Ogun workers suspend strike after four days
The President, Major General Muhammadu Buhari (retd.); Minister of Finance, Budget and National Planning, Zainab Ahmed
NIGERIA’S economy is in trouble. From many quarters, warnings of impending disaster barring urgent and effective measures, are mounting. A report in The PUNCH detailing how the loss of 28 million barrels of crude in seven months threatens a revenue target of N9.37 trillion from oil and gas conflates with the alarm of imminent catastrophe. An emergency has emerged; the national and sub-national governments need to adopt contingency plans to save the economy.
While ordinary Nigerians and businesses feel the pain and the international community frets, the President, Major General Muhammadu Buhari (retd.), and the 36 state governors view the situation only from the narrow prism of less revenue to superintend over; they have no effective comprehensive plans to navigate the country out of the storm. Most annoying is their preoccupation with politics and the next elections and their continued profligacy.
Yet, the reality is dire. The slump in oil production, prompted by industrial scale theft, derails revenue expenditure plans since crude oil and gas still provide 90 per cent of external earnings. OPEC estimated lost production in July at N101 billion; the Nigerian National Petroleum Company says $1.97 billion was lost in the four months to April.
Earlier this month, the World Bank said the country faced “an existential threat” unless Nigeria optimised its tax system, eliminated the ruinous petrol subsidy, and tidied up the riotous foreign exchange market. The International Monetary Fund is also alarmed by rising debt and repayment amid dwindling revenues. It projects that 93 per cent of revenue will be spent servicing debt this year. Already, the Minister of Finance, Budget and National Planning, Zainab Ahmed, recently admitted that the government spent 119 per cent of revenue servicing debts. Effectively, assert some economists, Nigeria is bankrupt.
Latest figures from the National Bureau of Statistics showing inflation rising for the sixth consecutive month to hit 19.64 per cent in July – the highest level since 2005 – underscores the gravity. Food prices went up by 22.02 per cent, hitting households hard and deepening poverty. From 89 million in 2020, the World Bank projects the number of poor persons in the country to hit 95.1 million this year, retaining the repugnant title of world’s poverty capital that it snatched from India since 2018.
True, inflation is pervasive worldwide induced by the COVID-19 pandemic and lately, by the disruptions caused by the Russia-Ukraine war, and cutbacks by China, the world’s largest exporter and other leading economies. However, inflation in South Africa is a manageable 7.4 per cent (June), 13.2 per cent in Egypt and 11.89 per cent in Brazil.
On Buhari’s watch, inflation has risen by 170 per cent and the naira that exchanged at N197.87 to $1 in June 2015 exchanged at N680 to $1 last week at the parallel market. For an import-dependent economy, the crash has exacerbated inflation, raised the cost of borrowing and debt servicing and crippled businesses. Starved of forex, small businesses, the backbone of the economy, have been collapsing. Unable to repatriate funds, global airlines have started pulling out of the Nigerian market.
The energy crisis is intractable: prices of diesel, aviation fuel, kerosene and lubricants have gone through the roof. As petrol is imported, there are frequent shortages and subsidies are projected to hit over N6 trillion this year, up from the N4 trillion already budgeted.
The power sector is horrendous. Six times, the sole transmission national grid has collapsed this year apart from frequent power shortages. Billions of dollars and 23 years later, the system can only convey 4,000 megawatts for Africa’s largest economy, from just under 3,000MW in 1999.
Something must be done and fast. The Buhari regime’s tepid solutions – ill-conceived cash handouts without a reliable database, multiple exchange rates, retention of commercial assets, new taxes, and opaque subsidies among others – are not working. In fact, they are counterproductive. Rather the situation demands an emergency posture by the federal and state governments. All are bogged down by debts; a report said they borrowed N225.93 trillion in the last 20 years. Many borrow to pay salaries. Related News Economic crisis: Naira to fall further in January, says CBN report Experts proffer solutions to Nigeria’s economic crisis
Despite global headwinds, experts have long urged Nigeria to take some hard, proactive actions, leverage its advantages and dispense with political, ethnic, and religious considerations in doing so. The IMF recommends a four-point priority plan — carefully re-allocate limited resources to minimise disruptions to supply chains; adopt fiscal policies to sustain productive activities and jobs; enhance liquidity and reduce stress to the financial sector; and manage monetary and fiscal policies to curtail inflation and exchange rate volatility.
Go for the ‘low-hanging fruits’: immediate outright privatisation of the four moribund refineries, and the Ajaokuta Steel Complex; concessions to reputable international investors to run the airports, seaports and power transmission will bring in much-needed funds, free government of the financial encumbrance and attract foreign and domestic private capital. Repeal the restrictive Railway Act 1955, liberalise the rail sector and concessioning tracks will achieve the same purpose; stop the endless Chinese loans and extend the meagre 3,505kilometres of tracks with private capital.
The power quagmire should be resolved by promoting radical dilution of the shares of the current owners of the generating and distribution companies (including the government) to open the floodgates to FDI, expertise and infrastructure roll-out. States should invest urgently in power with private sector partnership, targeting mini-grids and regional grids.
States should operate as autonomous, self-sustaining economic units; attract investments in agriculture, mining, ICT, transportation, storage and SMEs. Priority should be given to rural infrastructure, job creation and skills acquisition.
The opaque petrol subsidy is powered by the even more insensate inability to refine crude locally; solving it, therefore, requires multi-prong measures. First, immediately sell the four comatose refineries. Next, stop the politically-motivated “bridging” subsidy that involves government paying to ensure price parity nationwide; then phase out the subsidy on imports with a fixed time frame.
This must be accompanied by the twin strategy of aggressively promoting private investment for quick roll-out of new refineries to join the much-delayed Dangote Refinery and the total exit of the NNPC from the midstream and downstream sectors. State participation erodes competition, encourages corruption and crowds out private investment and job creation.
A favourable operating environment will attract FDI. According to GlobalData Energy, 460 refinery projects are billed to start operations worldwide 2022 to 2026; 118 are new projects and 342 are expansions of existing plants.
The chaotic forex market should be fixed; the federal and state governments must drastically cut the costs of governance, reduce the workforce, and devote resources to supporting agriculture, mining, SMEs, and ICT.
Faced with existential threats arising from insecurity, the economy, and a dysfunctional governance structure, Buhari and the state governors should act fast to prevent the foretold implosion.
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