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Analysts canvass unlocking $900bn in dead capital to cushion COVID-19 impact

Leading economists have asked the Federal Government to tap $300 billion to $900 billion locked in dead capital to cushion the negative impact of COVID-19 on the Nigerian economy and livelihoods.

Dead capital refers to assets/property that cannot be converted to economic capital. They cannot be used as collateral for loans and their ownership rights are not properly recorded, according to the World Bank.

“PwC estimates that Nigeria holds $300 to $900bn in dead capital in residential real estate and agricultural land alone,” Andrew Nevin, chief economist, PwC Nigeria, said at a virtual meeting organised by the Lagos Chamber of Commerce and Industry (LCCI) in conjunction with PwC recently.

“No better time than now to unlock and harness the capital for wealth creation and economic growth,” he said at the meeting themed ‘Assessment of Government’s Economic Interventions and the Way Forward’.

The Nigerian economy declined by 6.1 percent in the second quarter of 2020 owing to lockdowns and other measures put in place by the government to contain the spread of COVID-19. Unemployment has risen to 27 percent in the same quarter, from 23 percent in the third quarter of 2018. Businesses, especially small and micro enterprises, are under severe pressure amid lack of bailouts and low consumer spending.

Read also: COVID-19: Why Nigeria must halve over $1bn medical tourism

Nevin said the 6 percent contraction in GDP and 3 percent growth in Nigeria’s population translate into almost 10 percent decline in GDP per capita year-on-year, with impact on poverty, unemployment, among others.

He commended the Central Bank of Nigeria’s exchange rate response but acknowledged that there is still a significant gap of 20 to 25 percent between the official and the parallel market rates, meaning that people cannot access FX, which creates problems in the supply chain.

The Federal Government has planned a stimulus package of N2.3 trillion— 2 percent of GDP— to revivify the economy damaged by the virus. Nevin said it is commendable, but cautioned that it is small compared with several countries now spending 15 to 20 percent of their GDP to get through the current financial crisis.

“The government needs to aggressively promote peace and tranquility across the country in order to attract patient capital, while restructuring the fiscal plan, especially spending on non-essential projects,” Nevin advised. “Carefully manage the risk of debt trap that could result from increasing debt accumulation, and put in place framework that ensures transparency and accountability across MDAs,” he counselled.

He urged the Federal Government to mobilise external funding and seek debt relief, while supporting the financial viability of states.

Taiwo Oyedele, West Africa tax leader, PwC, said a recent research by his organisation showed that businesses were worried by liquidity problems, safety of personnel and infrastructure to work from home.

He advised the government to unlock dead capital, optimise assets and stimulate the economy by creating an enabling environment, removing artificial barriers and cutting wastes.

“It is important to expand the tax net, but do not increase taxes. Also reduce corruption and leakages,” Oyedele said.

“Ensure you stay liquid, productive, while developing agility,” he counselled business leaders.

Ayo Teriba, CEO, Economic Associates and chairman, LCCI Economics and Statistics Committee, explained that Nigerians must understand that the Federal Government and the CBN, which are being asked to bail out businesses, are not immune to the pandemic. He said the apex bank might need a stress test in the future, urging the government to tap dead capital for recovery.

He asked the government to plan and review sectors and households hard hit by lockdowns.

Toki Mabogunje, president of the LCCI, said the impact of the virus is more profound on developing economies such as Nigeria with a fragile health system, weak economic structure, and limited policy space to adequately respond to the crisis.

She further said the business environment is still feeling the heat of the crisis as existing operators are increasingly finding it difficult to support margins and meet contractual obligations due to revenue shocks precipitated by the disruptions.

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