Wednesday, December 1, 2021
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Wednesday, December 1, 2021

Managing the economy after the pandemic

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Obadiah Mailafia([email protected])

Last week, a Citizen Dialogue event was hosted by the Ministry of Finance, Planning and Budget to examine the fallout from COVID-19 and the implications for the budget and management of the economy. The outcomes from that exercise seem to have passed largely unnoticed by the informed public. I have always taken the view that the social and economic consequences of the global pandemic far outweigh its real epidemiological impact. The novel coronavirus pandemic has thrown the world economy out of kilter. How nations survive the economic meltdown will decide their fate in the coming years and with it the life chances of billions of people.

Several findings emerged from the Citizen Dialogue.

First, it was agreed that our GDP is likely to contract by 3.5% year-on-year for 2020, even as oil earnings decline by a whopping 90.0 per cent. Estimates for the FGN net oil and gas revenue are projected to fall by 80.0%, at N1.1tn as against the N5.5tn previously projected. Oil prices are expected to average $20 per barrel as against the budget benchmark of $57 per barrel.

Secondly, revenue from the Nigeria Customs Service has also been revised downwards to N1.2tn as against the earlier projections of N1.5tn. The revenue accruable to the VAT pool account has similarly been reduced downwards to N2.0tn as against the earlier figure of N2.1tn. States and LGAs are now projected to get N2.1tn and N1.5tn respectively from FAAC allocation instead of the N3.3tn and N2.5tn in earlier estimates.

There will be a humongous crater by way of a deficit, in the order of magnitude of N5.6tn. Government is hoping to fill the gap through privatisation proceeds of N126bn; drawdowns from the FGN Special Accounts, estimated at N260bn; bilateral/multilateral drawdowns of about N387bn; and new domestic and external borrowings amounting to N4.6tn.

From all intents and purposes, the government has succumbed to borrowing $3.4bn from the IMF relief facility. It is a moment of truth for Nigerian economic management. I have nothing against the IMF. As a matter of fact, I have always enjoyed working with and interacting with colleagues from that the Fund, whom I find wittier and smarter than their colleagues from the World Bank.  I do understand that the IMF loan comes with a three-year moratorium.  But my ominous conclusion is that it marks the end of economic freedom as we know it. Unless we are wise enough to begin saving at once to pay off Shylock as soon as we can, we may as well bid farewell to our economic sovereignty as a country.

Nigeria is not among the countries short-listed for debt relief. When we settled our claims with the Paris Club way back in 2006, one of the terms of the settlement was that we were never to come to them for any future debt relief.  If the downward spiral continues, we may sooner or later find ourselves in a debt bind.

We welcome the creation of the Economic Sustainability Committee to tackle the fallout from the global pandemic. It is to be chaired by Vice-President Yemi Osinbajo. The unanswered question is what role the Economic Advisory Council chaired by my friend, Doyin Salami. Throughout this crisis, we have heard nothing from them. I have heard from confidential sources that the late Chief of Staff, Abba Kyari, (may God have mercy upon his soul), sat on their files in a way that had not allowed the technical Secretariat to function properly.

The Nigerian Economic Summit Group (NESG) headed by my friend, Laoye Jaiyeola, in its contributions to the dialogue, estimates that the government will need some N10.1tn of intervention funds to address the economic and financial crisis, but also notes that only about N4.5tn is on the ground. This leaves a funding gap of N5.6tn which could be filled by a mixture of domestic and external borrowing and Quantitative Easing.

One thing that baffles me is the fact that the average production cost of Nigerian Brent crude has been placed at $33 per barrel, recently revised downward to $28 per barrel. The cost of production estimate has implications for the Petroleum Profit Tax.  I do not know who determines the production cost estimates for our oil sector. I know for sure that our Bonny Light is one of the best in the world. That is why it is often called “Bonny Sweet”. It is comparable to Saudi light in requiring the most minimum refining to turn it into PMS. From the figures I have, the average production cost for Saudi light is $2.8 per barrel; $16 for Kazakhstan; $18 for Russia; $20 for Venezuela; $22.91 for OPEC average; and $64 for the USA. We all know that American oil production is based on fracking technology, which is rather expensive. I need someone to explain to me why Nigerian oil production costs should be well above the OPEC average. Unless somebody is hiding something.

The President, Major General Muhammadu Buhari (retd.), also recently announced that the government will be implementing the Orosanye Committee Recommendations.  That Report, my gentle readers would recall, recommended rationalisation of more than 100 agencies and departments of government. Implementation of such reforms does not come without a cost -cost in terms of personnel and cost in terms of expenditure. The objective is to ensure coherence in the heart of the public service while reducing the cost of governance. To achieve optimal benefits, timing will be essential. I would therefore expect a methodical and systematic approach to such far-reaching reforms. And we need to integrate it into the overall project of addressing the global pandemic and its economic consequences. Timing and synchronicity are vital. At a time of crisis, we do not want to further undermine aggregate demand and the prospects for long-term growth. Rather, we should want to boost them.

The government, I’m aware, is committed to boosting the agricultural value chain, enhancing industrial production and ensuring a robust health and pharmaceutical sector. The Central Bank of Nigeria has backed these objectives with some intervention funds. But we need more robust strategies to boost employment and job-creation. One of the best ways I know to do this is through public works scheme. We should structure public works engineering projects in housing, roads, railways and sanitation that do away with the intermediation of the contractor while getting as many youths as possible to be engaged in direct labour. This will help boost aggregate demand, reduce poverty and unemployment and their attendant social ills.

One other area that worries me is the leadership and management of the COVID-19 Presidential Task Force. If the people in charge could only hear what Nigerians are saying in the streets and in the privacy of their homes, they would be totally shocked. Most Nigerians do not trust the PTF. They do not believe in the figures being bandied about and they do not believe that the PTF and its sister organisation, the Nigeria Centre for Disease Control, is working in the interest of the common good. They believe it is just a clever avenue for some people to siphon off humongous amounts of public resources without accountability. The burden of cynicism seems to outweigh even the laws of gravity.

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