• Friday, July 12, 2024
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BusinessDay

Need to sustain tempo of reforms

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Michael Feroli, JP Morgan’s chief economist, projects that Texas, a major oil and gas state in the United States, may slip into recession this year. However, the rest of the US is booming as its GDP expanded at an annual rate of 5 percent in the third quarter of 2014, the most since 2003.

Nigeria would not have been so badly hit by the slump in oil prices if the country had sufficiently diversified its economy like the US and created regions and sectors which would boom when oil prices fall. Oil importers from India to China and Morocco are benefitting from a fall in oil prices, which is cutting into energy costs and giving a boost to their domestic economies.

Nigeria’s growth rate will slow to about 5 percent this year, from 6.9 percent in 2014, as a drop in oil price and a depreciating currency put pressure on the economy, according to the IMF. Slow progress by the executive and legislators in executing structural reforms to diminish an acute fiscal vulnerability to adverse oil price shocks will be the major reason for this slowdown in growth.

There has been a recent noticeable resistance to sensible reforms needed to change the structure of the economy and boost job creation and growth to double-digit levels that will help ease the nation’s 24 percent unemployment and 33 percent poverty rate. The country ranks poorly on global indices; red tape and corruption slows businesses down, especially at the ports; the power reforms have yet to improve lives, while only 31 percent of students passed Math and English in a recent high school final year exam, showing the rot in the education system.

Nigeria, now Africa’s largest economy, fell by seven places to 127th last year on the WEF Global Competitiveness Report as its institutions remain weak with insufficiently protected property rights, high corruption, and undue influence, according to WEF. There is also too much dependence on oil revenues for the federal and states budget, even as reforms to build counter-cyclical rainy-day fiscal buffers are rebuffed. The Sovereign Wealth Fund (SWF), pushed by the Ministry of Finance, is opposed by the nation’s 36 state governors, as the depletion of the Excess Crude Account (ECA), set up to cushion the nation from adverse fall in oil prices, continues apace. The country’s fiscal and external “buffers” are low and need to be rebuilt, with ECA depleted to $3 billion from $21 billion in 2008, the IMF said.

“Capital outflows have continued and, with lower oil receipts, have led to sustained pressure on the naira,” Gene Leon, the IMF’s Nigeria representative, said. “Despite the outlook, Nigeria could surmount its challenges, especially if a national spirit of burden sharing and rebuilding together is actively embraced.”

We agree with the IMF that the country needs a new spirit of responsibility and urgency to tackle its economic challenges. There has been little traction in ending the fuel subsidy bonanza, which was estimated to cost the Nigerian treasury close to N1 trillion in the 2014 fiscal year. The impact of the power sector reforms, which hold the greatest potential to transform the economy, has yet to be felt by the populace.

There has also been slow progress in other reform agenda, such as improving the ease of doing business in the country, unleashing the ICRC for infrastructure improvement, reforming our ports, transforming the railways and increasing financial inclusion for Nigerian citizens.

It is necessary to take a step back and note that most of the reforms are intertwined and primarily aimed at removing the stranglehold that government has on the economy which generally encourages corruption, while gradually changing the nature of the economy as the increased productivity and output which they bring about lead to the benefit of most Nigerians.

The nature of attempts at economic reform globally is for the beneficiaries of the status quo to fight back or seek to slow down the progress of reforms. We therefore we urge the president and the reformers in his government to steadfastly press on with the reform agenda, while the anti-reformists are urged to move out of the way of the moving reform train or else be eased out. Not changing the structure of the economy to give an upside to domestic firms when oil prices fall means leaving the country exposed to the unpredictable volatility of prices set in international markets.