Nigerians paying price of Buhari’s deaf ears to economic advisers
Nigeria’s decision in 2019 to assemble a team of accomplished economists to advise President Muhammadu Buhari on economic policy was widely considered a positive move for an economy that had not grown in per capita terms since 2015.
The expectations were that the motley crew of 8 that made up this Presidential Economic Advisory Council would help set the economy on the path of robust and sustainable growth.
Three years, six meetings with the President and several recommendations later, the economy is in even worse shape and it is not for a lack of putting forward sound economic advice before the President.
Rather, their recommendations have gone largely unheeded and the economy has bled with Nigerians paying the ultimate price.
Petrol subsidies have remained, the multiple exchange rate practice is still in place and a Bill that is supposed to catalyse new investments into the oil and gas industry, the Petroleum Industry Bill, is still stuck.
In the time since the economic advisory council was formed, Africa’s largest economy has slipped in and out of a second recession in five years, albeit pandemic-induced, the jobless rate (33.3% in Q4, 2020) is now the second-highest globally, only behind Namibia, and poverty is fast deepening.
To add to the woes of Nigerians, many of whom are struggling to pin down jobs in a country where 1 in every 3 people are unemployed, inflation is also galloping.
The country’s inflation rate was 18.17 percent in March, according to the state data agency, National Bureau of Statistics (NBS), the highest in four years and double the Central bank’s target.
Food, on which Nigerians spend over half of their income, is the major driver of the spiralling inflation. Food prices accelerated by 22.95 percent in March, the highest in 15 years.
That has put basic food out of the reach of many in Nigeria where the people living in poverty is almost half of the population at 87 million, enough to match the population of Spain and Canada combined.
The volatile exchange rate has also eroded the purchasing power of Nigerians with the naira going through two devaluations last year alone.
Realising the naira is not an efficient store of value, many Nigerians are increasingly holding dollar-denominated assets from cryptocurrencies to foreign stocks but the government is now also trying to stifle those markets with unfavourable regulations.
Bright young Nigerians who see little future in the country are also now exploring opportunities in other countries from Canada to the UK and US.
Why economy’s exit from recession has brought no relief
The economy’s exit from recession in the fourth quarter of 2020 after two straight quarters of recession has brought no relief to long-suffering Nigerians.
The Presidential Economic Advisers have reasons why this is the case.
In their latest presentation, they argue that GDP growth has been narrow and not broad-based.
The economy expanded a paltry 0.1 percent in the fourth quarter with growth driven by improvement in some non-oil sectors – including agriculture, solid minerals, ICT and Agric sector – and continued growth in the technology sector rather than broad-based growth.
The sectors that are labour intensive have still not recovered from the recession in 2016 which explains why there is still a lack of jobs despite the economy turning the corner.
Trade, Construction and Manufacturing, all contracted by 8.5 percent, 7.7 percent and 2.8 percent respectively in 2020.
Only 18 percent of the economy was fast growing in 2020 compared to 71 percent in 2015.
These statistics are hardly surprising.
Never mind the brutal impact of the pandemic, there has hardly been any broad-based reform capable of giving the economy a full-tilt lift. Private investment has stalled with the government seeking more control of business and government agencies have shifted their attention to primarily revenue generation even when it stifles businesses rather than aid them.
Savers are losing money holding naira
Continuing pressure on the Naira at the foreign exchange market suggests Nigeria’s external trading account remains weak – despite the increase in oil prices.
Data shows a cumulative trade deficit of N7.4 trillion between January and September 2020 and a Current account deficit of -3.7percent of GDP in the same period.
Though interest rates are now rising, the value of returns to savers and investors remain negative because prices are rising faster than interest.
For instance, the 10-year government bond yields around 13 percent even when inflation is at around 18 percent, leaving a negative return of 5 percent.
In consequence, savers and investors are actually losing money by holding the Naira. This continues to provide an incentive for Nigerians to move money into foreign currency.
It is also creating a distortion in the capital markets resulting in a misallocation of resources.
Recommendations by the Presidential Economic Advisory Council
The Presidential advisory council would go on, as they usually have, to recommend urgent steps that the President should take to address the country’s economic frailties.
They identified an urgent need for the subsidy on petrol to be removed in favour of a pricing regime which reflects the cost of petrol adopted.
The Council also urged the President to defeat Boko Haram decisively, as a decisive defeat is necessary to keep the insurgency at bay forever.
“There is a need to re-strategize on the way forward, looking at all options, including seeking the assistance of external powers,” the Council said after highlighting the cost of insecurity on the economy.
They also had other suggestions for tackling insecurity from increasing security presence in coastal states prone to piracy and in states with large scale artisanal mining, which are prone to violence; to improving the capacity of security forces to gather advanced intelligence, so as to act proactively rather than reactively.
The Council also called for the implementation of the Petroleum Industry Bill (PIB) but more importantly noted that the enactment of the Bill through the National Assembly will not of itself immediately stimulate investment needed in the Oil & Gas sector.
Instead, “Nigeria should identify key strategic projects that will enable achievement of the various objectives – ranging from increased oil production through expansion of gas pipelines,” the council stated.
“These projects should then be the subject of discussion with Oil sector operators – International Oil Companies (IOCs) and Indigenous companies,” the council added.
They said a process of accelerated approval can be established – similar to the NLNG model in 1982- with the intention being to ensure that before the end of this Administration’s tenure, investment decisions can be taken.