The COVID-19 pandemic that has ravaged the global economy has served as a catalyst for economic reforms in Nigeria, Zainab Ahmed, minister of finance, budget & national planning, said on Tuesday.
Ahmed said Nigeria, just like everybody in the world, today finds itself in a global health crisis that has very quickly snowballed and become global economic crisis.
But the pandemic has helped the country to take a very critical look at its health infrastructure as well as fast-track key economic reforms which were too difficult to do before now.
Among the reforms that Africa’s largest economy has been forced to undertake due to the impact of the pandemic, according to the minister, are the right-sizing of government agencies, removal of fuel subsidy, the move towards a single window exchange rate, among others, she said at a panel session tagged ‘Mapping Nigeria’s fiscal strategy and response’ at the BusinessDay digital dialogues with the theme ‘A National Conversation: Mapping Nigeria’s Response to COVID-19’.
The session was moderated by Frank Aigbogun, publisher, BusinessDay Media, with panellists that include Finance Minister Zainab Ahmed, Paul Collier, a professor of Economics and Public Policy at Blavantnik School of Government, Mansur Ahmed, president, Manufacturers Association of Nigeria, and Ibukun Awosika, chairman, First Bank of Nigeria.
“Because of the decline in crude oil prices it became easy to pull out of fuel subsidy, so we used this opportunity to exit fuel subsidy. We also had an opportunity to critically look at some of the key developments that have been going on in the oil and gas sector. It gave us opportunity to look very closely at the cost of operations of the oil and gas sector which is reported as the highest in the world today,” Ahmed said.
“Currently, we are looking at how to right-size government by doing some alignment of some government agencies and departments. We are able to further deregulate the exchange rate moving from official rate of N305 to N360. We are also on the journey to merging to a single exchange rate. It is a process, we made a commitment and we are going to get there,” she said.
She said during this period the economy managers were able to get the federal and state governments to step back and take stock and rationalise expenditure. She cited the reviewed of the budget to accommodate critical expenditure that is required.
“Just Thursday last week we passed the amendment to the budget. One and a half week before then we passed the amendment to MTEF. It is now allowing us to vigorously move ahead with implementation of key government programmes and projects that are required to reflate the economy,” she said.
She said the government would also be looking at how it can extend stimulus package.
“We have a suite of incentives we are working on. Some of them are already encapsulated in the Finance Bill that was signed up on January 13. Finance Bill provided relief to small businesses by zeroing taxes for them, so we have businesses in Nigeria with turnover of N25 million and below that are paying no income tax; their company income tax is zero. The middle category – N25 million to N100 million – have a reduced tax rate of 20 percent,” Ahmed said.
She said the government is also looking at how to provide tax relief for businesses that are not within these first two brackets. “We are trying to encourage businesses to keep jobs so that they do not downsize to maintain production and so that they don’t have to stop productive activities,” the minister said.
“Special attention is being given to service sector, especially aviation and hotel industry and such like so that they are able to come back to operation and manage at a level that enables to retain jobs. We will be going to Nigeria capital market to raise funds. We had earlier done that even last week. We closed up on a sukuk bond. We set out to raise $150 billion. Sukuk bond is meant for building of roads specific across the country. The turnout was $650 billion which means there is a large appetite in Nigeria and also there is a large capacity,” she said.
‘A unified exchange rate works for everyone’
Speaking during the panel session, Paul Collier said Nigeria’s multiple exchange rate regime has created room for sharp practices, calling on the government to unify the nation’s exchange rate window.
“A unified exchange rate works for everyone,” he said.
The Economic Sustainability Committee chaired by the Vice President Yemi Osinbajo had recently also recommended the unification of the exchange rates in a bid to maximise naira returns to FAAC from foreign exchange inflows.
The experts at the digital dialogues stressed the need for Nigeria to take advantage of the current global pandemic and change the narratives around its economy.
On this note, Collier said the fall in global oil price would not be reversed anytime soon, adding that three areas of opportunities for government to unlock include food production. He lamented a situation whereby the country still imports processed foods.
“It is a waste of foreign exchange,” he said.
He, however, challenged the government to be more actively involved in agro food processing which would create more jobs for teeming youths.
Mass housing is another area of potential that needs to be unlocked. According to Collier, a stress-free land rights and mortgage system would further open the economy.
Lastly, he stressed the need for the creation of cluster firms in major cities around the country.
On his part, Mansur Ahmed, president, Manufacturers Association of Nigeria, said there has been an increase in anxiety among manufacturers in the country due to lack of clarity from the government as the global pandemic continues to batter global economies. He called on both the fiscal and monetary authorities to use the crisis created by the pandemic to resolve issues around exchange rate and access to financing.
“We are in a situation where we do not have all the answers, and cannot predict where we are heading. The pandemic is introducing new limitations,” Mansur said.
Need for government, private sector partnership
Also speaking at the panel session, Ibukun Awosika, chairman, First Bank of Nigeria, said the COVID-19 is a double whammy for manufacturers due to plunging of oil price as factories are closing down due to the ravaging pandemic. She called on the government to partner with the private sector on creation of cluster firms across the nation.
As countries across the globe continue to battle with COVID-19 pandemic, crash in the price of crude oil and dwindling revenues as a result of the impact of the coronavirus pandemic on the global economy have put some more pressure on Nigeria’s oil-dependent reserves.
Apart from the recently approved $3.4 billion in IMF RFI funding, Nigeria is planning to receive an additional roughly $3.6 billion from the World Bank, African Development Bank, Afreximbank, and Islamic Development Bank to help cushion the impact of the virus.
The external reserves of Africa’s largest crude exporting nation fell below $36 billion mark in March, touching its lowest levels in 29 months. The reserves which show the nation’s ability to weather external shocks dropped to $35.7 billion as at March 24, according to Central Bank data. That’s the lowest level since October 2017 when the country managed to limp out of five quarters of negative growth. External reserves at the time stood at $34.3 billion.
With economic activities in Nigeria disrupted by the outbreak of the deadly coronavirus coupled with the underlying economic challenges and the restriction to curtail the spread of the novel virus, economists have projected a contraction for the country with the most population in Africa.
After a 35-day lockdown to contain the spread of the deadly coronavirus, Nigerian government began to gradually reopen its economy on May 4, 2020. The economic pain of the restrictions was becoming acute and unbearable for Nigerian households.
Almost one month after easing the five-week lockdown in the Federal Capital Territory, Lagos and Ogun States, the economy is still constrained by the restriction on interstate travel and a nationwide curfew. The country, meanwhile, continues to record rising number of COVID-19 cases. As of Monday, Nigeria has recorded 16,658 confirmed cases of COVID-19, with 5,349 recoveries and 424 deaths.
