• Sunday, May 26, 2024
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Nigeria versus recession


What to say that Nigerians have not yet heard in the past few days? Countries shutting their borders, global economy grinding to a halt, stock markets in freefall, oil prices plunging, Nigeria in financial trouble. As coronavirus wreaks havoc on health-systems and markets worldwide, it is clear to all but the most incurable optimists that we are headed for a serious global recession. The only question is how long it will last. No one can answer that today.

Everything is up in the air now. Everywhere. Nothing is certain. No one knows. The world is in unchartered territory. The two most consequential events of this century so far – the 9/11 attacks and the 2008 financial crisis – were not nearly as disruptive to the everyday global economy as coronavirus is proving to be. As consumers from America to Japan hunker down because of the health scare, businesses ranging from restaurants, cinemas and pubs to shopping malls, airlines and amusement parks are taking a pounding.

Consumer spending accounts for the majority of GDP in most major economies. In America, it’s 70 percent. People not spending money is the worst thing that can happen to such economies. Precisely what is happening now. Worst of all, no one has any idea how long it will take to halt the spread of the virus that is scaring people from going out and spending money. Even in the optimistic scenario COVID-19 does not hit Africa as hard as it is hitting Europe, North America and Asia, those three continents account for 90 percent of the world’s $87 trillion GDP, so African economies will be affected irrespective. The shit has hit the fan, as they say. So, what to do in Nigeria?

Obviously, the first and absolute priority is to contain the spread of the virus and save lives. Nigeria and Africa have not yet seen infection rates like in other continents, but detected cases are rising in Africa with South Africa now reporting 85 confirmed cases of COVID-19, the highest number in sub-Saharan Africa. Nigeria has so far reported ‘just’ 3 cases, but it is not clear if that number is not due to a lack of systematic testing and low detection rates.

Beyond tackling COVID-19 in Nigeria, the second priority is to survive economically in the short-term. It is unlikely the limited measures rolled out by CBN this week will cushion the impact of the global economic turmoil to an adequate extent. CBN can cut interest rates, but it can’t force banks to lend to customers. Something more will be needed. Western countries are scrambling to pump money into their economies. The UK government will guarantee £330 billion worth of loans to British businesses to keep them afloat. The US is planning a $850 billion stimulus package set to include mailing checks to Americans, according to Treasury Secretary Steve Mnuchin.

Nigeria obviously doesn’t have that kind of money. To be honest, I was surprised the government suspended its planned $22.7 billion loan package to finance infrastructure projects. While in the long-term more debt is not a good idea, you have to survive today to see tomorrow. I had actually expected the government to ask China to facilitate speedier release of those funds so it could start pumping money into the economy as fast as possible, especially towards infrastructure projects that could provide much-needed jobs. It has however decided otherwise and there are certainly sound arguments for that. But it is difficult to see how Nigeria’s economy can stay afloat without some form of stimulus. It is unclear where that money might come from. Of course, the 2020 budget will need to be revised and absurd expenses like 37 billion naira for the renovation of the National Assembly complex should be scrapped immediately and those funds put to better use.

As for long-term solutions to Nigeria’s economic fate being so dependent on oil prices, the answer is well-known. The phrase ‘we need to diversify our economy’ has been uttered so many times in Nigerian public debate over the past few decades it no longer elicits more than an agreeable shrug from most Nigerians. Heard that one before. Yawn. But the fact a thing has been said a thousand times and not (seriously) acted upon does not mean it should no longer be said. Especially if it is a matter of survival. And never has diversification of Nigeria’s revenue been more a matter of survival than today.

The infrastructure projects the government has been embarking on are definitely a step in the right direction of achieving this though it is now unclear how many will be financed without the $22.7 billion. One of the many reasons for Nigeria’s persistent economic underachievement is its lack of adequate-to-potential inter-regional trade and economic cooperation. A 2018 World Bank report emphasized Nigeria’s economy could benefit hugely from focussing on leveraging regional connections and coordination to enhance Nigeria’s internal and external competitiveness.

The report noted that while there are 65 million economically active Nigerians spread across the country, this large domestic market “suffers from spatial fragmentation.” In other words, poor inter-regional infrastructure limits the abilities of producers and consumers to connect in a mutually beneficial manner. If a Lagosian has a product to sell, getting that product to an end-buyer in Kano needs to be much easier and cheaper than it is today. Each region of Nigeria has something to offer economically, but they need to be able do so in a cost-effective manner. “Spatial integration and sub-national specialization are key for creating a nationally-integrated market for goods and services as well as attracting much-needed private investment, which in turn could enhance productivity though scale and specialization,” wrote the World Bank.

This would involve not just improving intra-Nigerian economic links via better connective infrastructure in terms of region-to-region and rural-to-urban, but also focussing on different policy and investment priorities along sub-national lines, taking into consideration region-specific challenges and opportunities. Nigeria is way too diverse a country for a one-size-fits-all economic approach. What may work in the South-West might not work in the North-West and vice versa.

Economic development is not rocket science that has only been understood by a select few. Out of 204 countries in the world, the World Bank classifies 68 as “high-income”. This means they each have a Gross National Income per capita of $12,235 or more. Another 59 are classified as “upper middle-income”, meaning they have a GNI per capita of between $3956 to $12,235. Thus, over 60 percent of the world’s countries, spread across various continents, have achieved either high-income or upper middle-income status. Nigeria is in the minority of countries that have not been able to get their act together and join the majority.

Of course, the problem has always been less about a lack of knowledge on what needs to be done and more about a lack of positive elite will, a non-existent sense of urgency and limited coordinative capacity to do what needs to be done. That will, urgency and coordinative genius must now be found. They are there to be found. They emerged like magic when Nigeria successfully escaped an Ebola disaster in 2014. All hands came on deck. Things moved. Ebola was escorted to the front door and shown the way out. In the face of an existential crisis, Nigeria was made to work. The next few months will be an existential crisis. They should be treated the way Ebola was treated; as a do or die moment. Who knows, maybe this is the crisis that will finally wake up Africa’s sleeping giant?