What is recession?
Recession refers to a consistent decline in gross domestic product (GDP) for two or more consecutive quarters. It is a downturn in any economy, hence a contraction of economic activities across the affected economy. Recession is also always associated with visible decline in real income, employment, industrial production, wholesale, and retail sales. Recession is an indication of failure of political leadership to implement sound economic policies that keep recession at bay.
Economists generally blame high interest rates (because they limit liquidity), increased inflation (due to reduction in purchasing power of consumers within the economy), reduced consumer/investor confidence in the economy, and reduced real wages (this is where the exchange rate comes into play). All the above factors are at play in what we are currently experiencing in Nigeria. The fastest way to come out of recession is to implement policies that will increase consumer/investor confidence, and increase the earning and spending power of consumers in the economy.
What the government is saying caused the recession.
It is often said that a problem fully identified and defined is a problem half solved. This is true because the scope of your solution options is defined by what you understand the problem to be. This administration has at various for and instances blamed different factors for the recession. Top of the list is the past administration. The government of President Buhari and his surrogates routinely blames the past administration for everything that is wrong with this economy. They seem to be oblivious to the fact that they are now in charge and have to take both responsibility and ownership of any economic outcome that happens under their watch. There is truth to their argument is that the past administration did not save for the rainy day, and depleted the foreign reserve hence they do not have the necessary armour to defend the naira.
The worrying thing is the discordant tune that the administration officials sing as to what root causes of the recession. President Buhari was recently quoted as attributing the recession to global meltdown as the number one reason for the recession. Maybe, he was referring to the global fall in crude oil price which has adverse effects on the nation’s revenue. His finance minister seems to agree with this line of thought, that the fall in oil price is responsible, in apparent reference to the dwindling revenue. The Vice President blames the recession in part on the criminal activities of the Niger Delta Avengers (NDA), who crippled oil export from the Forcados Terminal since February 2016. While the loss of revenue (fall in crude oil price and NDA activities) contributed to the recession, my opinion is that its contributory factor is being over blown by the administration. Former CBN Governor in asking the government to own the recession, at a recent government forum for budget planners and economists, disagreed with the government that fall in global oil prices and NDA activities is to blame for the recession because oil revenue constitutes only about 15% of the national GDP. The Vice President and Head of the Economic Management Team now blame Jonathan-Era corruption as the culprit for the recession. With the war on corruption being prosecuted mostly in the media space, it can be argued that corruption is still king, more than one year into this administration. While it is true that fall in price of oil prices, and reduced crude oil production due to the activities of NDA, it is obvious that the government is yet to articulate a common position on the causes of the recession. In order words, they are yet to fully understand and define the problem at hand. And without properly defining the problem, it is difficult to come up with reasonable policies and strategies that will sustainably roll back the recession and return us to the path of growth.
What I believe to be the main contributor to the recession.
In a rush to blame the past administrator for the recession and score some cheap political points, the current government seems to have ignored the contributory effects of their economic policies and lack thereof. After all is said and done, I believe that the loss of confidence in the Nigerian economy and by extension on the managers of the economy by the markets is the primary reason for the recession we are currently in. And to reverse the trend, policies to inspire and restore confidence in the economy and those managing it is what is urgently required.
The loss of confidence in the Nigerian economy since President Buhari took office was the culmination of many false starts by the president and his minders. The clamour to sell off national assets against sound economic, national security, and common sense advice plays into the narrative that those tasked with managing the economy are not up to the task. During campaign, the president told the Nigerian voters that he understands their problem and have solutions to them. He promised bringing in seasoned and respected technocrats to manage the economy. He promised a departure from the old ways. The market had to wait for more than five months to know who these technocrats are. Nigerians and the markets gave him the benefit of doubt and patiently waited believing that he needed to take his time if he must get it right. In all this time, there was no policy or direction. And the markets are not comfortable with uncertainty, especially if that uncertainty is perceived to be due to lack of clarity of purpose on the side of leadership. When he finally announced his cabinet, Nigerians were understandably angry and disappointed. Instead of technocrats, president Buhari announced a selection of old political jobbers and recycled politicians, most with track record of, limited vision, failure and corruption (even if no competent court has pronounced them guilty, but Nigerians are not idiots). Most Nigerians believed that he could have spared the country the disappointment and uncertainty because he could have announced this cabinet on the eve of inauguration. His cabinet was made up of those that funded his campaign or their cronies. That was the real beginning of the recession, in my opinion.
Following the cabinet announcement, the administration came up with the infamous foreign exchange policy that was ill advised. Citizens and companies were barred from withdrawing or depositing cash to their domiciliary accounts. The government fixed the exchange rate opening more than 50% spread between the official rate and black market rates. The policy that was ostensibly introduced to fight corruption ended up motivating corruption. Those connected with the government and who can get forex at the government rate became multimillionaire over night by round tripping. The Former CBN governor, Lamido Sanusi captured this better. Companies that could not repatriate, or bring in raw materials the profit started heading towards the exit. The government maintained this confidence eroding policy for almost a year before heeding the voice of reason and adopted the common sense policy that should have been in place from day one.
Another main contributor to the loss of confidence in Nigerian economy was the perception of political instability. The ongoing battle of supremacy between the Presidency and the Senate, conflicting pronouncement from the High Courts on the same electoral matters, the spate of inconclusive elections all played into this narrative causing high uncertainty at the state and Federal levels. One of the key fires in the executive-legislative face off is the ongoing trial of the Senate President for corruption based on false asset declaration. If the idea is to fight corruption, the Federal government can easily take Saraki out of the political battle field on tax evasion charges. But the fight is actually on who controls the Senate. The only thing that the ongoing fight of personal interest accomplishes is to reinforce the perception that Nigeria is politically unstable. Given that political decisions, to a great extent, drives economic policies, foreign investor’s confidence on the Nigerian economy further declines.
Because the Federal economy is an aggregation of the state economies, and because there is little or no economic activities in most states except the sharing of monthly Federal allocations, it is no wonder that recession is here with us for the foreseeable future. Most states depend on Federal allocations for more than 70% of the monthly revenue. This dependence of the Federal government created a bunch of lazy state governors, with little or no motivation or capacity to initiate or implement job creation policies. Economic agenda did not exist. Economic activities revolved around civil servant salary cycle, so when oil price took a hit, the states suddenly could not pay salaries leading to stagnation of economic activities. I think that more attention should be focused on the states to drive GDP growth. States like Lagos and Anambra are demonstrating that with the right vision and supporting economic policies, a little hard work on the part of state governments, and cost efficiency, state economies can thrive even in the midst of national recession.
Finally, while the Treasury Single Account is a commendable strategy to help plug revenue loss loopholes for the government, its non-phased implementation constituted a shock on the local banking sector. With the sudden withdrawal of government funds from the commercial banks, the banks saw a steep decline in activities, declining profits and started mass retrenchment of their personnel. This sudden loss of purchasing power by a large segment of the middle class had the predictable effect on the economy. House rents and mortgages went unpaid, car loans can no longer be serviced, consumption declined significantly, private building projects stagnated. With the loss of a single banking industry, jobs, there is a corresponding loss of ten other jobs down the value chain and the net result is the recession.
Based on the public utterances of the managers of the Nigerian economy, one is forced to conclude that government is yet to coherently articulate the root causes of the recession we are facing in Nigeria. When top officials attribute it to different things, people easily come away with the perception that the managers of this economy are yet to come to terms with the causes of the recession hence their recovery policies will at best be suboptimal.
On the call to sell the only profitable Government Investment
Instead of selling its share in NLNG, the government should give licenses and incentives to private people to invest. There is enough space for at least ten more LNG plants in Nigeria. The Niger Delta is actually a gas field. It is time we begin to explore for and produce real gas from the region. Dangote and those advocating for the government to sell its only profit making investment will better serve Nigeria and Nigerians by investing in new LNG plants, refineries, and in developing the gas assets in the Niger Delta. This will create thousands of new jobs across the entire upstream value chain and drive sustainable economic activities, and lift many out of poverty and help bring the much needed infrastructural development to the Niger Delta. There is no empirical relationship between a nation’s foreign exchange reserve and recession. The biggest disservice this administration can do to Nigeria and Nigerian will be to sell a single share of its investment in NLNG to anyone, local or foreign. Countries and businesses usually sell non-performing assets. Selling the NLNG or NNPC will amount to the biggest fraud ever perpetrated by a Nigerian government on Nigerians.
How we can get out of it.
It is often said that a problem well defined is a problem half solved. To revive the economy, the Federal government must put policies in place to restore confidence in the economy, and those managing the economy. I believe that to get out of the recession, the government must inspire confidence in the economy. Expansionary monetary policies like reduction of interest rates, more consumer spending, and transparent government initiatives and policies should be urgently put in place. The government must be forth coming with information on what they are doing. The government should come up with a coherent messaging on what they feel was the cause of the recession and what they are doing to reverse it and stick to it. Those speaking on behalf of the government must stick to the talking points at all times. When communication is consistent, investors tend to believe what they are being told and this will go a long way in restoring confidence. Any recession recovery policies being rolled out and implemented by the government should be aligned with the messaging and integrated with the wider economic vision of the government.
The political battle for supremacy raging between the Executive and Legislative arms of government must be brought to an end as a matter of urgent national interest. APC must begin to function as an integrated government. This requires strong and nationalistic presidential leadership from Buhari. The “change begins with me” is a good slogan to rally the citizenry behind the government, but the President and his team must lead from the front on this. They can lead by example by drastically reducing the cost of governance. A 50% to 60% cut in the emolument of Senators and House of Representative members. The National assembly must no longer be allowed to set their own payments. This is another place where the president can show leadership by getting the Revenue Mobilisation Allocation and Fiscal Commission under him to work to align the remuneration of NASS to international norms and Nigerian Civil service payment structure. He should not be fearful of the political fallout or push back from the assembly men. Nigerians will be there to support him all the way in this must win battle. He can also demonstrate that change actually begins with him by selling at least 50% of the presidential fleet. This will go a long way in demonstrating to the Nigerian public that public official is indeed public servants and not rulers. Furthermore the war on corruption must be transparent and must start with the President sanitizing his cabinet. The general perception on the street is that a full overhaul of the present cabinet is long overdue. It is high time the president revisits one of his key campaign promises and brings in competent technocrats to help put the country on the path of sustainable growth. People like Audu Ogbe, Lai Mohamad, Ogbonnaya Onu, Adamu Adamu, Solomon Dalung among others have no business being around the Federal Executive council in times like this. Furthermore, the country will be best served if the President uses this opportunity to appoint a substantive Federal Minister of Energy and Petroleum Resources. Time for politics is over. This is the time for serious national building. The president and his people should stop the blame game. Regarding playing the blame game, it is in the best interest of the country for this government to heed the advice of Reverend Kukah to stop blaming the past government and start focusing on leading. Nigerians voted President Buhari to lead us forward and not point us backward. The president and his party have won the politics. Now is the time for him and his party to formulate and implement the policies that are needed to deliver on his campaign promises to the longsuffering people of Nigeria. Finally, the President and all public officials should be made to hold up and look into a mirror, before they start any meeting, and say “change begins with me” because it is true. Change begins with the leadership showing the way and walking the talks. Finally, the Federal government should work with the state governments on economic recovery policies.
The 2017 budget should be submitted to the NASS for deliberation latest 31st Oct 2016 and passed into law latest 31st Jan 2015. All these efficiencies will inspire confidence in the economy as well as those managing it. I believe that the Niger Delta resurgent militancy has taken a toll on the Nigerian economy and the Niger Delta environment. The Federal government should do all within its power to bring it to an immediate end. This is the time that leaders, especially in the Niger Delta to lead. They seem to not understand that Niger delta and its people are the biggest losers in all this militancy. It is the Niger delta environment that is being polluted. The so called statesmen from the Niger Delta should stand up and be counted. They should take the message of non-violent protest to the street, creeks, schools, and churches across the Niger Delta. The president should be very careful about the message he projects on his foreign trip. It is encouraging to hear him calling for investors at his recent trip to New York. This is in stark contrast to his usual position of telling all that care to listen that Nigerians are all thieves and with only him as saint. There is also urgent need to revamp and professionalize the federal and state civil service to make it easy and interesting to do business with government. Arnold Obomanu in his book “the Survival Mindset” contended that corruption will be significantly reduced, if not eliminated once we get the normal process to work for the people. The war on corruption is going to be won until and unless the civil service is fixed. The civil service is the first line of defense against corruption. . Make it easy to do business.
Public education across Nigeria is almost dead. Nigerians spend an estimated $2billion yearly on foreign tuition. No nation develops under like this. A policy to revamp and revitalize the educational sector in line with modern realities and future trend is long overdue. Public primary and secondary education should be restored. Our universities should be modernized and upgraded to be centers of cutting edge research. The funding mechanisms for universities need to be urgently revisited to make them less dependent on government allocation. The Nigerian Universities Commission should be tasked to, within the next one year, revamp and updated university curriculums to reflect and address the needs of day while positioning them for the challenges of the future. The new curriculum should be designed around practical entrepreneurial education such that graduate from every level of education have the needed commercial skills and job creation mindset. I strongly advocate for making entrepreneurial education compulsory from junior secondary. You cannot lose it with education.
We are still waiting to hear announcement on world class infrastructural developments across the country. Assuming the government is crazy enough to go along and sell off national assets, what are they going to invest the money on? Or will it be wasted on recurrent expenditure? While we commend the Calabar Lagos railway line, we are of the opinion that it is not enough. The Federal highways in the South-South and South-East are still death traps. The East West Road is yet to be completed. The Port Harcourt Enugu road is almost dead. The Port Harcourt Owerri road is abandoned. The third River Niger Bridge is only good to be mentioned during general election campaigns. The MMA is an eyesore and does not deserve to be called in international airport. The roads leading to this airport needs an emergency facelift. Set up a direct train link between the local and international wings of the MMA as part of the ongoing upgrade. Technically speaking, the Apapa wharf remains the only functional seaport in the country; what are the plans to revise the Port Harcourt and Calabar ports? Bring Port Harcourt Port back to service. Reactivate Tinapa, the only visionary project executed by a state government within the last two decades in Nigeria, within the next 6 months. And it is high time we develop the political and judicial will to tackle tackling structural corruption. Fighting the symptoms of corruption without addressing the inherent motivators and enablers is a mere chase after the wind. Imagine the number of employment opportunities that will be unlocked by implement the above simple and common sense policies. Our national and state leaders only need to use their brains for a change and think long term.
I strongly believe that the nation will be better served with a strong visionary leadership. To get out of the recession and thrive, the national and state leaderships should up their games. Once again, they should understand that Nigerians voted in to provide solution and not manufacture blames. They have won the politics. Now is the time to make the policies that will put food on the table of Nigerians.
Chisom Ezeocha is a social commentator, a public policy expert and writes from Xciteconsults.com