Published in Economy
The challenges of coronavirus and dwindling oil price are aching Nigeria’s economy. Things may also get worse if not managed well. The situation would stimulate negative growth, worsen foreign exchange and increase unemployment. Also, the crises will reduce federal allocations. This means unpaid wages, limited capital spending at all tiers of government. By extension, the crises will impact Nigeria’s private sector and increase poverty.
June 17th, 2020
The challenges of coronavirus and dwindling oil price are aching Nigeria’s economy. Things may also get worse if not managed well. The situation would stimulate negative growth, worsen foreign exchange and increase unemployment. Also, the crises will reduce federal allocations. This means unpaid wages, limited capital spending at all tiers of government. By extension, the crises will impact Nigeria’s private sector and increase poverty.
The Economic Sustainability Committee (ESC) established by President Buhari reiterated these in its new plan. NESC has predicted that economic growth could fall from minus 4.4 percent to minus 8.91 percent (– 4.4% to – 8.91%). The committee says if oil revenues stay at $30 per barrel, the FAAC allocation for the rest of 2020 will be around ₦485 billion per month. Last year, the average monthly FAAC allocation was ₦669.9 billion.
The consequences of this are unimaginable for an already distraught economy. Currently, unemployment stands at 33.6 per cent. This means 39.4 million people are without jobs. It also implies a 86 percent increase in the unemployment figure which was only 23.1 percent in 2018.
Moreover, household income in Nigeria is still very low. The National Bureau of Statistics revealed 4 out of 10 households earn less than ₦137,000 per annum. This converts only to $380 at the official rate and $311 in the black market.
Nigeria also has the most poverty, with over 80 million of its population living below the poverty line. Inflation has also been on the rise in Nigeria.
To salvage the crises, the Economic Sustainability Committee’ mandate was to define an economic sustainability roadmap. The roadmap is in response to the challenges posed by COVID-19 pandemic.
Yes, the committee recommended measures. But, it also noted the measures will only lessen the impacts of the pandemic. They will not end the impacts.
NESC proposal centres around improving foreign exchange, reducing unemployment and driving sustainable growth. To achieve this, the committee has recommended increased local production and consumption. The focus is to expand agricultural production and engaging youths in farming and agro-allied jobs.
Other projects in the sustainability plan include infrastructure development – housing, and power. Expanding social safety net, giving support to businesses.
Improvement in digital technology made the list. The support is to increase digital learning. By implication, this will increase access to education for school children. Digital technology is also expected to aid local production.
The same sustainability roadmap is specific on improving digital identification of every Nigerian. It predicated this on improving government support to the most vulnerable Nigerians. Of course, the efficient distribution of palliative is another reason
Then, there is medical research and development. One is to promote strategic investment in the local manufacture of generic medicines. Another is to establish a national research fund for medicine and pharmaceuticals,
Above all, the sustainability plan recommended the promotion of FGN savings bond.
To support the delivery of these strategies, NESC has proposed a stimulus of ₦2.3 trillion. This will “lessen economic decline to only minus 0.59 percent. It noted that without stimulus, the economic decline will be minus 4.4 percent.
How does it plan to finance the proposed ₦2.3 trillion stimulus?
₦500 billion will come from special accounts.
CBN structured lending will provide another ₦1.11 trillion
₦384bn will be from external bilateral and multilateral sources.
Haha, the remaining ₦304 billion is from other funding sources yet unknown, at least to the public
Priorities of this stimulus will be the private sector and the business community, the health sector, and infrastructure delivery.
Although the framework appears a positive response strategy, some components raise concerns. For instance, how does the roadmap intend to out-do previous frameworks with similar ambition?
Another concern bothers on the accountability framework around the sustainability plan. NESC designated ministers to supervise the implementation of plans in their respective ministry. This will involve a ministerial implementation committee chaired by the Finance minister.
But this implementation structure appears problematic. Recall that last year, ICPC documented a high level of corruption in ministries. Yes, the ministers remain the supervisors of the same ministries
Strict accountability are important during this period of increasing needs and limited resources.
Another concern is the source of the proposed ₦2.3 trillion stimulus. Three things raise questions on the proposed sources for the stimulus.
First is the relative ambiguity of some of the funding sources. The government should provide details on the special accounts where ₦500 billion is coming from. Moreso, sources of the other ₦302.9 billion should be open to the public.
The bold reliance on bilateral and multilateral sources for ₦334 billion is troubling. This may pose a threat to the realization of the roadmap. What becomes of the sustainability roadmap if the lenders do not provide the expected sums? Especially due to simultaneous economic devastation in other countries that also need support at such a time.
The third concern bothers on the recurrent question on Nigeria’s debts. Almost half of the proposed stimulus will come on loans. These loans will add to Nigeria’s burden of debts. Remember that in March, the Senate raised alarm on Nigeria’s rising debt profile. Also, there has been a continuing discussion on the implications of the rising debts under President Buhari’s watch.
An Expert Speaks
Mr Atiku, a policy analyst, said the spirit of the economic sustainability plan appears fantastic. But the process of implementation is itchy.
“The plan appears to be more of tokenism than a comprehensive response framework. It is not different from the 2016 Economic Recovery and Growth Plan that could not effectively lift Nigerians out of poverty”.
On the positioning of the plan, Atiku noted that the economic sustainability plan emphasized expenditure measures without definite revenue measures. “At that, the plan failed to define how its interventions will meet the purpose of its designed.
He recalled that over 99 percent of generated revenue in the first quarter of 2020 went for debt servicing. Likewise, payment of salaries, overheads, and project costs are on debts since the beginning of the year.
Beyond this is a perceived ineffectiveness of the stimulus size. In his words, Atiku noted that the economy had depreciated by about 24 percent even by conservative estimates. The effect of the pandemic spans the aviation, transportation, hospitality, logistics, and support sectors of the economy. Many ventures in these sectors have been completely paralyzed. Thus, to re-inflate the economy, more stimulus would be required. In his view, at least ₦7 trillion should have been provided as a stimulus.
On another ground, Atiku observed that the intended fiscal measures have not been properly-suited to deliver the best at such a time. First, he commended the planned investment in housing, alternative energy, among others. But was quick to note the plans do not reflect Nigeria’s true context.
According to him, the housing intervention may not adequately redistribute wealth to the most vulnerable. But may return it to the hands of the rich.
Developing 300,000 new housing units is significantly low. A mass housing program is preferable. The multiplier effect would be cross-cutting and impactful.
Atiku further berated the sustainability plan for its failure to adopt a futuristic approach in its design. The plan did not articulate diversification measures in line with global technological trends. For instance, Atiku noted that improvement in battery technology will continue to retract demand for Nigeria’s crude. It is expected that the plan defines an approach for economic diversification.
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The challenges of coronavirus and dwindling oil price are aching Nigeria’s economy. Things may also get worse if not managed well. The situation would stimulate negative growth, worsen foreign exchange and increase unemployment. Also, the crises will reduce federal allocations. This means unpaid wages, limited capital spending at all tiers of government. By extension, the crises will impact Nigeria’s private sector and increase poverty.
