Nigerians in cautious optimism mode….as Buhari administration enters 2nd year

 The first year of the Muhammadu Buhari presidency has clearly been hallmarked by lack of a sense of economic direction. For many economic analysts, it was a year in which rare opportunities to institute positive changes in the economy were frittered.

As it stands, with the economy having contracted by 0.36 percent in the first quarter of 2016, experts say all that is left for the economy to be officially classified as in recession is for a second consecutive quarterly negative Gross Domestic Product (GDP) growth in the second quarter.

The inevitable result is that a deluge of hardships was unleashed on hapless Nigerians. These hardships, most of which continue to bite, were seen in the scarcity of foreign exchange to import essential commodities, leading to high cost of imported items; epileptic or no electricity power supply; job losses and salary cuts; low purchasing power and general rise in the cost of goods and services occasioned by rising inflation; persistent scarcity of petroleum products, among others.

While some analysts see the economy turning around for the better following a number of recent policy decisions by the Federal Government, others say the government not only needs to concretise these policies but must go beyond them and take further steps, such as privatisation of refineries and airports, a new fiscal and regulatory regime for upstream oil and gas, among others.

For many ordinary Nigerians, however, the catchphrase is cautious optimism. Weary of unfulfilled promises of the past, especially of the past one year by a government in which they invested so much trust, hope and expectation, they say they can no longer afford to hope to avoid further disappointment.

“After one year of economic nightmare, Nigeria seems about to take a turn for the better. A couple of positive policy shifts and some development in the global oil market give indication of hope that the intense suffering of Nigerians in the last year may begin to ameliorate,” said Sam Ohuabunwa, a renowned industrialist and founder, Sam Ohuabunwa Foundation for Economic Empowerment.

These policy shifts and developments, according to him, include the guided deregulation of the downstream petroleum sector, which instantly resulted in the disappearance of the fuel queues that had lingered for many months; the decision of the Central Bank of Nigeria (CBN) to allow flexible exchange rate, which simply means that the naira will be allowed to find its level against the dollar; the gradual recovery of the price of crude oil in the international market; and the passage of the reflationary N6.06 trillion 2016 budget.

He said with deregulation, rent-seeking in the sector ended and exaggerated demand disappeared.

“Now what we have is approximately the true demand. Let’s then watch what will happen when new suppliers enter the deregulated market which may lead to supply exceeding demand. Certainty is that prices will begin to moderate even if government maintains the N145 selling price. Different filling stations will begin to sell below the N145 benchmark to attract more customers. Corruption in the depots and in the filling stations has also largely disappeared,” he said.

Ohuabunwa said though a flexible exchange rate will to an extent result in devaluation of the naira for now, it would eventually have similar effect as the deregulation of the downstream petroleum sector.

According to him, the first impact is that dollar supply will quickly increase because all the reasonable people who had been reluctant in the last one year to bring in their dollars, whether as Foreign Direct Investment (FDI), portfolio investment or home remittance, because of the margin between the official rate and the market rate, would now willingly come in.

“Second, the exaggerated demand for dollar will decline, if not disappear, completely as the rent will cease. Nobody will buy from CBN at N199 and then turn around to sell to the parallel market at N300 or N285. Most people will buy at nearly the same rate or the difference will decline significantly that the incentive to ’round-trip’ may be virtually extinguished. As all these happen, the country will earn more naira for its dollars, so it can provide more services to the people and the struggling states will have more cash to pay salaries; and the foreign reserves may rise as less dollar is demanded,” he said.

He, however, urged the CBN to make no exceptions but to maintain one window and one rate as any other window, not matter how narrow, would lead to rent-seeking and round-tripping, wiping out any purported benefit.

Opeyemi Agbaje, a Lagos-based public policy analyst, said regarding the downstream petroleum sector deregulation and the flexible foreign exchange policy regime, the Federal Government must fashion a clearly defined policy content and framework.

“The government needs first of all to fully embrace and define the policy content and framework in two principal areas which have hobbled the economy and in which it is making policy shifts – the full deregulation of the downstream petroleum sector and a ‘flexible’ foreign exchange policy regime. In both cases, there should be no ambiguity and/or tentativeness about a new, sensible market-based approach in both areas,” he said.

“But further steps are required – privatisation of refineries and airports; a new fiscal and regulatory regime for upstream oil and gas; we need to leverage private capital for financing infrastructure through a concerted focus on PPPs and global infrastructure finance; tax reforms may be required to improve tax collection and coverage and we may probably need timelines for VAT reviews; reforms must also include social sector policy, particularly geared towards improving the quality of education and health insurance coverage,” he added.

Agbaje also recommended a clear policy framework to achieve diversification of exports and government revenue, as well as to boost new domestic sectors like solid minerals, refining and petrochemicals, agro-processing, and the entertainment sectors.

For his part, Ohuabunwa further said the crude oil price recovery, if sustained, was good news for Nigeria.

“With a budgeted price of $38, it means that Nigeria can begin to accumulate excess crude income and perhaps have an accretion in foreign reserves. If this situation remains sustained for a reasonable timeframe, and given a regime of flexible exchange rate policy, the currently battered naira may begin to appreciate instead of its current burden of unending depreciation,” he said.

He believes that with the passage of the budget, which means that the Federal Government would inject huge sums of money into the economy; things would definitely change for the better.

“I can see contractors being paid and the road and rail projects resuming. Both the capital projects and the taunted special social projects should complement these new policy shifts and get the economic wheels spinning at faster speed,” he said.

“For me, these developments give me something to cheer about, raising my hopes that our economic nightmare may be coming to an end…. It is certain that we still have a very long road to travel before our economy can be revived, but we must remain steadfast on the new road we have begun to travel in the last two weeks or so. There should be no room for reversals and we must do whatever we can to consolidate on these recent gains. The president’s gaze must shift squarely to the economy in the second year of his tenure without loss of momentum on the anti-corruption effort which must be broadened and deepened.”

However, many Nigerians, while they share in this optimism, do so very cautiously, preferring to adopt a wait-and-see attitude.