As important as the advancements on the anti-corruption and anti-insurgency wars are, it is noticeable that weaknesses in the economy are happening at the same time.
The new template which the President Muhammadu Buhari has been careful to put inplace, though it has delayed the appointment of ministers, will surely help the government to drive economic performances when the government is fully constituted. But it is a fallacy that the economic weaknesses are a direct consequence of anti-corruption.
What is also fallacious is the tendency to do the same things and expect different results. President Buhari has been keen to avoid this. So, why is the economy under stress? The immediate reason is because the country is now earning just about half of the daily revenue it was getting from crude oil sales since oil prices resurged after the global financial crisis of 2007 to 2009.
Last November, oil prices started a precipitous fall from above $100 per barrel. In the last couple of months, the volatility of the price of the Nigerian-grade Brent Crude has been within $45 and $55 per barrel. With little fiscal savings as a buffer against the external shock of fallen oil prices, the Nigerian economy became exposed.
The effects of this exposure had started to permeate the system in the last months of the previous administration. Shortfalls in the pool of funds that is shared by all tiers of government had started to create difficulties in meeting such commitments as public sector wages, especially in the states, and payment of petroleum subsidy.
The fact that the oil price slump started around the electoral cycle made things worse.It is a moot point, the extent to which a fiscal buffer would have shielded the economy from the shock. That is not to de-emphasise the importance of fiscal savings. For emerging economies like Nigeria, fiscal savings are a shield.
But in varying degrees, commodity producers around the world are facing inclement economic conditions. At least, the economic narratives have changed for even the super savers among the oil economies.
The concerns transcend the immediate impacts of lower oil prices, especially the weakening of currencies. In this regard, the naira has lost about 22 percent of its value since last November, and the pressure for further devaluation has refused to ease.However, there is a longer-term concern that we are seeing the inception of a period of adjustments in the global economy.
With China entering a period of slower growth, which compounds the weaknesses in the emerging markets, dire economic consequences are likely for commodity exporters. Global asset prices have also witnessed disconcerting volatility of late. All of this means the outlook of the global economy is dull and it cannot be brightened by United States being the only significant spurt for global growth.
However, a deeper structural issue, at the local level, accounts for the lack of shield for the Nigerian economy against headwinds from the global market.
Oil revenue still accounts for 90 percent of government’s external receipts and 70 percent of total income. Inherent in this is the fact that the economic assets that can generate revenues for the government are untapped or little developed, apart from oil. A number of those assets have potentials to generate a significant amount of foreign exchange. But even in naira terms, tax revenue is constricted by the little progress in the formalisation of several sectors of the economy.
Therefore, a two-pronged solution is required in finding the shield for the Nigerian economy from external shocks. The Federal Government must take the lead by enacting policies, backed with unwavering implementation, to unlock the structural bottleneck to the economy. This must be accompanied by formalisation of the “informal sectors.”
A very key instrument for accomplishing the policy objective of a structurally diverse and virile Nigerian economy is trade. Trade activities map the path of production. As such, productivity incentives can be delivered through trade channels. An example for this is provision of infrastructure. But it is very much applicable to the goods and services being sold and bought.
By mapping trade, several advanced economies are able to deliver price incentives or subsidies for measurable production. By developing the trade channels, it is also easier to bring producers and operators into the tax net.
Thereby, the aggregate tax income for the government would increase. Also important for mention is that by developing external trade of Nigeria’s manufactured or semi-manufactured products, the country would ease the pressure on the naira.
Nigerian Export-Import Bank (NEXIM Bank), as the official Trade Policy Bank of the Federal Government, has been at the forefront of advocacy and financing for Nigerian non-oil exports. While modest results have been achieved, it is clear to us at the Bank that much more can be achieved in Manufacturing, Agro-processing, Solid Minerals and Services.
These are the sectors of the “MASS Agenda” of NEXIM Bank. With China in another economic transition, moving from low-end to high-end manufacturing, and consequently moving from a low-wage environment, there are opportunities for Nigeria to attract investments in the global production, manufacturing and trade value-chains. Investments in the “MASS” sectors will help create jobs and increase foreign exchange revenue from diverse and interrelated sectors.
This proposal is not new. I have been talking about it in the better part of the past six years. Other Nigerians of economic thoughts have also been talking about structural diversification of the economy. The new tonic, however, is that President Buhari has endorsed this thought. I am elated that he has gone as far as specifically mentioning agriculture and solid minerals as key areas for economic intervention by his administration.
Herein lies my optimism that the Nigerian economy is bound to resurge, irrespective of oil price making a slow climb from the current low level. The resolute leadership of President Buhari is a vista for the economic diversification agenda. Since he has bought the agenda, his policy support for it will be effective. His anti-corruption stare is now all over the place, ensuring that government’s interventions will be effective.
A prime indication of this is the significant increase in power supply since the President assumed office. While it is true that his “body language” is not responsible for the increase in generation and distribution capacities – credit rightly due to the last administration – President Buhari’s posture has proved to be the missing part of the jigsaw puzzle on how to translate the reform and investments in the power sector to more electricity supply for Nigerians.
While the current stress in the financial market must be taken seriously, one is confident that as we continue to count the things that are working — because they should work — and because the President stares down at whatever prevents them from working (including the faceless cabal), a new narrative will emerge on Nigeria. That narrative will surely drive new productive investments into the country to complement Nigerian entrepreneurs.
Even hyper-sensitive portfolio investors, including those who are likely to exit from our securities market because of JP Morgan’s removal of Nigeria from its Emerging Market Bond Index, will trail the new FDIs back into Nigeria.
Roberts Orya is Managing Director &CEO, Nigerian Export- Import Bank.
This article was originally published on Vanguard.