Nigeria’s economic stability – The role of government

A recession is said to be a normal phase in a business cycle. Astute investors study an economy in recession, waiting for the best time to enter and take advantage of lower prices. However, the importance of consistency in government’s policy cannot be overemphasised, because investors look to government’s policy when making investment decisions. To determine consistency, policies must be clearly articulated. It is insufficient to pronounce a policy, the goal must be stated and there must be an enforcement plan detailing how the government intends to achieve its desired goal. For example, successive federal administrations in Nigeria have had economic diversification as a policy, with the sectors of choice including agriculture. What has been, and is still, lacking is a short-, medium- or long-term plan towards achieving this. There are no timelines; no master plan setting out the structure and processes to achieve diversification or development of other sectors within the administration’s tenure; and no metrics with which the government, its ministries, departments and agencies (MDAs), investors and the general public can measure performance to determine if the government is achieving the set goal. To borrow a common phrase, “when we fail to plan, we plan to fail”. Where the plan is clearly stated, a change in policy is acceptable to the market, if substantiated by data. In other words, it is easier to change policy mid-way where it can be proved that the policy will not achieve the stated goal. Anything else smacks of inconsistency and confusion.
It is difficult to fault the determination of the Buhari administration to stabilise the economy. Notwithstanding a few bad eggs and mishaps, it must be acknowledged that the federal government is generally sincere in its efforts. It has no choice, really. However, if there is a master-plan which the executive cabinet is following, Nigerians are unaware of it. Can the current economic policy being implemented in Nigeria be defined in one word? What are the measures for success? What are the key performance indices used to measure the achievements of various MDAs? In resolving the recession, what are the short-, mid- and long-term goals and what strategy has been designed to achieve same? What are the timelines? How close is the economy to recovery? The questions are numerous and unless the government begins to tackle these issues, the quest for foreign investors will remain just so – a quest.
Furthermore, the growth of the nation is not solely dependent on the action of the federal government but development at state level is also important to drive growth. Due to the nation’s history of military rule, the focus has always been on the centre and demands have been made of them. Unfortunately, the state executives of the democratic era have generally failed to live up to their responsibilities. Nigerians have in the past been more vocal on issues at the federal level than at state level, thereby ignoring the excesses and lack of performance by various state governments. The democratic system of government grants the state executive responsibility for the wellbeing of those residing within the state.
The task of ensuring consistency in policy extends to the state. It is important that the state executive adopts the federal economic policy and interprets same towards implementation within the state. In addition, the development of certain sectors, such as agriculture and mining of solid minerals, can only be successfully implemented when the federal and state governments collaborate. States can create an enabling environment to boost manufacturing and technology innovation; tax incentives can be applied at the state level to encourage the growth of identified industries. In doing so, the state economies will be working in tandem with the federal in implementing policies and thereby building confidence in the Nigerian economy.
Finally, the legislators have their part to play; the basic function of the legislative houses being to pass laws. Development can be stimulated through the enactment of laws targeted at key sectors. Focusing on the Nigerian financial market, it is recommended that pending bills for the introduction of instruments that will deepen the markets and enhance liquidity should be the focus of the legislature at this point. For example, the warehouse receipts bill will, hopefully, jumpstart a vibrant warehousing industry with benefits to farmers and other commodities producers. Furthermore, the receipts are assignable and bankable and will further deepen the financial market by creating new instruments that are tradable on the commodities exchange, thereby enhancing liquidity in the commodities sector and attracting investors. The collateral registry bill will support the government’s initiative by providing loans to small and medium-sized enterprises (SMEs) that would otherwise not have valuable security. These companies can now offer their movable and relatively cheap assets as collateral. Presently, the Central Bank of Nigeria has rules governing the administration of movable collateral. However, these rules alone cannot deal with enforcement where the borrower objects or is recalcitrant to enforcement. A collateral registry bill, once passed into law, will close this gap.
While the collateral registry bill attempts to address issues relating to funding SMEs, the securitisation bill attempts to address funding of major infrastructural projects. There is a huge unmet domestic need for project financing. Various types of securitisation transactions can be used to assist in meeting this need. The securitisation bill will therefore assist to connect the capital market to other parts of the financial sector, while also creating a mechanism for funding infrastructure development outside the budget. Closely related to securitisation is factoring. Factoring is a type of debtor finance in which a business sells receivables (i.e., invoices) at a discount. By creating a platform on which SMEs can factor their receivables to meet working capital requirement before their receivables fall due, factoring transactions will close the access to credit gap in Nigeria. Although the sale of invoices can be effected without the need for a statute, international factors are insistent that without the existence of a statute that introduces some level of certainty, they will be unwilling to enter the Nigerian market.
Every arm of government has a role to play towards tackling the recession, responsibility isn’t centralised. While the federal executive government has a leading role to play, the state executive and the legislative arm, both federal and state level, all have supporting roles. In the absence of this support, the efforts of the federal executive will not amount to much.

Elisabet Ekpenyong