Minister of State for Finance, Budget and National Planning, Clement Agba, merely stated the obvious when he told the House of Representatives’ Joint Committees on Finance, Appropriation, Budget and Economic Development and that of Loans, Debt Management that the economy risks another recession if a strong third quarter economic performance was not achieved. He spoke of “spikes in risk aversion in the global capital markets”; “pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market,” plunge in oil prices that has seen crude prices drop from a peak of US$72 per barrel on January 7, to below US$20 in April, as against the $57 benchmark on which the 2020 budget was predicated, and Nigeria’s current OPEC crude production quota of 1.4mbpd as against the total capacity of 2.5 mbpd.
In this, the minister seems to have merely re-stated what leading multilaterals have long concluded about the dire economic prospects ahead. In fact, a report by the World Bank, titled,?Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery ?estimates that the economy would contract by 3.2% this year – that is assuming that the spread of COVID-19 was contained by the third quarter. Should things go worse, the report stated that a more severe contraction awaited the country.
Truth is, the signs are already here. Since COVID-19 broke, the apex bank has had to adjust the rate of exchange twice – first, in March when it was adjusted from N307 to N361 to the United States dollar, and, penultimate week, when it was again adjusted from N360 to N380. At the parallel market, the naira has suffered even a worse fate as it now hovers between N470 to N490.
But then, while COVID-19 is understandably a global challenge, for an economy like Nigeria’s, the challenge is somewhat peculiar. Aside the severely curtailed revenue from falling oil prices and severe production cutbacks, hence the imperative of budget review across the board, there is also the additional burden brought on by scarcity and soaring costs of foreign currencies, as businesses adjust to increasingly prohibitive import bills, and the rest of the country to inflation. Meanwhile, the impact of COVID-19 disruptions to the country’s supply chain are, from indications, only now beginning to bite.
For us therefore, the goal is how to cushion their impact, while, laying the foundation for an economy that is less susceptible to external shocks.
Here, the words of Marco Hernandez, the World Bank’s Lead Economist for Nigeria aptly captures the essence of the challenge: “The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods, and lay the foundations for a strong economic recovery.” We couldn’t agree more.
And if we may dare to add – such policies must begin by identifying where the rain began to beat us, to enable us chart a sustainable path forward.
That some 40 percent of our forex currently goes into fuel importation is a notorious fact. That obviously must change as soon as possible.
Again, that the absence of aggressive backward integration policy is responsible for the situation in which a good number of our raw material imports for which the country is reasonably well-endowed to produce, are still being imported. An aggressive forward-looking backward integration policy to ensure the development, processing and utilisation of local raw materials is needed to address this age-long anomaly.
Our banks need to be encouraged to lend more to manufacturers and genuine entrepreneurs at reasonable interest rates as against their pre-occupation with traders. For all the modest gains on Ease of Doing Business, corruption remains a major impediment to getting things done, just as banditry and insecurity have remained a scourge. The same with power which remains intractable.
Rather than moan the recession which appears inevitable in the circumstance, a more productive way out is for the Federal Government to see the current season as an opportunity to reset the economy. Time of course is of the essence.