Editorial: How not to stimulate the Nigerian economy

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When the Federal Government unveiled the 2017-2020 Economic Recovery and Growth Plan (ERGP), the other day, anticipating the economy will climb out of recession and grow 2.19% this year, a certain appreciation of the urgency needed to deal with the economy could be deduced. Unfortunately, in the statement by Akpandem James, media adviser to Budget and Planning Minister, Sen. Udoma Udo Udoma, the ERGP was long on platitudes - achieve macroeconomic stability and economic diversification by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. There were little details on how the ERGP, would increase oil production to 2.5 million bpd and make Nigeria a net exporter of refined petroleum products by 2020. This, on its surface, does not inspire confidence, given the Niger Delta militancy and Nigeria’s addiction to oil imports. Beyond restoring economic activities and infrastructural investments, the priority of any economic recovery plan should put Nigerians back to work and feed the nation.

The ERGP also aims to increase export earnings and government revenues by an additional N800 billion a year, in the next three years. Under the plan, the government expects to earn N35 billion from selling national assets, including oil joint ventures and reducing stakes in oil and non-oil assets. The government said it would review and possibly remove the ban on accessing foreign exchange for 41 goods and services. Nigeria hopes to improve tax collection to raise N350 billion per annum, in part, by raising the luxury goods tax to 15% in 2018 from its current 5%. The goal is to increase the overall tax to GDP ratio to 15% from 6%. In agriculture, the government wants self-sufficiency in rice by 2018 and wheat by 2019, and hopes to be a net exporter of rice, cashew, groundnuts, cassava and vegetable oil by 2020.

 Even as the ERGP was being unveiled, the Central Bank of Nigeria (CBN), released another $100 million into the interbank market, pushing the exchange rate at the parallel market down to N440/$. It is hard to fathom how this latest dollar injection by the apex bank, which brings the amount so far pumped into the interbank forex market within the last two weeks to $1.14 billion, will help stimulate a comatose economy on life support as inflation returns to double-digits. This rise in inflation is not the orthodox principle where too much money chases fewer goods. As it were, there has not been too much money in the economy to chase the goods on the shelves. The high inflation is the reaction of the market to the relationship between the Naira and the US dollar. The market is reacting to the fact that the rate at which Naira can buy one dollar has significantly increased in the official foreign exchange market. The variation in the parallel market is even much higher.

Given the socio-economic situation the country is in now, government should avoid any policy that will call to question its integrity and erode the confidence of the people. What has happened or is happening is that Nigerians are hurting from the worst economic recession in decades and it is hoped that good enough lessons can be drawn from it. First, the high dependence on foreign goods and services is very unhealthy for economic stability, growth and sustainability. Nigeria’s business relationships with other countries have consequences for the economy and society. Second, it draws attention to the need for self-dependence and self-sufficiency, at least in food, to prevent exogenously induced economic shocks. Third, policy frameworks, irrespective of how robust they may be, can be defiled by market expectations of, and reactions by economic agents.

Without losing the objective of stimulating the economy, it is imperative that the government must ask itself some key questions. For example, how best should the fiscal stimulus be deployed; on which areas should attention be focused and what are the timelines within which to expect results? It is germane that if actually government is ready to stimulate the economy, the immediate focus should be food production. As evidenced from a recent report of the National Bureau of Statistics, inflation in the food sub-sector of the economy was high compared to others. As it were, food is a basic human need. To address the most immediate needs of the citizenry, therefore, food production should be a priority of the government. Properly injected, the stimulus can have a measure of positive impact not only against the level of poverty and hunger but also towards the moderation of inflation, foreign exchange rate and unemployment rates as well as conservation of foreign exchange.

Now, it needs to be emphasized that the injection of money into the economy is not necessarily the main challenge at hand. The real challenge is the preparations that have been made to ensure that such funds are injected into the areas of the economy that have the best opportunities in producing the greatest results. For example, the need to kick-start the textile sub-sector of manufacturing in Nigeria cannot be overemphasized. The necessity to diversify a mono-product-economy and combat smuggling as well as indiscriminate dumping of foreign textiles and garments in the Nigerian market is indeed compelling. The Nigerian cotton, textile garment and tailoring industry is in dire need of urgent repositioning and transformation to be driven by modern technology.

There are textile plants in Abeokuta, Ibadan, Lagos, Enugu, Aba, Onitsha, Kano, Kaduna and Sokoto to name but a few. Close studies of the existing textile garment and tailoring companies show that they are all still operating below capacity. In providing stable power and access to finance through the Bank of Industry, the ERGP must emphasize as much as possible the production of quality seed for cotton farmers through credit bonus and incentive. Textile designs as an industrial sector that include weaving, spinning and fashion technologies should also be private sector-driven, in order to promote small and medium scale entrepreneurship. The ERGP should enhance prioritization of skills development and internationalization of the sector while solving the problems of inadequate infrastructure and financing, informality, distortion, lack of access to international markets, smuggling and dumping.

Stimulating and reviving the economy quickly before Nigerians become more distrustful is a major challenge. Government should start by developing a peoples’ economic agenda with practicable operational or implementation framework. That is, unlike the ERGP, the agenda must be built around the self-determined needs of the people so that they can take ownership of ensuring realization of the intended objectives. To attain such agenda will require a bottom-top approach beginning with local governments coming up with their economic development plans. State governments collate, fine-tune the outcomes from their local governments and produce state economic development agenda.

All the states will submit their agenda to the Federal Government, which collates, fine-tunes and harmonizes the issues nationwide. It is imperative that what is unique to each state is retained for the state. The harmonized position at the federal level becomes the national economic agenda. This then should be implemented, across the length and breadth of the country, under an easy-to-understand practicable framework, with in-built performance milestones, measurement criteria, monitoring and feedback systems. To make it more manageable, the agenda can be crafted to focus on short, medium and long-term deliverables. This approach enlists the citizens as de facto owners and drivers of the agenda. The outcome from such citizens developed, owned and implemented agenda, will not only enhance productivity and cause inflation rate to trend downwards, it will also impact positively on other economic and social indices, including foreign exchange rate, interest rate and unemployment rate. The ERGP therefore amounts to putting the cart before the horse and is doomed to fail.