The COVID-19 pandemic offers another opportunity to initiate bold reforms that would transform the economy, writes Obinna Chima
The Nigerian economy is currently in dire straits with major economic indicators looking grim amidst increasing vulnerabilities. The disruption caused by the COVID-19, which also contributed to the significant drop in the price of crude oil exposed the economy’s weak underbelly.
Crude oil represents about 95 per cent of Nigeria’s export revenue and a downturn in the market for the commodity always has a ripple effect on the economy. These shocks tend to spook the foreign exchange market leading to a depreciation of the naira and reactive demand management by the central bank to conserve foreign reserves
The unfortunate development also has the potency to exacerbate power, unemployment and inequality in the country. Already, the International Monetary Fund (IMF) has predicted a negative Gross Domestic Product (GDP) of -3.4 per cent for the country this year, just as some of the notable international rating agencies have downgraded Nigeria’s rating.
Clearly, the development brings to the fore, the need to urgently diversify the Nigerian economy so as to create institutional structures that would insulate it from oil shocks and ensure strong and inclusive growth.
That is why the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has stressed that despite the damage the pandemic is causing to the country and other nations around the world, it presents an opportunity to birth “a new Nigeria.”
Emefiele, in a 27-page speech titled: Turning the COVID-19 Tragedy into an Opportunity for a New Nigeria,” last week, described the disruptions caused by the pandemic as an opportunity to re-echo “a persistent message the CBN has been sending for a long time.”
The message, he said, was the need for Nigerians to start looking inwards as a nation to guarantee food security, high quality and affordable healthcare and cutting-edge education for citizens.
According to him, for a country of over 200 million people, projected to be almost 450 million in a few decades, “we can no longer ignore repeated warnings about the dangers that lie ahead if we do not begin to depend largely on what we produce locally because the security and well-being of our nation is contingent on building a well-diversified and inclusive economy.”
Need for Nigeria to Be Self-sufficient
Emefiele, pointed out that when he assumed office in June 2014, importation of fish, rice, wheat, and sugar alone consumed N1.3 trillion worth of foreign exchange but the apex bank under his leadership took steps to reduce the amount.
“In line with the vision of President Muhammadu Buhari, CBN has indeed created several lending programmes and provided hundreds of billions to smallholder farmers and industrial processors in several key agricultural produce.
“These policies are aimed at positioning Nigeria to become a self-sufficient food producer, creating millions of jobs, supplying key markets across the country and dampening the effects of exchange rate movements on local prices,” he explained.
This philosophy, according to Emefiele, has been the consistent theme of the CBN’s policies over the last couple of years, just as he cited the restriction of access to foreign exchange from some items at its window.
Emefiele said: “Many times, the bank has been accused of promoting protectionist policies. My answer has always been that leaders are first and foremost accountable to their own citizens.
“And if the vagaries of international trade threaten their well-being, leaders have to react by compelling some change patterns of trade to the greater good of their citizens.
“That is why in response to COVID-19, we are strengthening the Nigerian economy by providing a combined stimulus package of about N3.5 trillion in targeted measures to households, businesses, manufacturers and healthcare providers.”
He said the measures were deliberately designed to both support the federal government’s immediate fight against COVID-19 and also build a more resilient, more self-reliant Nigerian economy.
“We do not know what the world will look like after this pandemic. Countries may continue to look inwards, and globalisation, as we know it today may be dead for a generation,” he stated.
Therefore, he stressed the need for Nigerians to support the federal government in its quest to deliver high-quality infrastructure, support large-scale production of staple and cash crops in the country and develop the educational sector, among others.
Looking Beyond COVID-19
Furthermore, he said the apex bank had designed policy response timeline to guide the management of the crisis and help in rebooting the economy.
And the timelines for the implementation of the policies have been separated into the Immediate (0-3) months, Short-term; (0-12) months and finally medium term, (0-3) years.
Emefiele explained that once the health authorities determine that the COVID-19 transmission curve had been flattened and the ongoing restrictions were eased, CBN would unfold policies to help reposition the economy.
He said the bank would reinvigorate its financial support for the manufacturing sector by expanding intervention all through its value chain.
In addition, he said with the support of the federal government, CBN would embark on a project to get banks and private equity firms to finance home-grown and sustainable healthcare services that would help reverse medical tourism.
CBN would also promote the establishment of a N15 trillion InfraCo Plc, which he said would be wholly focused on Nigeria and managed by an independent infrastructure fund manager.
“This fund will be utilised to support the federal government in building the transport infrastructure required to move agriculture products to processors, raw materials to factories and finished goods to markets, as envisaged by the CBN ‘Going for Growth’ roundtable in March 2020.’
He said the bank would also focus on four sectors to stimulate job creation.
He listed them to include light manufacturing, affordable housing, renewable energy, and cutting-edge research.
“In manufacturing, for example, it is pertinent to note that Nigeria’s gross fixed capital formation is currently estimated at N24.55 trillion, made up of residential and non-residential properties, manufacturing and equipment, transport equipment, land improvement, research and development and breeding stocks,” he explained.
Additionally, he said CBN would pursue the creation of a fund that would target housing construction for developers as well as support the financing of energy production over the next three years.
“COVID-19 may have plunged us into a crisis of unprecedented proportions, but as Winston Churchill once admonished, we must never let a crisis go to waste,” Emefiele said.
Reviewing the post-COVID-19 plan that was unveiled by Emefiele, an economist and lead consultant to ECOWAS, Prof. Ken Ife, welcomed the initiatives, saying it would help in fast-tracking the country’s economic diversification process.
Ife, argued that recent development fortuitously showed that what the CBN under Emefiele did in 2016, by introducing forex demand management and restricting access to forex for certain items from its official window, was a step in the right direction.
He pointed out that then, the CBN Governor made it clear that the revenue the country was earning was about $1 billion, which had dropped from $3.2 billion, but he was faced then with forex request of $4.66 billion.
“He tried all the macro-economic measures, they didn’t work, he also tried capital account control, which didn’t work and the country was being battered on ratings and things like that. Then, he had no choice, but to turn to demand management. Then, he was taken to the cleaners and most people were against him. But he has been vindicated by what has happened now.
“I think it is important that we look at a comparison between how these issues were handled in the 2008 economic crisis, between 2015 and 2016, when crude oil price slumped, and currently with COVID-19. These crises have similarities.
“A few years ago, Emefiele presented a five-year plan for the Bank which looked at how to open the economy and because nobody saw this pandemic coming, he has developed another plan to turn this economic hazard to economic opportunity. After all, they say necessity is the mother of invention and that is what Emefiele is arguing and there are merits in that argument,” Ife said in an interview on Arise Television.
According to Ife, the reason why the CBN has been emphasising that we ‘produce what you eat and eat what you produce,’ was actually from a perspective of demand management.
However, he stated that presently, the economy is facing a supply shock from China that transmitted to the United States, Europe and Africa. This, he said, meant that many of manufacturers in the country couldn’t get their raw materials, which also meant that many of the retailers couldn’t get their products to sell. So, that translated to demand shock and unemployment.
“Then, the second wave came when they refused to send medical equipment to Nigeria. They are restricting medical supplies and pharmaceutical products to Nigeria. And it is such a tragedy because almost 100 per cent of the active pharmaceutical ingredients we use are imported.
“But the message has always been backward integration because most of the vital materials are here. So, we had the capacity to meet our needs in terms of technology and production. So, now we are caught with our pants down because they are not supplying us the pharmaceutical and other medical equipment.
“Can you imagine that if we didn’t take the action we took on rice and we were having to import those huge volume of rice, how would Nigeria have faced the prospect that they are going to refuse to be selling rice to Nigeria?” he added.
In assessing the N50 billion fund that was introduced by the CBN to cushion the effects of the pandemic on households and firm, the economist, said that what was important about the intervention was how important it was to the order of battle.
“The order of battle was the supply shock, restriction of supply and the impact on demand, unemployment and the impact on aggregate demand. Now, when there is a lockdown, the impact is more unemployment, a contraction in demand and what you don’t want to happen is to have a collapse in aggregate demand.
“So, the first thing you do, which the central bank has done, is to provide liquidity to the banks so to ensure that you don’t convert health crisis into a financial crisis. The second thing that are also doing is to reach households. If you disaggregate the GDP, in terms of consumption, 85 per cent of its composition is household consumption. So, if you restrict consumption, you are going to have collapse of aggregate demand, which might not only lead to recession, but also depression. Then, the MSMEs account for 48 per cent of our GDP and employ 92 per cent of Nigerians,” he added.
On his part, the Chief Executive Officer, BIC Consultancy Services, Dr. Boniface Chizea, said the pandemic has made the world, “shed all pretences to globalisation, as all countries of the world, without exception, have their sights and attention focused inwards with all manner of restrictions on exports of various goods and services to logically cater for crises on the home front.”
He added: “The CBN it is now correct to conclude is an arganisation which saw the future of the Nigerian economy as it has since championed the development of capacity at home while encouraging backward integration albeit with a view to reducing pressure on available foreign exchange to better manage the exchange rate of the naira.
“It is an attempt to change the prevalent but unacceptable narrative of a country that imports what it has but exports what it does not have! The memory of the ban initially of 41 items which was subsequently increased to 43 items from access to foreign exchange we expect must still be fresh with us all.
“And particularly how the central bank was pilloried from all sides particularly from various chamber of commerce for its temerity on this account. In the near term the policies, in addition to what the CBN did in rallying the private sector to join hands with government in tackling the pandemic, included the provision of an intervention fund to the tune of approximately N3.5 trillion to be accessed primarily by sectors of the economy such as households, small and medium scale enterprises mostly affected by the pandemic including the health sector as it ramps up its capacity for containment of the pandemic.”
“This is a well thought through policy package aimed at ensuring that Nigeria optimises the opportunities inherent in the COVID-19 experience. As usual the problem has always been with implementation. In the interest of the prosperity of Nigeria and of the coming generations, may it be a different experience this time around.”
In his contribution, the Managing Director of the Financial Derivatives Company Limited and a member of President Muhammadu Buhari’s Economic Advisory Council, Mr. Bismarck Rewane, also said the present challenge provides an opportunity to reset the economy so as to unlock its potential Gross Domestic Product (GDP), which he put at $1.5 trillion.
He pointed out that the impact of the economic contraction would be severe on the country because of lack of buffers.
The economist stressed that the slump in crude oil prices presently hurting Nigeria was not necessarily because of the country’s dependency on oil revenue, but because it lacks buffers and that it policy makers did not anticipate the impact of exogenous shocks on the country.
“It serves no purpose for us to start saying the government should have done this or that, but our focus should be on how to deal with the current crisis.
“The reality is that Nigeria is a natural wealth economy and not a produced world economy. Now, this is an opportunity, and I think the federal government is fully aware of this, and nobody is deceiving themselves about that, that this is the time to press the reset button.
“What do I mean by that?
“I mean it is time to alter the levers of control of this economy to ensure that we use this opportunity to deal with the rent-seeking, crony capitalism structure that exists and allow for an economy that would respond to market forces and therefore unlock the investment potential and entrepreneur instinct in Nigeria, so as to unleash rapid growth and bring this economy to its full potential which is over $1.5 trillion. Right now, our GDP is about $400 billion,” he explained.
According to Rewane, the COVID-19 pandemic brought about a demand and supply shock simultaneously.
“There was supply shock because China was shut down and there was a demand shock because people were confined to their homes,” he explained.
From the foregoing, the consensus is that the pandemic provides an opportunity for policymakers in the country to work in harmony, on a genuine path towards initiating key reforms that would help put the economy on a sustainable growth path.