Several markers and official responses in the last week demonstrate the unfolding turmoil in the economy and the uncoordinated response of President Bola Tinubu. While the naira exchange rate rose to N870 to $1, and the pump price of petrol to N617 per litre, inflation rate in June was reported at 22.79 per cent. Food inflation was even higher; and external reserves are headed for another dip on the back of unmet crude production targets. Tinubu then declared an “emergency” in food security, ordered the release of grains, and reviewed his earlier “palliative” plan. Ominous clouds are gathering and the administration may be ‘losing the plot.’
It must change tactics and re-strategise to avoid pushing the economy into an unstoppable tailspin. Signs of chaos are already visible. The divergence between the Central Bank of Nigeria’s official Importers and Exporters Foreign Exchange Window moved close to N100; while the I&E FX window closed at N777.82/$ on Friday, the rate at the parallel market moved from N850/$ to close at N870/$. The aim of merging rates through “market forces” is floundering.
Economy-wide, the turbulence triggered by Tinubu’s stoppage of petrol subsidy in his first hour in office rumbled ahead midweek when pump prices per litre jumped from N500 to N617. Inevitably, this provoked further hikes in transportation costs and general inflation.
The National Bureau of Statistics suggests impending record high food inflation this month; it had risen from 22.85 per cent in May to 25.25 per cent by June, a 2.40 per cent increase. The NBS cited higher prices of cereals, bread, oil and fat, fish, meat, potatoes, tubers, vegetable, milk, eggs, and cheese.
Market surveys by the media suggest higher inflation rates than the official data. In the urban centres, many commuters have taken to trekking to and from work and markets in the face of prohibitive transport fares.
Despite promised savings from the subsidy removal, foreign reserves dipped further to $34.22 billion by June 26, according to the CBN, down from $37.07 billion on January 3.
The anguished cries of the masses have conflated with those of the business community that had voiced premature optimism at Tinubu’s radical decisions.
But as The PUNCH had previously noted, bold, decisive measures are very desirable to revive a gasping economy, but they must be well-thought out, the fallout prepared for, and all critical stakeholders carried along. Critically, the measures must stimulate productive activities, preserve existing, and create new jobs, and improve the general welfare of the greatest number.
In applying shocks, prior and accompanying policies must be put in place to enable the businesses, especially MSMEs, and the most vulnerable segments of the population to absorb the aftershocks.
For an economy in the rut, experts recommend robust fiscal and monetary measures to provoke investment and productivity by the private sector. Investopedia says, “Economic stimulus relies on encouraging private sector spending to make up for loss of aggregate demand.”
The flurry of responses by the government demonstrates that Tinubu neither undertook a critical assessment of the economy nor the implications of his hasty subsidy removal, and the unification of the naira exchange rates.
First, he lunged for the $800 million negotiated with the World Bank by his predecessor to be used for “palliatives;” then, the discredited cash distribution scheme under which 12 million “poor households” would receive N8,000 monthly for six months; declared “a state of emergency” on food security, and the release of fertiliser and grains to farmers and households “to mitigate the effects of the subsidy removal.” These should have come earlier.
By weekend, he opted to review the cash transfer plan. The National Economic Council – made up of the Vice-President and the 36 state governors – dumped the fraud-ridden register used by the preceding Muhammadu Buhari administration to be replaced by state-generated registers as part of the palliatives.
Lack of a comprehensive plan, an economic management team, and proper diagnoses are dangerous. Panic is setting in. Even the optimists hailing his impetuous moves are fretting. Already, the IMF forecasts over 7.0 million more persons to fall into extreme poverty.
Reality has hit business operators. Faced with exorbitant forex rates and scarcity, and higher costs from fuel prices, the OPS warned of imminent further job losses, business shutdowns and general hardship if the trend continued. As The PUNCH had predicted, the disarticulation of the Nigerian economy and the failure to take proactive and simultaneous measures could cause endless fuel price increases and consistent naira devaluation.
Francis Meshioye, President of the Manufacturers Association of Nigeria, admitted, “When subsidy was removed, most people were of the opinion that the change was going to be a one-off, not a skyrocketing one.” Gabriel Idahosa, Deputy President of the Lagos Chamber of Commerce and Industry, added, “In the near term, there will be a lot of hardship. A lot of small businesses will crumble completely. There will be a drop in production capacity.” For the Association of Small Business Owners of Nigeria, the fallout represents a “sledgehammer” that would annihilate SMEs.
But these were inevitable. Prices of petrol will likely remain high because it is imported, as high exchange rates guarantee higher domestic prices. Besides, prices are subject to the vagaries of the international crude oil prices. With these matrixes in play, there is no end to high petrol prices.
As for forex, Nigeria’s major export is crude oil. The NBS insists that crude oil and gas still account for 95 per cent of export earnings though they contribute only 6.63 per cent to GDP. With industrial goods exports so repressed, the government is overwhelmingly the major supplier of forex to end-users. This reduces the volume of dollars available and facilitates manipulation. Unfettered market forces are therefore absent to moderate an appropriate rate since there is a perpetual mismatch between supply and demand.
It is not too late to stop the free fall. Tinubu should engage more with Nigerians. For instance, as SMEs make up 96 per cent of businesses in the country, provide 84 per cent of employment and account for 48 per cent of GDP, they are more critical to revitalisation and should be exhaustively engaged when making those seismic decisions.
Critical thinking involves cost-benefit analysis. System-wide, petrol prices have an outsized impact on Nigeria’s economy; but Tinubu swallowed the illogical fiction promoted by the World Bank/IMF and parroted by local “experts” that subsidy did not benefit the poor. It did; by its trickle-down effect on transportation and production costs and on inflation. The government should have withdrawn it in phases, removed government from the downstream sector, stopped the massive looting of the funds and privatised the four moribund state-owned refineries.
Tinubu should break with the ridiculous dollarisation of the economy where government converts its own dollar earnings to naira and buys dollars back with naira.
The refineries do not benefit the 133 million poor Nigerians; the Ajaokuta Steel Company does not either, and the ports and airports are mostly running losses. Tinubu’s courage is desperately needed to stop the fraudulent turnaround maintenance of the refineries and to privatise them.
Except in times of major disasters or pandemic, an economy is revived by stimulus, not by palliatives. The palliatives are inadequate, cannot reach all those in need, and the funds are invariably embezzled. All such previous measures failed, while more people are slipping into poverty. Well-planned and implemented stimulus on the other hand helps achieve recovery.
The N500 billion the government is borrowing, or the $800 million World Bank loan will make more impact when channelled to SMEs, small holder farmers and support to the states for basic rural infrastructure.
There should be urgent steps taken to overhaul the Apapa Ports access roads where 65 per cent of the country’s maritime trade passes through, complete the Lagos-Ibadan Expressway and reform the power sector.
Instead of misdirected loans, Tinubu should block revenue leakages: many wealthy persons pay little or no taxes; over 60 public agencies refuse to remit funds; the $62.5 billion judgement debt owed by IOCs remains uncollected; Stamp Duty revenue is withheld by banks, and the federal and state governments and legislatures continue to run huge, unproductive bureaucracies, fleets of expensive vehicles, engage in frequent travels and live in luxury at public expense.
Quickly, Tinubu should send a bill to the parliament repealing the Railway Act 1955, and roll out incentives for large and modular refineries to end the shame of importing refined petrol by a major crude oil producing country. The Nigerian National Petroleum Company Limited should be probed and truly reformed, and its leadership swept aside.
Tinubu was obviously prepared to acquire power but he did not prepare adequately for governance. He should shift positively into fast gear; appoint a capable, incorruptible economist as the CBN governor, ministers and a strong EMT.
He should fix his eyes on security, without which farming and businesses are hampered.
He should realise that Nigeria cannot prosper until it returns to operating like a true federation where the states would control their resources, with autonomous economic plans and targets for growth in diverse sectors, job creation, production, and exports. He should lead the campaign for restructuring.
The government should re-examine its plan to raise public sector workers’ pay; it may boomerang by fuelling inflation and poverty. They are only a fraction of the populace; public resources should benefit as many people as possible.
Finally, he should think policies through, consult and plan before announcing them. Nigeria should not be governed by spur-of-the-moment decisions.
PUNCH
