By way of recap, I had earlier postulated that the global economy will enter its worst recession in recent times this year. I also identified the two drivers of the impending recession as the coronavirus pandemic and the crude oil market share war between Saudi and Russia. I acknowledged that the Nigerian government and its agencies have initiated several interventions to mitigate the impact of the impending recession; I, however, concluded that there is so much reason for us as a country to worry because of our peculiar vulnerability.
With the International Monetary Fund ( IMF ) predicting that the global economy will enter “ a recession at least as bad as during the global financial crisis or worse” this year 2020 due to the coronavirus pandemic and the crude oil market share war between Saudi Arabia and Russia, I am sure managers of Nigeria’s economy will take our hypothesis more seriously. I have always argued that, as a country, our problem is not lack of informed ideas to solve our national challenges, but the clarity of technical details and willingness to implement those bold proposals in a timely manner. I present here some proposition worth considering in our search as a nation for solutions to the impending economic crisis.
The suggestions can broadly be categorized into three interventions – policy, institutional reforms and stimulus.
My first proposition is that the impending global economic recession provides us, as a nation, an opportunity to do a national INTROSPECTION. We are currently working strenuously to quarantine ourselves from the effects of coronavirus which in itself is a good thing, but there are several pressing questions we must ask ourselves at a time like this. For example, How do we quarantine our economy from future global shocks? How do we protect ourselves from dependence on oil as foreign exchange earner? How do we protect our economy from dependence on foreign goods? This is the time to ask and seek practical answers to these critical, pertinent, national, economic questions, and boldly address them. This strategy level action though a leadership responsibility, at a time like this, requires the input of all Nigerians. The outcome of this national INTROSPECTION is the design and implementation of an urgent reform plan that addresses the stark reality of today. Earlier plans such as the Economic Recovery and Growth Plan( ERGP) drawn up with the recession of 2016 in mind might not fit into our present reality unless revised.
My second proposition is that now is the time to work out the finer details of how to boost our national production level. This was recognized by the ERGP as a major element of economic recovery and growth however weather it has received desired attention is a different matter . This new economic circumstance has made the need to expand our existing production capacity imperative. Our industries are producing sub-optimally; a significant percentage of our raw materials are exported and not converted into finished goods for domestic consumption; and we are overtly dependent on Europe, China and the rest of the world for finished goods. This structural weakness in Nigeria’s production structure has tied our economy’s fortunes to the apron strings of these other nations. If we can convert a good percentage of our raw materials to finished goods our vulnerability to what happens in other economies will be a lot more limited. The least we expect is food sufficiency. The time to create the enabling environment including sustainable production structures and the right incentives targeted at the private sector for improved production is now.
My third proposition is the use of time-tested stimulus package. Nations of the world, particularly wealthy ones, when faced with this kind of economic challenge, resort to stimulus package to keep industries running; preserve existing jobs; create new jobs; assist the most vulnerable in society; achieve fiscal stabilization, and make up for the shortfall in consumption. The US, faced with the coronavirus-induced recession, has set aside USD 2 trillion; the United Kingdom announced GBP 57bn(equivalent of USD 66bn) package; France is injecting €45bn(USD48.7bn), and Japan is planning to inject Y30 trillion(USD 270bn equivalent) into their respective economies.
Like other serious nations, Nigeria has announced a stimulus package. The country’s Central Bank announced the package of N1 trillion (USD26bn equivalent) though its details of implementation had yet to be made public by the apex bank. CBN explanation is that One Trillion Naira would be used to support the local manufacturing sector as well as boost import substitution. It is a step in the right direction though the size may be small when compared to other nations not as populated as Nigeria. The application of this stimulus package can make a difference between the economy absorbing the shock of the global recession or not and rebuilding the economy. Other components of the stimulus package include an extension of moratorium on loans, interest rate reduction, strengthening of loan – to – deposit rate ratio. Like all stimulus package, it is meant to be a short term but necessary measure to cushion the immediate impact of an economic downturn for the most vulnerable.
My fourth proposition is anchored on the urgency to address the issue of diversification seriously. That we need to move away from dependence on oil is not an option again. Diversification of export is perhaps the most sustainable strategy to drive growth for vulnerable countries like ours. A well-diversified economy responds to market shock with resilience. There is empirical evidence that shows that countries that depend on a narrow export portfolio like oil exporters or countries that depend on oil revenue are more susceptible to the impact of the global recession. This is the right time to put critical policies in place to drive economic expansion towards agriculture, solid mineral mining, technology and innovation, and manufacturing, amongst others. Past diversification plans failed because they did not receive high-level attention or were poorly implemented. Every cycle of recession brings us back to the subject matter.
My fifth proposition is on infrastructure development. The poor state of infrastructure is perhaps the greatest challenge we face towards unlocking the potentials of our economy. Efficient infrastructure is a stimulus for growth. A study conducted by McKinsey Global Institute on Nigeria’s infrastructure requirement threw up the need for the investment of well over $31bn annually, over a 10-year period for the country to bridge her huge infrastructure deficit. In a 168-page report it published in 2018, McKinsey attributed the unimpressive performance of Nigeria to poor infrastructure and lack of diversity in export. Investment in infrastructure at this time will do two things: help keep people employed and boost the growth of output in the nearest future. However, the concern is where to source fund to finance big infrastructure projects at a time more financially healthy nations are in a quagmire. The other concern is how to create the right environment and incentives for the private sector to be a major driver of infrastructure development.
My last proposition is on the need to deregulate the downstream sector. Now is a golden opportunity to deregulate our downstream petroleum sector without the attendant impact of a price hike. With crude oil price crashing to below USD30/bbl, this is the right time to plug some of the wastage called subsidy, free the money for more critical sectors particularly infrastructure, save some of our external reserves that is fast depleting and allow private sector invest and drive growth in that sector. This is a bold decision that must be made in the national interest.
I have given a general framework of what can be done to absorb the shock of an impending global recession but admit that the real work is in the finer details. It is obvious that much remains to be done in building the right policy, institutional and structural framework for Nigeria to develop appropriate resilience to the volatility of the global market place. My objective is to stimulate serious national discourse on how to face this kind of situation going forward.
Reactions are welcome please.