epileptic power supply. With these, the economy will be properly diversified and exportation encouraged towards earning foreign exchange.
“Human capital development is also important. The education curriculum should be designed to align know-how with employer expectations as well as professional proficiency and competency. This can also generate remittance and ameliorate the effect of the scarcity of foreign exchange.”
However, he disagrees with the monetary authorities on the current modalities for tackling the crisis in the foreign exchange market, insisting that the current method is not sufficient.
“Just manipulating the monetary variables will not improve the foreign exchange. There is the fiscal side that requires intervention. The country must deliberately put in place measures that ensure it can earn foreign exchange. In other words, Nigeria must do more to encourage export which will allow it to earn forex than its import.
The Bond Market?
On Nigeria’s performance in the bond market, the DataPro official explained that as a country, the involvement is that of stabilisation and fundraising strategy. He said the current revenue problems have necessitated the need to constantly engage with the National Assembly to secure approval for borrowing.
He said, “I think the last initiative was not pursued on account of rising rates at the international market. Aside from this, the government has raised money essentially from the foreign government. Recall that Nigeria recently suspended plans to raise about $950 million from the Eurobond market due to unfavourable market conditions.”
Sounding confident about Nigeria’s potential, Adeoye noted that at the local level, the government has been reducing its issuances in order not to have a crowd-out effect on corporate bonds.
“The government has not defaulted on any of its debt obligations. Therefore, my view is that in terms of debt servicing the country has fared well. However, the point of concern is the sustainability of the pilling debts,” he said.
Nigerians have dwelt so much on various crises besetting the economy, and no one should be surprised that politicians will dramatise these to score political points in months to come when political campaigns start. However, it is instructive to focus on how to crawl out of the economic mess the nation has found itself instead of wasting time counting our losses.