With President Muhammadu Buhari’s administration inching to its twilight, a major assessment of its economic performance came last week in the form of the World Bank Nigeria Development Update (NDU) with a focus on the administration’s near misses and key policies that had under-developed the country.
With a focus on the nation’s wobbly growth, tumbling revenues, unsustainable subsidies, unmatched fiscal mechanisms, redundant monetary policies, and faulty trade policies, among many other thrusts, the report unearths the country’s pain points, making them as plain as possible. It also highlights the many near-misses of recent times while making recommendations on the path the immediate to long-term plans could follow.
On a broader view, it is a succinct narrative of the country’s economic realities and projections into the near-term future, many of which are as scary as they have always been in recent years. Though the reviews and some of the forecasts are not entirely new, the report, titled, ‘The Continuing Urgency of Business Unusual’ details the issues in a manner that gives policymakers a go-to for intellectual reconciliation.
The major thrust of the report, including PMS subsidy and the Central Bank of Nigeria’s (CBN) intervention programme, has stirred a debate among economists and development experts.
Amidst the controversy, Godwin Owoh, a professor of applied economics, noted that there is no aspect of the 100-page report that is remarkably different from the advocacy and red lights that have been raised by local experts over the years.
Owoh aligned with the World Bank on the pitfall of subsidy, saying it is clearly fraudulent, inefficient and unproductive.
“When other countries talk about subsidy, it is about helping companies, including public enterprises, to maximise their profits. But the subsidy is equal to fraud in Nigeria. Nobody understands what is being subsidised. This is the argument that has been made and we don’t need to wait for the World Bank to tell us how inefficient it is,” he said.
Owoh also aligned with the Bank’s position on CBN’s development financing. The economist expressed the belief that the interventions are major drivers of the country’s inflation, which currently stands at 17.7 per cent, and warned that they would plunge the country into a deeper economic mess.
In a previous interview with The Guardian, Owoh described the interventions as false taxation on the people as he argued that they are unearned resources and not attached to any productive engagement.
But The Guardian learnt that some of the intervention funds are sourced from cash reserves with the apex bank, which would have been part of the frozen and idle liquidity.
The World Bank report said the CBN development financing made up 10 per cent of the total credit of the banking sector as at end of last year.
The World Bank warned that escalating prices of essentials and the shock from the crisis in Europe would push additional seven million Nigerians into poverty at the close of the year.
President Buhari, in an interview with Bloomberg, had noted that the food crisis in the country could be worse without the CBN interventions. But Owoh said the interventions add to the crisis rather than reduce its severity.
Like Owoh, Henry Adigun, a financial expert also described the approach as overreaching. But a global economic consultant, Prof Ken Ife, dismissed the report as an “error of judgment.”
While Prof Ife aligned his thoughts with the World Bank report on the destructive effect Premium Motor Spirit (PMS), otherwise called ‘petrol,’ is having on the Nigerian economy, he held that the CBN approach is the best route out of the economic quagmire Nigeria finds itself.
His words: “The World Bank report is an error of judgment but I agree with the need to discontinue subsidy regime. Consumption must never be subsidised. It is a production that ought to be subsidised so the government can encourage job creation through economic activities. Spending four trillion Naira on subsidy is money thrown down the drain and that will not help anyone but will overheat the economy and create all sorts of problems.”
On the interventionist approach by the CBN, Ife said the productive sectors such as agriculture were completely ignored by the commercial lenders, who preferred to fund politicians and quick-money activities rather than sectors that create wealth and jobs.
The lead consultant with the Economic Community of West African States (ECOWAS), said there was no crowding-out effect, as the CBN does not compete with banks in the areas it channels its development resources.
He said: “It has become necessary for the CBN to do that because of market failure and the level of structural factors that are holding down Nigeria’s productive capacity. Those are the two major reasons for the interventions. We know that insecurity has worsened across the six geo-political zones of the country and that has depressed agricultural output, so we needed a response. We also know that we were spending $1.25 billion to import agricultural raw materials and related goods. That was not sustainable because Nigeria did not have that kind of money.
“Again, the whole of last year, the Nigerian National Petroleum Company (NNPC) which should be remitting about three billion dollars into the federation account has not remitted one kobo because it is now doing a direct crude swap with foreign refiners to get Premium Motor Spirit (PMS). All of these means that over 80 per cent of forex that CBN would have had to defend the Naira and support imports is not available. The diaspora remittances are dwindling, foreign direct investment not coming, and foreign portfolio investment is also not coming because there is the normalisation of monetary policy in the United States and many European countries.
“The implication of these is that all the money that is earmarked to come to Nigeria is now going back to earn higher interests in America, which has seen its inflation above 8.2 per cent which is the highest in 42 years. They are keeping this money in the U.S because it is safer there than in Nigeria. These are the things working against us. This now comes to man-management.”
Ife argued further that forex restriction of some agricultural raw materials influenced the urgent need by the bankers’ banks to fund local substitutes to strike a balance and prevent a total collapse of the economy.
He hinted that the government has given more money to the agriculture sector than the country has done in the last 20 years, saying over 4.8 million farmers have got loans without collateral.
“Only one trillion has been given to Anchor Borrowers Programme beneficiaries who have been producing the food we eat and there are complaints? I don’t understand that. More people would have died of hunger than COVID-19 and terrorism have killed if that programme was not introduced.”
On the allegation that the CBN has been unable to ensure repayment of the loans, Prof Ife revealed that the Global Standing Instruction (GSI) was launched to prevent such a hiatus.
He explained: “Every loan given out is guaranteed by somebody. So, if the CBN switches to GSI, it can sweep the accounts of people who took the loans across the banks. The bank can go ahead to also sweep the accounts of the guarantors. But the CBN has to be careful not to send wrong signals to farmers that accessed the loan. The CBN should get more farmers in the middle belt and the southern part of the country into the programme. I do not lose sleep over the capacity of the CBN to recover the money.”
On the PMS subsidy and the rising debt of Nigeria, Prof Ife urged the Federal Government to privatise the NNPC the way Saudi Arabia privatised Saudi Aramco to raise $25 billion.
Again, he said: “The situation that surrounds PMS subsidy in Nigeria is very opaque. What I have suggested is that Nigeria should consider what Saudi Arabia did. When the Saudis needed $25 billion, they did not go to the World Bank or International Monetary Fund (IMF) or any development bank, they simply determined the value of Saudi Aramco, which was over one trillion dollars, and they floated it in the market and obtained five per cent. That was how they got the money. Today, that same Saudi Aramco is now worth 2.5 trillion dollars, which is now the highest in the world.
“Nigeria should do the same. The NNPC is worth more than 50 trillion Naira if it is valued as a going concern if all the assets are added. If the Federal Government privatises about 20 per cent of that, it will read over N20 trillion. N10 trillion can be used to alleviate the debt exposure, use part of it to recapitalise the NNPC, then use part of it to pay a subsidy if the government wants to do that.”
On his part, a Financial Expert, Henry Adigun argued that the facts available do not support ‘massive rice production’ by rice farmers.
“The fact on the ground today is that Nigeria still imports about 80 per cent of the rice it consumes. It is very funny how anyone thinks rice can be cultivated amid reigning insecurity in the country,” he stated.
Adigun also said the inputs such as fertilizers and other critical implements needed to engage in farming are not available.
He further maintained that adopting an interventionist approach empowers the CBN to assume an ‘alternate government’ status that is offering services that are distorting the economic fundamentals.
On how Nigeria can get out of the current quagmire, Adigun insisted that while he is not suggesting any solution, the CBN allowing financial institutions and other government agencies to function would reset the economy and set it on the right path.
“How can all these encourage Foreign Direct Investment (FDI) to come into the country where there are four exchange rates? Investors are confronted by multiple exchange rates which breed confusion. Money is not sentimental.
“Money flows where the best return on investment is possible. Nigerian inflation did not happen when the war in Ukraine starts and it will continue to rise above the current figure because of the policies the CBN is implementing. For Nigeria to beat inflation, it must have one rate and maybe two markets. The differentials must be minimal,” he explained.
