Digging Nigeria out of recession

It is no longer news that the Nigerian economy has plunged into recession. It is official based on the latest Nigerian Bureau of Statistics report released last week. The NBS released report showed the Quarter two GDP growth rate and July 2016 inflation rate. For the second consecutive quarter in 2016, the national Gross Domestic Product recorded a negative growth of -2.06 per cent, sliding further south from the negative Q1 growth of 0.36 per cent. A negative downward spiral of 1.70 per cent.  The NBS report also showed that inflation grew from 16.5 per cent in June to 17.1 per cent in July. An upward beep of 0.6 per cent. Unemployment rose from 12.1 per cent in Q1 to 13.3 per cent in Q2, a rise of 1.2 per cent. Recall that as of Q1 in 2015, the unemployment rate was 7.5 per cent. This simply means that from Q1 2015 to Q2 2016, over 5.8 per cent (4.63 million Nigerians) have been thrown into the unemployment market

Having confirmed that Nigeria is officially in recession and the current economic managers have continued to play ping pong with our collective destinies as a nation, I owe it as a national duty on the platform of citizen’s participation in governance to proffer my candid suggestions on the ways and means out of this gully. These are my candid and pragmatic suggestions:

Fixing and Supporting the FX Supply side: One of the key reasons why our economy haemorrhaged atrociously after the Buhari government was sworn in on May 29, 2015, was the very lame and ill-advised attempt by the Central Bank of Nigeria to hold captive the dollar/naira exchange rate at N197.5 even in the face several contending challenges, which included dwindling foreign reserves, plummeting crude oil prices and disruption in oil production by the Niger Delta Avengers. This attempt to strip the FX market of that key feature of transparency threw up several market reactions that contributed to the thinning out of the other supply sources of FX inflows into Nigeria outside earnings from crude sales. How can the Federal Government shore up and increase FX inflows from the other key supply sources including Foreign Portfolio Investments, Diaspora Remittances, Foreign Direct Investments, Export Proceeds, Loans etc?.

Yes, it may be argued that Foreign Portfolio Investors are sharks (profit hunters) and I do not think that they develop any economy but they have their uses. The Asian contagion, which they engineered in 1997 is a recent history that may make us to be wary of them. However, we have also seen their good sides in Nigeria. It was largely on the back of Foreign Portfolio Investors that Lamido Sanusi, then Governor of the CBN, stabilised the Naira when it came under pressure in 2012. He liberalised capital account transactions and allowed them to play in investment instruments of any tenors.  It was the combined impacts of the fractious elections of 2015, the ill-advised policies of the CBN to hold the naira perpetually at a price position which did not reflect its true value and our opting to be yanked off the JP Morgan Emerging Market Bond Index and Barclays Bond Index that led to the massive capital reversals combined with the slow pace of reserve accretion from crude oil sales to bring us to where we are today.

  • Increasing Diaspora remittances: It is estimated that FX inflows from Diaspora Remittances is over $25bn. This is expected to grow to over $35bn in the next one year. These Diaspora remittances are inflows from Nigerians who live and work abroad. By our communal nature and practice, these Nigerians will one day desire to come back to settle here in Nigeria. These are Nigerians who keep their FX in foreign accounts and economies where interest rate paid on deposits are less than two per cent per annum. The Federal Government through its diverse agencies and parastatals like the Nigerian Sovereign Wealth Authority, can float Infrastructure/Projects Development tied Remittance Funds that pay annual coupons of not less than five-seven per cent interest per annum in the same basket of currencies of the investors. These Remittance funds are linked online to all major foreign banks. The NSWA working with Private Sector Professionals can create and float these different tenured notes, with different yields for different basket of currencies that will attract Nigerians and neighbouring Africans in Diaspora interests to repatriate their funds back home. The design, structuring and implementation processes are too lengthy to be contained in this piece. But we are available to present it to the relevant authorities.
  • Clear-out all outstanding LC obligations: Most enterprises are closing shops as a result of outstanding FX /Letter of Credit obligations they cannot meet as a result of the sudden floatation by the CBN in May 2016. The CBN must take every step to clear all these outstanding obligations that is in her records. They must deal with every dollar demand overhang even if they have to borrow to meet every of these outstanding dollar obligations in the system. This is a key element of naira’s much needed price discovery journey and a confidence booster to investors. Let old things really pass away. This will bring the credit lines back to even out the maturities of future trades. Let the naira find its real risk reflecting value to attract investments in the form of FPIs and FDIs. All other things are in place. When a currency is priced well, assets run to it.
  • Ban whatever we can produce here in Nigeria and which we can afford to not import. Yes BAN! All countries do so. It is called self-preservation. Let’s survive first so we can be sorry later.
  • Match local importers of the banned but essential goods, with their offshore producers and provide them with production and export support subsidies and grants to produce the same competitively quality goods here in Nigeria. Yes, this can be done. It will create huge jobs and save our scarce forex spent on consumptions.
  • Carry out massive purge and reforms at the NCS: As a key part of the trade reform, the government should empty the Nigeria Customs and replace the corrupt lot there with young people. It’s a better risk. If it is official that we cannot man our borders, then outsource their care to an international border management company to operate and transfer.
  • Reform the Export Expansion grant to grow non-oil export as a complement to the recently unveiled Export Stimulation Facility of CBN/NEXIM.
  • Partially privatise the refineries. Sell off 70 per cent of the FGN equity holdings in the refineries to a consortium of best in practice private sector operators under a PPP framework. Build new modular ones under the same PPP scheme. We can’t continue to allow petroleum products consume all our foreign exchange.
  • Reduce the MPR to 11 per cent: You do not go increasing the MPR by 200 basis point to 14 per cent, when you are talking about stimulating local production and consumption. One of the reasons why the CBN increased the MPR to 14 per cent is because it assumed that it would attract foreign investors to come back to invest in high yielding government securities and in my opinion equities that are currently discounted at the NSE. They hoped that these FPIs would come with a lot of dollars to boost our dollar supply, make huge returns from investing in risk free instruments while at the same time hedge out their FX exposures with the right on Deliverable and Deliverable Futures/Forward contracts which we have also incentivised. The same FPI that we treated like the dregs of the earth a year ago.

Firstly, in my opinion, jerking up the MPR to 14 per cent is an overkill because a majority of the FPIs that we seek to attract are operating in environments in Europe and America, where interest rates are so low, some even in the negative. So, how come despite all the incentives and carrots being dangled by the monetary authorities, these FPIs are not yet coming in droves into Nigeria?

The truth and fact why they are not coming in droves into Nigeria today is because this government and her agents have destroyed market confidence. The policy flip flops have drained trust from the system. The investors know that the exchange rate is still being manipulated. Evidence? The fx rates are not moving while few trades are being completed in an environment where you have a huge demand overhang. That’s not how demand and supply was under Sanusi.

  • Finally pursue the staggered, imbedded and captive solar powered projects across Nigeria under a PPP framework. We can generate over 15,000 MW of green friendly Energy over the next 4 years through this scheme, while attracting counterpart foreign direct investments of over $6billion for these projects. We are available to provide our intellectual support services to the relevant authorities.

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