Nigerian technocrats as well as politicians were on Friday given the opportunity to attempt a joint rescue mission of the Nigerian economy which continues to slide on major economic and growth indices. However both sides found little grounds to agree on the way forward.
The platform for the rescue mission was the annual Vanguard Economic Discourse titled “The Hard Facts to Rescue the Nigerian Economy”, held at the Civic Centre on Friday in Lagos.
Chairman of the Vanguard Economic Discourse (VED) and founding GMD/CEO of Guaranty Trust Bank (GTBank), Mr Fola Adeola, moderated a steamy session of a panel comprising of Dr Kayode Fayemi, Hon minister, solid minerals development; Comrade Adams Oshiomhole, immediate past governor of Edo State and member of the ruling APC; Mr Bismarck Rewane, MD, Financial Derivatives Company Ltd; Mr Issa Aremu, NEC member, NLC & General Secretary, NUTGTWN; Dr Alex Otti, Former GMD, Diamond Bank; Mr Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry (LCCI) and Dr Obadiah Mailafia, Former Deputy Governor of Central Bank of Nigeria.
After the welcome remarks by the Editor-in-Chief of Vanguard Newspapers, Mr Gbenga Adefaye, he introduced former governor of the Central Bank of Nigeria, CBN, Prof Soludo for his keynote address which set the stage for the rescue mission.
Soludo : It will take a miracle to exit recession by 2023
The erudite economist that he is, Soludo held the audience spell-bound for about 30 minutes with his dissection of the nation’s challenges, his opening remarks however made it clear that they were all on citizen duty when he said: “for the good of our country, Nigeria needs all hands on deck to pull the country out of the crisis that it is in.”
He pointedly accused the political class for the failure of the economy, noting that the present administration which inherited a bad economy from the immediate past government has worsened it through a policy style of command and control as well as demand management and exchange rate control which has wrecked havoc on business confidence, resulted in massive capital flight and worsened macro-dividends in the last two years.
“I hope that at the end of the exercise today, we will be able to nudge our leaders and planners in the right direction,” he said.
To set the tone for his address, Soludo read quotes from Prof Ango Abdullahi, a former education minister and spokesman of the Northern Elders Forum, a think-tank for the 19 Northern states and Mallam Nasir El-Rufai, Governor of Kaduna, whom he described as two voices that must know what they are talking about.
Prof Ango Abdullahi – On the state of the nation: “After 50-60 years the Nigerian project is not working despite everything we went through – constitutional conferences, everything is at a standstill. It is unfortunate we are still where we were after 50 years of independence and have not been able to move away from where our colonial masters left us.”
Gov Nasir El-Rufai – In a memo on performance of APC government: “These inherited problems were aggravated by the continued slide in crude oil prices and the renewed insurgency in the Niger Delta that reduced oil production by more than 50 per cent. These however are merely the symptoms and simplest explanations of our current economic problems.
“However, we cannot after more than a year in office continue to rely only on this blame them explanation. We were elected precisely because Nigerians knew that the previous administration was mismanaging resources, engaging in unprecedented waste and corruption.
“We must therefore identify the roots of our enduring economic underperformance as a nation and present a medium term national plan and strategy to turn things around; we have no such clear roadmap at the moment.
“In my honest opinion, we have made the situation worse by failing to be proactive in taking some political economic and governance decisions in a timely manner. In very blunt terms Mr. President, our APC administration has not only failed to manage the expectations of the populace but has failed to deliver even mundane matters of governance outside of our successes in fighting Boko Haram insurgencies and corruption. Overall the feeling even among our supporters today is that the APC government is not doing well,” Soludo quoting El-Rufai.
Soludo pointed out that the government seems to have woken up to its responsibility of reviving the economy with the unveiling earlier in the week of an Economic Recovery and Growth Plan (ERGP); he noted that this will at least serve as a document to frame policy discussions around.
He however questioned the focal objective of the plan: “Is it a plan for a transition to a post primary commodity economy or is it more of the same? In other words, is this Plan a response to questions raised by Ango Abdullahi and El-Rufai as well as millions of other patriotic Nigerians who have called for a sense of direction for the ship of state?
In his diagnosis, most macro variables have worsened in the last two years: inflation from about 9-19 per cent; exchange rate 197/215 to 305/455; unemployment from 7.5 – 14 per cent; GDP from 2 per cent to minus; capital market capitalisation from N11.685trillion in May 2015 which was about USD54billion at the parallel market rate to N8.658trillion and USD18billion at the parallel market rate; daily trading has coming down from N11billion to about N1billion or less which is barely about USD2million today.
“Foreign reserves remain depleted and the current account balance is negative, savings and investments rates are very low and sovereign credit ratings have worsened. Asset values have collapsed and Nigerian workers have suffered a double whamming through the effective reduction in nominal wage due to delayed salaries and inflation going over the roof.”
On fiscal policy, he noted that the federal government continues to spend over 100 per cent of its revenue on current expenditure, just exactly as was done by the previous government.
He said Nigeria was now in the red alert column under the fragile states index.
“Let me make a point that many economic analysts miss namely: that in domestic currency terms the Nigerian economy is in a recession, but in the USD terms the economy has suffered a massive compression. Depending on the exchange rate we use, the size of Nigeria’s economy (GDP) has shrunk from N575billion to N354 at official rate and N232billion using the parallel rate and Nigeria has again lost the first and second position in Africa’s ranking.
“Think about this, in the previous 16 years Nigeria’s GDP more than doubled, in less than two years depending on the exchange rate we use we have more than reduced the value to less than 50 per cent in USD terms, and we argue that we would get out of the recession any moment from now if oil price goes up, but it will be a miracle if the government will be able to return the GDP in USD terms back to the level it met it even in 2023,” he said.
He noted that government policies were majorly focused on the micro side of the economy which has massively affected macro growth.
“For example while fixated on stopping the importation of toothpicks and preventing petty traders from taking dollars to import, we have created havoc that has shut down many factories, closed capacity utilisation as well as ignited massive capital flight and halted capital inflows. With the attendant impoverishment of millions, escalating unemployment; put simply we have missed the macro picture,” he said.
Stressing that the Nigerian economy was plunged into an avoidable recession the former CBN boss noted that policy makers rather than admit their errors point to other external factors as being responsible for failures.
“We sought to rewrite macro-economics for Nigeria, but sadly the hapless millions of Nigerians have been made unfortunate guinea pigs.
“The lesson is that a claim to Nigeria’s economic exceptionalism is false, Nigerians like economic agents everywhere respond to incentives and sanctions, furthermore the pseudo intellectualism framed around infantile and insular nationalism does not offer a practical template for prosperity in the 21st century,” he said.
Nigeria he said has also failed to learn from the boom and burst cycles of oil prices by treating oil and quantity fall as temporary while treating a rise as permanent. This he noted has led to the adoption of coping strategies while waiting for oil prices to rebound.
Prof Soludo added that economic diversification which has been mouthed by every government since independence has never being given a coherent strategic plan up till now.
The keynote speaker stressed that Nigeria needs and does not yet have the plan to transit to a post primary commodity economy.
“My key point is that the macro-economic framework will remain dicey until we remove the huge uncertainty and obesity surrounding our exchange rate regime. The plan as packaged is a good effort but in terms of our expectations as a plan for our transition to a post oil economy as promised by the APC it is a plan to consume the oil and not one to restructure. With rising oil prices and output the economy will recover and grow in spite of the ERGP and not because of it. It will take the next oil/ commodity shock for us to lament that we should have had a plan to transit from oil dependence,” he said.
Nigeria plagued by blind spots – Mailafia
In his diagnosis of the Nigerian economic malaise, Dr Mailafia opined that the country was plagued by blind spots which needed to be brought into focus and addressed adequately to stem further wastage of national resources.
“We have forgotten that many of our cities are no longer involved in regional and urban planning. Again, our young ones, no longer have a voice. If we don’t build for them, if we don’t provide a platform today, we will not have a tomorrow. We need to emancipate our women who are greater in number and reintegrate them into the national polity; also social policy like typical of many other policies is done without clarity of purpose,” he said.
He noted that today many youths were unemployable due to lack of requisite skills and education for productive work, stressing that Nigeria needs to vigorously pursue industrialisation through the promotion of innovation, technology acquisition and development or be ready to face the dire consequences.
“To me the elephant in the room is the quality; competence and attitude of the public service, the days when we had an efficient public service are gone,” he said.
Confidence lacking to drive private sector investment– Muda Yusuf
In his observation, the private sector advocate noted that an economy in recession cannot do without private sector investments, stressing however that confidence which is a key driver of investments was missing due to the state of the government controlled business environment in the country.
“Exchange rate policy is very central to getting investors to come in with capital and this has had a number of effects in the last two years. We also have transparency issues and underhand dealings across the entire chain of the foreign exchange market.
This he said has led to disincentives for capital inflow; loss of credit lines and has created a huge incentive for round-tripping.
Yusuf advised government to fix liquidity issues and move away from selective intervention in the foreign exchange market and liberalise foreign exchange inflows.
He also pointed out that the current monetary policy regime was not supportive with interest rates at 25-30 per cent domestic investors have been effectively denied any chace of meaningful participation in the economy.
Yusuf noted that the commercial banks now also preferred to borrow to the government through treasury bills at 18-20 per cent at zero risk, a situation which has left nothing available for the private sector to borrow.
He also advised government to exercise restraints in the restriction of certain imported goods as these restrictions were driving up costs leading to inflation which is a major cause of poverty.
Pay good wages to re-inflate economy – Issa Aremu
After a critical examination of the Nigerian situation, Comrade Issa Aremu, a member of the National Executive Council, of the Nigeria labour Congress, was of the view that the wages of the workingclass needed to be reviewed to bolster purchasing power which was critical to re-inflating the economy.
In calling for a review of the minimum wage of N18,000 he said: “Recovery and productivity cannot be driven without a well-paid, well-motivated workforce.”
He advocated for the payment of good wages as a way of increasing purchasing power and re-inflating the economy.
“Pensioners should also be paid as and when due because they spend their money here in the country and not on holidays and vacations outside the country,” he said.
He commended the government for returning to the path of a planning, stressing that the bane of Nigeria’s development has been the absence of a roadmap.
“We need to be talking of not just the economy but political-economy because with all its limitations the 1999 constitution is clear and direct about the direction and thrusts of the economy which states that government will harness national resources to promote national prosperity, government will ensure plan and balance in developing the economy and of course make sure that they promote the welfare of the people and we should relate the ERGP to that.
“The only thing I want to add to that is that we must also do planning within the context of a vision; if there is no vision we will be operating blindly. We need to improve on the ERGP to know where we are going in the next 10-20 years,” he said.
He noted that there was yet to be any practical commitment to real diversification of the economy, stressing that it still harps much on the oil & gas sector and less on manufacturing and value addition.
He advised that budgets and public spending be used to patronise made-in-Nigeria products and create more direct jobs. “Where we have comparative advantage in production, we must ban imported alternatives, instead of giving somebody foreign exchange to go to china to buy fabrics that cannot last, why not give it to Nigerian textile mills to develop,” he said.
Nigeria needs political restructuring– Otti
Dr Otti brought another dimension to the rescue mission when he noted that Nigeria’s economic woes will not go away except there was a critical review of the current political structure with overwhelming running costs.
He radically advocated for a drastic reduction in the number of states from 36 to just six and the downsizing of the number of political office holders in the executive and legislative arms of government at all levels.
“We can’t afford the number of legislators who take fat allowances and work only three times a week. I believe that this country does not need more than six governors,” he said.
He pointed out that Nigeria was not in a recession but in stagflation which is the result of added inflation.
He cautioned against restrictive policies that had inherent incentives for defaulters, rather he advocated for a realistic and competitive approach to boost local value-added production and ease the pressure on foreign exchange demand and imports.
“Central bank should be thinking of bringing interest rates down. It would encourage people to borrow, increase spending and encourage people to invest,” he said.
We need oil money to drive diversification – Fayemi
The minister after acknowledging the contributions of others made it clear that Nigeria does not intend to slacken on the development of the oil sector because of the need to diversify the economy.
“No matter how much we want to diversify, we still need oil resources to diversify, so will continue to improve on our oil & gas infrastructure to deepen the benefits that come from the sector,” he said.
He lamented that in spite of Nigeria having one of the lowest tax base in Africa, there were individuals in the country who continue to evade tax despite having the resources to meet their obligations to the state, but promised that government will continue to spread the tax net until all taxable incomes are captured.
He also reiterated as contained in the ERGP, that government will offload some of its assets in order to raise funds to stimulate economic growth get past its current state of underperformance.
According to him the major reason for the perceived underperformance was due to the challenges of transition, he noted that it will require more time that was expected to streamline all drivers of change and economic repositioning.
He assured that national plans under the present administration will work because they are linked to national budgets.
Exchange rate and subsidies, draining govt resources – Rewane
In his evaluation of the current situation Rewane drew the attention of everyone to the fact that the exchange rate and petroleum subsidies were the biggest drain on government resources, with total subsidies in the economy coming to about USD20-25billion.
He stressed that subsidies constituted a significant percentage of GDP.
H e warned the government to be wary of applying political solutions to economic issues, urging them to face the reality on ground and make the right policies as well as review the exchange rate and remove structurally induced corruption.
According to him the exchange rate and a market mechanism were two different things, an exchange rate being the product of a mechanism that comes from the market.
He said that right now the country was at the site of an accident and the symptoms are that the economy is underperforming and has been projected to grow at one per cent this year and targeted to grow at seven per cent in 2020.
Rewane noted that the ERGP has projected up to 2020, but to get to 2020 one must first finish 2017.
He pointed out the trending failure of consensus globally, citing the examples of Brexit, victory of President Donald Trump of America and even the comeback of Barcelona FC against PSG in a 4 – 0 deficit in the European Champions league.
“In modern day discourse due to disruptive innovation, the more consensuses you have the more likely they will go wrong,” he said.
In concluding, he tasked the federal government to fix electoral issues that specifically has to do with electronic voting now.
The past holds the truth – Oshiomhole
As much as the government was working to rescue the Nigerian economy from running aground, Oshiomhole noted that nothing will work except Nigerians and office holders’ first change their attitudes.
Addressing the claims that previous administrations performed better with regards to growth figures and statistics, he noted that growth is useful if it impacts on the lives of the generality of the people not just growth for growth’s sake.
He specifically took on the Keynote Speaker Prof Soludo on his roles in the past administration of Presidents Olusegun Obasanjo and Late President Shehu Yar’Adua as CBN governor and economic adviser.
He noted that one thing with policy elites, was that when they are in government they lack the answers, but when they are out they seem to know all the answers.
“I refuse to agree with those who say we shouldn’t look at the past because it is important to understand how we got here, truth is powerful.
“All the issues raised here seemed to centre on the exchange rate and how it is being managed, but to me I believe that there is no such thing about a free market, it doesn’t make sense to me and I’m not apologetic about it, every nation has central banks which manage their currencies,” he said.
“It is common sense that if prices go up, only few people will buy because people are rational they wouldn’t pay too much for something they don’t really need.
He said most people argue that the prevailing market in terms of goods and services is based on the parallel market and not the official market and that bankers were round-tripping, and the way to wipe out the round-tripping is to allow the official rate to appreciate.
“But by common sense the word parallel means that they can’t meet, if they can ever meet, they seize to be parallel.
“ It’s insulting for professors of economics to suggest to us that the real exchange rate be based on what people do under the tree and not what professors of economics and statisticians have arrived at in cosy boardrooms, to me it doesn’t do much to our credibility .
“Transparency is another challenge when talking of the Nigerian dilemma and the crisis of the elite. We need an attitudinal change, policies in themselves don’t work.
“During the administration of Late President Yar’ Adua of PDP under Prof Soludo as CBN governor, the naira had just been devalued and I got some intelligence from my comrades who work in the system, that the CBN under Soludo had just allocated couple of millions of USD to two new generation banks; and I asked Prof, this devaluation is it as a result of demand and supply, did naira simply collapse overnight or was it programmed? He said there was no need to panic that it was programmed, that they knew they were going to devalue by that particular day it was devalued.
“And so I asked him, if you knew you were going to devalue by Friday why did you auction dollar at a lower rate on Thursday?
“I accused Soludo that he had enriched those two young men to the tune of N8billion courtesy of your internal abuse.
“We cannot eat our cake and have it, a regulator should not behave in this manner, we need to deal with the issue of attitude and corruption in our exchange market.
I never devalued naira, Oshiomhole lied – Soludo
In response to the allegations levelled against him as CBN governor by Gov Oshiomhole, Soludo again took the stage to set the records straight.
He said: “Albeit that some of us if you don’t have the answer you change the subject, the situation is dire, millions of people out of jobs and it is not a situation to make light with jokes and personal attacks, I will not dignify such attacks with a response but there is one I must respond to and that is the point raised by my good friend Adams Oshiomhole.
“When Adams made the point about exchange rate being auctioned to two banks, I think that deserves a response from me and I want to say for the record that Adams Oshiomole has lied. I didn’t say he misquoted anything – he has lied and that is for the record.
“At the turn of the 2008 financial crisis, we built a reserve to unprecedented levels in the history of Nigeria and we had the liberty to defend the naira, in fact I could have left office with the naira being less than a N100 to $1 because we had a war chest, we built it and it hadn’t been done before, neither has it been done after.
“When we faced the crisis, we decided in the interest of the country to allow the exchange rate to adjust in order to save our reserves and in order for the economy not to go into a recession. The adjustment of the exchange rate, Mr Adams Oshiomhole maybe you don’t know in technical terms about devaluation and depreciation.
“There were biddings held three times in a week for forex by banks and at each bid we allocated forex to only the successful banks and at the bids, there were offers and counter offers and I was never part of it, the cut-off for the successful bids were determined at the market and it turned out that when we had that bid, the two banks succeeded, the governor did not know, we did not make any direct allocations, every bid produced exchange rates and different winners. We didn’t do devaluation as the case may be, we had currency depreciating as the market determined day-to-day,” he said.
Soludo thanked the panelists for doing an excellent job in interrogating the Nigerian situation, noting that the debate had only just begun.