Reflating Nigerian Economy Out Of Recession

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Despite several steps by the Nigerian government to expand the level of output of the Nigerian economy in recent time, the economy is yet to witness a turnaround. MARK ITSIBOR x-rays the issues in this report

This is not the best times for most Nigerians as the nation has continued to witness a severe economic downturn described to be the worst in decades. A large number of the masses now contend with acute economic hardship than ever. Although the President Muhammadu Buhari-led government has given hope that the situation will soon abate, reality suggests otherwise. More than over 400 companies in the country have reportedly closed shops between December last year and August 2016 in the nation that prides itself as the giant of Africa. Unemployment rate increased from 78.5 million to in the first of 2016 to 79.9 million in the second quarter of the same year.

The desperation for survival, the shadow of hunger crowded in real despair has increased crime rate in the oil rich country, while the nation’s currency – Naira now exchanges for between N305 and N425 to a dollar.

The reason is obvious. Nigeria has been battling with the effects of three significant and simultaneous global shocks, which began around the third quarter of 2014 but took an alarming dimension since the beginning of this year. The over 70 per cent drop in the price of crude oil, which contributes the largest share of the nation’s foreign exchange reserves; global growth slowdown and geopolitical tensions along critical trading routes in the world; and normalization of monetary policy by the United States’ federal reserve and continued attacks on oil installations by some miscreants in the Delta region are some of the factors threatening the survival of the economy.

The situation has seen the nation’s Foreign Exchange Reserves massively deplete from about $42.8 billion in January 2014 to $26.7 billion as of June10, 2016.

The Central Bank of Nigeria and the federal ministry of finance are working on tight rope, trying to fix the economy that was officially confirmed to be in full blown recession by the National Bureau of Statistics (NBS) recently. From lifting of earlier restriction on deposit of hard currencies in banks, discontinuation of forex supplies to Bureau De Change (BDC) operators, to introduction of flexible exchange rate regime aimed at making foreign currencies more accessible to the public and review of portfolio investment manual, concerted efforts have been made to reflate the economy and put it back on track and possibly takeover its previous position as Africa’s biggest economy.

But all of those determinations are yet to yield the desired results. The country witnessed negative growth rate from 0.36 in the first to 2.06 per cent in the second quarter of this year, sliding it into recession, with a 17.13 per cent inflation rate.

Is the nation’s economic crisis self-inflicted? Those who submit that the federal government’s economic team led by the ministry of finance and the CBN are either overwhelmed by the workload under their portfolios or too inept to handle the situation say the authorities saw the problems coming but did nothing to prevent them. The NBS had warned that drastic steps should be taken to guide the economy against falling to recession. That is why those who spoke to LEADERSHIP said the federal government deliberately ignored the warnings.

That gives credence to the assertion by some critics that both the CBN and ministry of finance are either in contradiction with themselves or at cross-road on how to actually resuscitate the economy.

Experts who belong to that school of thought point to the federal government’s policy inconsistency or grandstanding on the issue of “excess money” in circulation as a testimonial that the authorities are not clear on the right strategy to revitalise the economy.

They have a point. The Minister of finance, Kemi Adeosun had announced that the Federal government was pursuing an aggressive spending stimulus plan to reflate the economy and set it on recovery pat. The concern is that the minister’s pronouncement came barely a month after the Monetary Policy Committee of the CBN announced a tightening of monetary policy stance by increasing the monetary policy rate by 200 basis points from 12 to 14 per cent, a development that was interpreted to mean mopping up “excess liquidity.

The MPR is only reduced whenever the apex bank intends to increase the level of liquidity in the economy, but increases it when it intends to tighten money supply.

Henry Boyo, an economic analyst is one of those who believe that the CBN has goofed in its latest policy statements. He said it is strange that the CBN that is complaining of excess liquidity in the economy is also giving intervention funds to some sectors of the economy. The major concern is that the CBN is not even channeling the funds to the appropriate quarters. The fact is that those who share common view with Boyo on the issue do not believe that the nation can spend her way out of grip of recession. Their opinion is that injecting more funds into the economy will further shoot up the nation’s stagflation line.

“You don’t pour water in a bottle that is already filled. Would you put more money into an economy that is already suffocated with liquidity so that the CBN would mop it up immediately you release it?” Boyo queried, adding that even if the federal government puts more money in the economy, the CBN would mop it up the next day. Okey Inuegbu, an economist partly support Boyo and his co-travelers when he if government spending becomes expedient to reflate the economy, “I urge the CBN and finance ministry to ensure that what they are spending on are productive so that unemployment can be reduced, GDP will increase and economic activities will be activated,” he said in an interview with LEADERSHIP. The unanimous opinion is that even the full spending of the N6trillion budgeted for in the 2016 fiscal year is not a solution.

Boyo has support in Dr Tayo Bello, a lecturer at….. who said the CBN seems oblivious of the facts of the matter in the way it’s  going about the monetary policies, “it forgets that this is a developing economy. They don’t have to do things by using a double edge sword to clear what should not be cleared,” he said. Bello told this Reporter that the CBN indirectly moped up money in circulation through the Treasury Single Account (TSA) which was introduced to fight corruption, block loopholes or channels of unnecessary wastages in the economy, “whereas”, in his words, “they have created liquidity scarcity.  It cripples the economy”. He added that “The CBN policies so far are not commendable.”

Professor Hassan Oaikhena, Lecturer, department of economics at the University of Benin could not agree less as he told LEADERSHIP that “poor” monetary policies of the federal government have negatively impacted on the nation’s economy as manifested in high inflation rate, unemployment, low productivity and capital flight that have characterized the nation’s economy in the last months.

No matter how clueless the policies may look in the eyes of critics, many are vehement in their optimism that the recent CBN policies particularly on flexible exchange rate and portfolio investment have the potentials of revamping the economy if they are well implemented. The CBN had amended the relevant provision of its foreign exchange manual as part of efforts to boost portfolio investment in the country. The amendment allows Nigerians and non-Nigerians who bring in funds through authorized dealers to invest such funds in money market instruments, bonds and equities, shortly after it removed the official exchange rate of N197/dollar, allowing market forces of demand and supply the price of the value of the naira at the foreign market.

Inuegbu is one of the enthusiasts in that club that have expressed believe the economy will soon rebound. He said it was too early to rate the CBN low at this time “because some of the policies they have taken cannot start working immediately. That is why we must all support the policies. The blame game here and there does not address an economy. Anyone saying government has destroyed the economy may not be fair to them. I won’t accuse the government because we have to wait and see how the new policies will work before we start condemning them.

Regardless of the current challenges, former CBN governor Charles Soludo believes that opportunities and possibilities still abound if the nation addresses some fundamental issues. “The key to achieving this is to have a development plan that is anchored on realising inclusive and sustainable growth,” he said, noting that inclusive and sustainable growth cannot be achieved without conscious efforts to deconstruct the dynasties of poverty and maximise states and Nigeria’s comparative and competitive advantage.

Apart from creating the enabling environment for businesses to thrive, government has been urged to also ensure that there is a meeting of mice between monetary and fiscal policy formulation for effective and result oriented implementation of the budget. “Those implementing monetary policies should also adhere to fiscal policies,” Bello said.

The total value of capital imported into Nigeria in the second quarter of 2016 was estimated to be $647.1 million, which represents a fall of 8.98% relative to the first quarter, and a fall of 75.73% relative to the second quarter of 2015. But the government is out to reverse that trend. Vice President Yemi Osinbajo disclosed last two weeks that government was seriously considering the option of issuing visa on arrival to foreign investors to help remove bureaucratic bottlenecks that had clogged the business climate in the country.


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