The path to Nigeria’s recovery from the massive fiscal and social crises thrown up by the collapse in oil price and the health pandemic cannot be found in the domain of government, according to several economists surveyed by BusinessDay.
Nigeria faces the crisis of collapsed revenues as a result of the fall in oil prices. There is also the massive healthcare crisis as well as a security challenge that is also exacerbating a humanitarian crisis given that as many as 40 percent of the population is already trapped in poverty.
Government figures acknowledge that oil revenues will fall by as much as 80 percent this year and the 2020 budget deficit will touch a record N5.6 trillion, with the three tiers of government expected to struggle in paying salaries.
Although the NBS recently released a report estimating Nigeria’s poor at 40 percent, the basis of that estimate is data collected two years ago, making economists suggest that the real size of the poor population in Nigeria is closer to 100 million today. The poor population puts more burden on government finances in form of bigger social spending to meet its target of lifting millions out of poverty.
Nigeria also needs a prolonged quality spending on healthcare to manage the many faces of the crisis faced by the sector in Africa’s most populous nation with some of the worst health indices in the world.
The country also needs to quickly create a credible national identity scheme which will allow it to map its poor population and quickly offer the urgent cash transfers they need. To do this will require significant spending.
The clearest sign yet that the government by itself cannot get Nigeria out of these holes is visible in the paltry size of its COVID-19 fiscal stimulus that is in the region of 3.4 percent of GDP when that of the South African government is in excess of 10 percent of GDP. Even then, there are questions about how Nigeria will fund its small fiscal stimulus.
The economists all agree that Nigeria’s hope of a post-COVID-19 recovery lies in quickly and sensibly positioning itself for the private capital required to ameliorate the challenges.
“In medical terms, those with pre-existing conditions are said by doctors to be the most vulnerable to COVID-19 and they should also fare worse when it comes to fatalities,” according to one economist. “It is the same way that nations like Nigeria that have pre-existing economic conditions will confront more severe economic dislocations while it will take much longer time for the country to recover from the financial, health and social crises which it faces.”
That’s why the government must come to grips with the fact that it doesn’t have the financial wherewithal to weather the impending storm and must be thinking of incentivising private domestic and foreign capital, according to Wale Okunrinboye, head of investment research at Lagos-based Sigma Pensions.
“This is the time to privatise government stake in unprofitable ventures to allow the private sector bring efficiency and create jobs,” Okunrinboye said.
“There is massive private capital waiting on Nigeria to get its head right in terms of implementing reforms before they start pouring in, but there has been a lack of urgency in pushing those reforms,” he told BusinessDay.
Omotola Abimbola, an analyst at investment bank Chapel Hill Denham, was of the view that Nigeria must put its ease of business struggles behind it to attract the needed private capital for life after COVID-19.
“Nigeria still ranks poorly on the World Bank ease of doing business metric and that’s one area we need to fix to build investor confidence in the economy,” said Abimbola.
Another area of focus for the government post-COVID should be finding a way to leverage its massive dead capital. PricewaterhouseCoopers (PwC) estimates that Nigeria has about $300-$900 billion in dead capital trapped mainly in real estate. That’s roughly the size of Nigeria’s GDP or nearly three times its size depending on which figure you take.
Leading economist, Ayo Teriba, has also in the past flagged the need for government to convert some of its idle real estate assets to earn rental income like is the case in emerging markets.
A swift passage of the Petroleum Industry Bill which has held back new investments into the oil and gas sector was also fingered as key to supporting the economy.
The delay in ratifying the bill has rendered Nigeria less competitive and seen investors divert money to other African countries.
The economists who took part in a BusinessDay survey also listed key sectors that must get maximum attention from government today to include agriculture, insisting that Nigeria cannot afford to miss the current planting season.
They also canvassed urgent work by the state governments in strengthening farm-to-market access through grading of roads linking farms around the country in a way that farmers are helped to take inputs to the farms while getting produce from the farm to the market.
“Nigeria is headed towards a troubling time but staying in it does not have to be prolonged by our own failings,” said one of the economists.
While the economists surveyed arrived at a consensus that Nigeria needs private capital to resuscitate the economy post COVID-19, the government may not be entirely sold on the idea.
The newly revised budget shows little signs of ambition to attract private capital through privatisation.
The N5.6 trillion 2020 budget deficit will be financed mainly through debt totalling N4.6 trillion. Bilateral and multilateral draw-downs will provide the second largest source of the deficit with N387 billion, while draw-downs from Special Accounts will total N260 billion.
Privatisation proceeds are expected to rake in just N126 billion and no details of the assets to be privatised were provided. It was cut by 50 percent from an earlier estimate of N256 billion.
