Nigeria: How Not to Grow an Economy in a Recession

Economic recession in Nigeria

Stricto sensu, Recession is defined as a period of temporary economic decline during which trade and industrial activity are reduced and generally identified by a fall in GDP in two successive quarters.
Irrespective of what pundits may say or hold as their views, the average man on the street would continue to wonder how we got to the level where food and other necessities of life have become luxurious and illusive.

If on the other hand an economy is defined as the sum totality of production, trade and consumption of a country, does it then mean that with a workforce of over 180 million people we do not produce enough, trade enough and consume enough?

Without making this write-up sound like another verse in the book of lamentations, it is imperative that we dwell more on empiricisms and not solely on theorems, ideologues and assessors to this crime of recession or sound like a pirated work of Peterside Ottong’s song ‘’where are the prophets’’?

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It has become commonplace for government to keep passing the buck each time things go wrong. When we are not being accused of refusing to queue under the scotching sun or rain for non-existent petroleum products at filing stations or for unavailable drugs at hospitals-turned mere consulting clinics, we are being accused of a summa cum laude choice of menu. Sometimes we are made to queue in wait for buses that government had not provided, and for pensions that rarely comes.

Late Fela called it ''suffering and smiling''.

Economic recession is here
Photo Credit: ToLet

Like everything Nigerian, government is at it again: blaming Nigerians for the recession, and how their craving for luxury goods, imports and wet appetite for foreign foods has led us to this mess. They recount how we have wasted all the petro-dollar importing tooth picks and other useless items which are locally produced. They have also accused us of operating a mono-economy that runs only on oil as if oil and all oily matters, ranging from its operations, marketing, licensing to earnings are not in the Exclusive list and a preserve of the federal government. Come to think of it, who issues import license for importation of petroleum products on which over 50% of the country's foreign exchange earnings are wasted? Who failed to build local refineries so that millions of jobless youths are gainfully employed? Who issues import licenses for all the luxury goods and who collects import duty on them?

Obviously, your guess is as good as mine. A case of do as I say or that of don't do as I do?
Government misbehavior ranging from massive corruption to skewed fiscal federalism and total absence of a political will to take and implement the right decisions are to blame for the recession and not Nigerians. I am aware that the average Nigerian is a peasant farmer merely waiting for government value-addition to excel. My class teacher in the primary school flogged the hell out of me for not bringing pumpkin seed and cassava stem to school for practical farming. I still remember with nostalgia our beautifully laid ridges adorning our school farm. I am almost certain that every family in this country has a tomato farm, a pepper farm, an okro farm, a scent leaf farm and other kinds of vegetable farms within their houses. We were taught in history class that the main reasons our forefathers married several wives and kept many concubines was to assist in the businesses of farming. Farming had always existed right from the amalgamation of Nigeria in 1914, and even beyond.

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Nothing is therefore new in the deafening mantra of ''go back to farming'' and/or ''diversify the economy'' or we die. The only thing that is new and amazing is the rationale behind government prohibition of legitimate means of income and livelihood, including export of agro-produce. Government was the first to divest from Agriculture at the smell and sight of oil at Oloibiri. Thereafter, budgets and extra-budgetry expenditures became mere annual ritual for the 'boys'.

I had in the opening paragraphs talked about how government failed to build local refineries but regaled in importation of petroleum products with abundant crude in our backyards. In defending this 'unpatriotic' act - as importation is regarded lately, a highly placed government official said it is cheaper to import than produce locally. I believe him. What he did not tell Nigerians is that investors in all other sectors of the economy face similar challenges and the right to choose. What I do not believe is that it is only government that has the right or the capacity to undertake such level of profitability analysis and cash-flow projections.

Does the recent hue and cry for agriculture and farming not fit into the mass attack, mass defense mechanisms and way of life of government? To me, it feels more like a mere digging of a hole to fill another hole?

Still talking about agriculture as the savior of the universe, and the only known panacea for the recent economic recession, we seem to forget that we once had the OFN, the Green Revolution, Back to land, School to farm, Work to farm, and several other jargons that only succeeded in stuffing our Naira into few pot-bellies, while making the people poorer and corruption endemic. It also does appear to me that there has always been a missing link that has made Agriculture and other government policies not to work in Nigeria. That missing link is a preponderance of value chain disorderly insanity, lack of incentives, financing and requisite infrastructure.

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The disharmony, or is it a superiority struggle between the Fiscal and the Monetary Policies are nothing to write home about. At best, it makes recession a sine qua non, albeit a continum. A critical analysis of a few of these jaundiced government policies may assist in determining why recession may persist even after it's curtailment.

A leading factor is the administration of wrong prescription on a known ailment, premised on the misconception that monetary policy alone is all it takes for the economy to rebound. It is also erroneous to assume that the economy wound rebound only when the petro-dollar returns. How did countries like UK and Turkey jet out of recession without oil? The Turkey example should be a case-study for Nigeria. I sincerely do not think it is the duty of the CBN to unilaterally restrict, or is it ban, 41 items contributing to the GDP without the imprimatur of the fiscal policy drivers. Similarly, the daggers-drawn position of both policy makers regarding the interest rate regime leaves much to be desired. Just as it leaves a sour taste in the mouth for managers of fiscal policies to emphasize indigenization of investments while the monetary policy dictates otherwise? The conflict is both intra and extra, as I am yet to fathom the rationale for floating the exchange rate on one hand and restricting trade as represented by the 41 items on the other.

The biggest casualty of CBN,s meddlesomeness with fiscal policies is the Free Trade Zones. Statutorily, the free trade zone is a creation of statute, and regarded as a country within a country whose operations are not bound by the dictates of the CBN or any other body for that matter. Originally called the export processing zones, it is meant to incubate businesses, transfer technology, earn foreign exchange for the country, and make goods and services available and affordable. but with a stroke of the pen, the CBN has decreed the free zone enterprises out of business and existence losing in it’s wake these lofty ideals. Sales proceeds into the customs territory can no longer be repatriated, meaning that raw materials cannot be replenished, and factories grinding to a halt. Ab initio, all companies within the free trade zones do not recourse to the CBN for their forex needs but through autonomous sources. These sources are now firmly under the control of the Apex bank without opening other financing windows.

The question then arise, should we float the currency or float the economy? And for how long shall we continue with the fire-brigade approach in a nation’s affair while sacrificing due process and rule of law on the altar of impunity, nepotism, favoritism, monopoly, and inconsistencies?
By floating the economy, the field becomes more even, impunity would be curtailed, confidence would be restored, investment would grow, market forces would determine pricing, profit, loss, and invariably, the right exchange rate.

Time was when the CBN informed Nigerians that commercial banks were awash with foreign currencies, and consequently restricted inflows into domicillary accounts. The same CBN soon realized it cried wolf and quickly reversed itself. And there has been similar policy summersaults lately more than all past CBN regimes put together. When investors lose confidence in the pronouncements of a nation’s Apex bank, investments take a flight.

Way out of recession
 Nigerians can still swear that government position on Naira devaluation remains sacrosanct. But the CBN had introduced devaluation through the back door at over $1 to N470 as against the $1 to N197. How many real investors had taken advantage of this devaluation? All we have seen are portfolio investors and makers of sharwama. Again, with the introduction of the floating regime, Nigerians were assured that the gap between the inter-bank and the parallel market rates would shorten if not close. But what do we have? A widening gap of over N280/$. The wonder futures market and the FMDQ were simultaneously introduced with settlement in US dollars. This too has failed as the CBN resorted to Naira settlement at huge loss to investors. The ugliest side of this gamble was that it succeeded in pilling additional pressure to the already tensed parallel market, as investors were required to fund their domicillary accounts before settlement in Naira. Even with the floating regime, everyone still rushes to the CBN for one approval or another for trade related issues instead of the ministries. The CBN has become so powerful that it dictates who should trade, where to trade, when to trade, price at which to trade, and in what currency and rate to trade. Why would any sensible investor go through all these rather than adopt a sidon look approach to messy jumble of misplaced iconoclasm?

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As I write, our dear country runs on a four prong forex regime. Which economy would survive under this kind of central command structure dictated to by one powerful man whose omission, commission or misdemeanor renders one’s investment null and void?

While manufacturers and students groan under forex scarcity and the overbearing control, politicians smile overseas to treat all kinds of mini ailment, including headaches, tooth extraction, ear-itches, red eyes, flatulence and diarrhea; buy choice property, acquire foreign wives, whose bride price can only be paid in foreign currencies with rates determined by the all-powerful CBN.

It has therefore become overdue for government to restore confidence in the economy by cleaning the augean stable whose prescriptions has defied all known financial and economic logic and brought the economy down to its' knees. As long as these doubly manipulative standards persist, resulting in air of uncertainty and unpredictability foisted on us by bad managers, manifesting in the deepening of recession, responsible investors would remain skeptical.

Few months back, Mr President undertook what economic pundits regards as the best and most rewarding diplomatic trip to china where a deal of $6billion was struck. As interesting as this may sound, and from available information, the chinese are to bring in their money and personnel under a self-contract awarding arrangement, fees and costs of items of contract determined by the financiers - china, and equipment supplied by the financier - china, and to be constructed by the financier - china, also to be managed by the financiers - china; and finally, funds to be repatriated back to china upon maturity of the loan by china. For China, it is a win-win situation. But for Nigeria and Nigerians our job remains that of hewers of wood and fetchers of water.

A former CBN governor once bought Yuan at the rate of 4 Yuan to the dollar. But before we could say Jack, the chinese government devalued the Yuan to 9 Yuan to the dollar. The current deal will not be any different because china would fix the price, control the exchange rate, and determine other logistic arrangement. I have continued to wonder why the chinese has not built a refinery with serious mass appeal, that would benefit the common man in Nigeria, either in exchange for crude oil or refined products or it's bye-products?

As a country, recession or not, what is our real economic objective? Is it to conserve foreign exchange or to create jobs, is it to open up the economy and make goods and services easily available and affordable, or to protect and encourage monopoly or to grow the GDP or to suffocate Nigerians?
Regrettably, Nigeria seem to many like a country under economic bondage.

With unclear and undefined economic objective, coupled with apathy for investment the GDP must continue to fall in absence of trade and consumption. Elementary economics tells me that there is no production until the goods so produced gets to the hands and mouth of the final consumer. So, when government asks us to go into local production, they seem to forget or discard the other factors in the production value chain. They forget most importantly that production cannot thrive yet under harsh economic fundamentals. For instance, we have only about 4000 megawatts for over 180 million people; they forget that they have provided no kobo in the budget for the private sector who are the acclaimed drivers of the economy; they forget also that interest rate has remained at triple digits; they forget that insecurity is everywhere; they forget that herdsmen have hitherto remained uncontrollable where cows compete with farm owners; they also seem to have forgotten that they have provided no silos and preservation systems for agricultural produce. They forgot that the problem with farming and agriculture has been that of processing and government obnoxious laws inhibiting it’s export from few poorly maintained ports. We probably seem to have forgotten that the forex requirement in Agricultural processing is over 45% and that NIMASA and most government agencies collect their fees in foreign currencies.

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The way things are, it does appear to me that we may succeed in moving from a mono economy predicated on oil to another mono economy on agriculture. That is if we are lucky. But if not, chances are that we may end up in one-man-economy.

Therefore, fiscal federalism becomes imperative.

As long as everyone crawls to Abuja to get one approval or the other, get one license or one permit from a recalcitrant Federal Government agency or personnel, and losing several man-hour in the process, our economy would remain unhealthy. As long as issues of solid minerals, commerce and trade remains on the exclusive legislative list, the economy must continue to suffer. As long as the Federal Government fails to unbundle itself, and puts more resources in the hands of state and local governments, the economy may rebound but will never be strong. As long as the Federal Government does not break the numerous bureaucratic bottlenecks militating against businesses and ease of doing business in Nigeria, chances are that the economy may never grow. Unless and until government reduces incidences of pre-operational expenses, reverses all the retrogressive policies, heals the land of economic injustices, the economy must continue to suffer even after overcoming the current recession. These are economic realities and not my wish.

Here we are, a government that claims she has no business being in business and without capacity to manage public enterprises, and in fact, privatizing and commercializing it’s assets, setting up AMCON and acquiring private investments which it kept under lock and key. Why would such businesses not die? And why would jobs not be lost? And why would the GDP not collapse?
If monies given to banks which are used in decorating balance sheets are reversed to the credit of owners of such manufacturing concerns, Nigeria may get out of recession sooner than later.
Is it not funny, if not iniquitous that while government is restructuring bad loans of state governments, half of which went into private pockets, and even giving more loans, it is busy blackmailing and publishing names of genuine and patriotic investors who could not meet their legitimate obligations under the harsh economic conditions they operate, under what they call name and shame, some of whom were owed by these governments, while others never borrowed at all from such banks.

While other nations desirous of growth are incentivizing and bailing out, we are naming and shaming.

What is level in this field?

Anyways, it is written in the holy bible that "to those who have shall more be given'', and ‘’for those who do not have, even the little they have shall be taken away from them’’. What is more apt than this? If before we entered recession it took a maximum of two weeks to get a reply from government, why would it take ages for a government in a recession to respond to a trade related correspondence?

An investor friend of mine applied to government to implement a presidential incentive on tariff on cement equipment in April. From April to December not a word came from government. The sad side to this ugly episode is that other colleagues of his enjoy the incentive unhindered. While it is plausible for Nigerians to encourage local investment, is it still plausible for government to retain all the laws that prohibit or inhibit free flow of trade? What role should standardization play in a recession? Do we still need evidence of tax payment, NOTAP, NESREA, SONCAP, VAT, Radio license, TV license, stamp duty, and many more for incubating businesses, young graduates, and start-ups? Can the economy jump out of recession with a crater of divide-and-rule? Must we continue haphazard implementation of policies that take us cap in hand to Abuja? Several instances of this nature dot our economic landscape with spiraling negative consequences.

I therefore do not agree that we have the right policies in place. Where they exist, conflict of interest impede implementation. It is my humble opinion that any policy that seek to create jobs, but end up with mass closure of existing factories and mass retrenchments, and growth impediments is a bad one.

According to a recent survey, revenue generation by customs has significantly dropped from over N900billion in 2015 to about N600billion in 2016. Tax revenue has dropped by over 40%. Unemployment has increased by over 34%. Inflation is at over 18%. Job losses is at over 60%. Negative confidence has doubled from 12% to 24%. Why then would the GDP not drop for over three consecutive terms and deepen recession? If per hour production and per capita income has so astronomically dropped, it is only a matter of imagination that the GDP would drop and depression sets in.

Again, I do not agree that an economy that defied global melt-down under Professor Charles Soludo in 2008 is suffering from severe kwasiokor in 2016. I also do not agree that all we need to jet out of recession is drastic increase in crude oil prices alone or multiple taxation on hapless citizens.
Consequently, I have few additional short term prescriptions for the economy, thus:

1. Identify and revive all closed businesses in Nigeria, provide funding on a long term basis at single digit interest using 50% of the expected $30billion loan.

2. Government should convert payments received by banks from AMCON into credits and loan facilities to enable concerned investors revive their manufacturing concerns.

3. Government should introduce fiscal federalism, float not just the exchange rate, but also the economy, trade and exchange.

Above all, government must provide a template for measuring performances and growth by her Officers, Ministries and Parastatals.

Finally, young Nigerians and start-ups need a well-articulated and properly designed pathways into various businesses and sectors of the economy. As presently in practice, government operates a monstrous system that devours smaller local investors and scare young and foreign investors away from investing in the economy.

About the Author

Reagan Ufomba is the CEO of Reagan Group. He's a politician and an eloquent communicator. Under the platform of APGA, he contested in the Abia State gubernatorial election in 2011 and lost to Senator Theodore Ahaefula Orji. In 2015 again, he contested under the same party but was denied the opportunity to become the flag bearer this time. The decision of the leaders of the party to make Dr Alex Otti the flag bearer is what he has continued to challenge in court till today.