The spread of coronavirus, depleted foreign reserves and tumbling oil prices, global and local experts have said, could trigger another economic recession in Nigeria, maintaining that the Federal Governments has few tools available to battle external shocks. The economic experts, who spoke to Sunday Vanguard, listed short and long term solutions:
By Victor ‘Tunde Oso
The spread of coronavirus, depleted foreign reserves and tumbling oil prices, global and local experts have said, could trigger another economic recession in Nigeria, maintaining that the Federal Governments has few tools available to battle external shocks. The economic experts, who spoke to Sunday Vanguard, listed short and long term solutions:
Massive export promotion is way out —Isemede, ex-NACCIMA DG
Dr. John Isemede, a former Director General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said, “The question is: how are we going to run the N10trillion budget? I have maintained the same position time and again for the past 35 years that oil is a slippery product. Export will make us have more money in this country and not oil, which has not recorded significant value addition in 122 yrs! Exportation started in 1908 and we have not developed any of the three levels (1.) Exploration is 0%. (2.) Pipelines and refineries 0% and (3.) Export of crude and importation of finished 100% is even not good for the economy. Borrowing from local and foreign banks to import petroleum products? What of the debts all over the place?
“We must review our foreign stand to have a policy position/strategy with ambassadors leading the push for made-in-Nigeria goods outside the country. Export is the only way out – if we can invest what we have invested on oil or Nigerian National Petroleum Corporation, NNPC, just 1%, on Nigerian Export Promotion Council, NEPC, we will talk less of oil/, fragility of the economy.
“The situation in China may not be a lesson because of our culture of importation and no productive base at home. With a mono product based – economy of mass importation, price of crude at less than $50, no refinery capacity and no experts to drive the export business to shore up our foreign reserves, trouble is here.
“The African Continental Free Trade Area (AfCFTA) will take off from Ghana in July. See what South Africa is doing! They are building a team of world class experts and we are removing ours, replacing them with brothers and party loyalists. We may end up to be spectators in global trade soon. We have signed all agreements, no power, now rail, no security, no links, no shipping lines, No planes, no ports, no infrastructure to determine quality of produce and no experts to face competitors across the world.”
“Covid 19 is just an excuse (ask the drug companies here, the only thing we produce is water), we are not ready for diversification, not prepared to be part of the 4th Industrial Revolution (ICT) and no team to drive the change – what we have is just the culture of selling crude oil to import goods, no productive base and no proper export drive, no targets for the CEOs: only seminars and conferences in hotels”.
*Merge MDAs
The ex-NACCIMA boss told the Federal Government to revisit the Oronsaye Report, which recommended the merging of the numerous ministries, departments and agencies (MDAs) and government has to give them targets and work with the organized private sector, OPS.
He added, “What of the provision of infrastructures like power, railway, aircraft and vessels under public-private sector partnership (PPP) with the organised private sector for us to compete?
“Instead of building a team/ looking for markets abroad, we are talking with the public sector that has no role after our signing the AfCFTA (Africa is now a bloc). We need strategy to develop new markets, ICT, planes, vessels, upgrade of ports, funding of agric and local and foreign data to break down barriers”.
*Shallow agric policy
Isemede, a National Expert on Value Chain – United Nations Industrial Development Organization UNIDO, stressed, “What of farmers? No plans to engage or work with them. No commodity boards, no value chain plans, no strategy, budget of 2% to agric as against 12% under the Maputo agreement of 2003.
“No warehouses to store our harvest. No silos and no cold rooms, no linkages, no schools and research centres to assist; lack of traceability of our goods with the processors”.
Prospect of recession slim — Prof. Ken Ife
Professor Ken Ife, Lead Consultant on Private Sector Development to the ECOWAS Commission, on his part, said the sudden and unexpected drop in crude prices to just over $30 comes as a shock and great surprise.
His words: “”These strong headwinds would reinforce the wake-up call to a life without oil. But that should not spread panic and speculation in our economy. There is no prospect of Nigeria going into recession or the imminence of major devaluation of Naira.
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“We will take it as it comes; after all, our macro-economic fundamentals today are far stronger and more robust than in 2014-2016.
We have a reserve of $36.9 billion compared to as low as $26 billion in 2016 and we survived.
“Our monthly forex demand for import in 2014 was $4.6 billion of which about $3.2 billion a month was for non-oil import. As at 2018, monthly food import bill declined to $590 million and still declining due to robust action taken by the Govt/CBN.”
Ife, who is also the Co-Chair of EU – AFRICA Business Task Force, maintained that, at least now,” we have a recovery and growth plan that produced growth of 2.55% for Q4 of 2019 and average of 2.25% for 2019, whereas in 2014- 2016, we had no recovery plan and growth plan. “Non-oil sector contributed over 92% of this reported growth of 2.55%.
There is no doubt that the combination of crude oil price crash and corona virus will put severe strain on our budget revenue, forex (Naira) and many sectors, we are drastically reviewing the budget as well as redoubling our effort to raise revenue and plug the leakages and intensify engagement and support of sub-national entities and the private sector in our economic recovery and growth programmes, notably, the Presidential Initiatives on the 10 Agri-value chains and sustaining the momentum on infrastructure investments and major capital projects for which we seeking external concessionary loans”.
MDAs should embrace fiscal diet — Shitta-Bey
Mr. Teslim Shitta-Bey, Managing Editor of Proshare, said Nigeria could fall into another recession in 2020 as lower oil prices and slimmer federal revenues take their toll on economic growth.
“GDP would take a knock from 2.55% in Q4 2109 to 2.1% in Q1 2020 and perhaps turn negative at the end of Q2 2020. If oil prices stay between $35 and $40 per barrel for 2020 capital, retail expenditures will be cut deeply in both the private and public sectors of the economy”, Shitta-Bey said.
“Lower expenditures translate to lower commodity outputs and higher inventories which would mean lower incomes, lower consumption and lower growth.
“We are in a perfect storm. Both real and financial markets will continue to dip as investors take flight to safety in competing economies. The CBN has little leeway to stimulate the economy while the fiscal authorities are too highly leveraged already to attract foreign capital at modest costs (Nigeria’s credit rating has declined across all major international rating agencies).
“One move that would appear unconventional would be for government to increase taxes in a recession. But if government is to narrow the budget gap, it must raise more money. Perhaps this would be a good time for government to privatise marginal public assets and reduce non essential public costs. Many public agencies, departments and ministries will need to go on a fiscal diet”.
NEPC blueprint on non oil exports —Ogundadegbe
To Alex Ogundadegbe, public sector consultant and business analyst, the challenges we face with the drop in oil price include pressure on the Naira since CBN may not have the forex to keep the exchange rate at the pegged rate, increase in the cost of imported products, and a dearth in the amount of money required to finance the budget.
His words: “Already, there are indications that part of the burden will be passed to the private sector, especially the informal part which, for many years now, has been finding it difficult to scale because of non- registration and no defined way of identifying people in this part of the economy.
“We should also expect more layoffs in major sectors, especially banking and finance and industries that are import reliant for raw materials.
Now, more than ever before, government must make strides to reduce recurrent expenditure and develop non-oil exports.
“Mr. Segun Awolowo Jnr, the Executive Director of the Nigerian Export Promotion Council, NEPC, recently drew up a blue print of what can be achieved via non oil exports for Nigeria.
“FG needs to adopt his plan whole-heartedly. If oil price remains lower than $50 consecutively for this quarter and the next, technically we shall face a recession. We need to cut spending on non essentials immediately and begin to be more prudent”.
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