NIGERIA; IN SEARCH OF THE “BIG PUSH”

                                                                 

By: Abiola Rasaq

There is no point reeling out some macroeconomic data at this time because they are already stale, even to the least expected class of Nigerians. Fishermen, farmers and herdsmen have overnight become “renowned economists”, advocating divergent economic theories to address the current quagmire that continues to deepen poverty levels in the most populous African nation.  The debate remains inconclusive, as regards the fastest and most effective way of stimulating Nigeria’s economy out of recession. The fiscal authority seeks lower interest rate environment, which is expected to enhance the much desired liquidity for all economic agents; government, businesses and households, with hope of spending our way out of this economic trough. On the other side of the spectrum sits the monetary policy authority, which “justifiably” sees nothing but inflationary threats from both currency volatility and rising consumer goods prices and thus do not mind to trade-off interest rate for exchange rate and price stability.  Some schools of thought believe the government should borrow its way out of recession, particularly through foreign loans that can improve foreign currency liquidity in the system, however some think tanks believe that the debt service burden is becoming unsustainable; about a quarter of actual revenue being used to service debt.

Recently there were calls for the sale of some prolific public assets, with hope that the proceeds will bridge the demand/supply gaps in the FX market and strengthen the external and current account positions of Nigeria. Ab initio, the government has no business being in business; a complementary argument for the timeliness of the call. Interestingly, the “conservatives” have resisted that such sale of strategic public assets will only enrich a few capitalists and deny future generations of Nigerians their inheritance. Paradoxically, as the government seeks increased revenue generation, there are calls for tax incentives to compensate businesses and households for the burden of recession and incentivise new investments that can create jobs and expand income opportunities for the jobless tens of millions – a dilemma which the fiscal authority is perhaps yet to demystify. The priority of the displaced millions in the North East region of the country is food for survival; albeit the government is spending billions on war tools to clear the remnants of the insurgents. Fellow Nigerians in the oil rich Delta are advocating for increased government spending in the region but lower oil production (resulting from militancy events) has dampened fiscal revenue to historical lows; double whammy of low oil output and weak crude oil price. The IMF forecasts Nigeria’s economy will contract 1.7% this year and only recover 0.6% in 2017; however the Nigerian fiscal authority believes the economy is emerging from recession and should recover strongly on reforms in the year ahead. Where do we go from here?

Amidst the debate, one striking consensus is that Nigeria needs a “Big Push”. Just like the Big Push Theory of Rodan Rosenstein, only a comprehensive investment package can be helpful in taking Nigeria out of the current quagmire. By implication, a certain minimum amount of resources must be devoted for developmental programs, with focus on improving productivity. Whilst notable people in the fiscal corridor say Nigeria needs to spend its way out of recession, the spending must be towards improving production, particularly because of the complexity of the current state; a mix of recession and rising inflation – the stagflation phenomenon! Whilst it is imperative to be sensitive to the pains of the low and middle income class who are the most vulnerable in the current circumstance, it will be more damaging to spend our way out of recession by stimulating consumption without a supportive productive base. 

The big question is how will the government fund its spending appetite? Whilst the debt-to-GDP ratio remains well below 15% and ranks as one of the lowest in the world, the debt service burden has been quoted to better reflect the looming “fiscal cliff”. Thus, it may be imperative to consider further liberalization of the attractive sectors of the Nigerian economy with a mix of privatization of paradoxically “worthy but idle” assets. This may also take the form of front loaded sale of future crude oil or other resource outputs through “commercially guided” forward contracts, with immediate payments, even if such will have to be at justified discounted value. Interestingly, such initiatives should open up new opportunities, competition and job creation that could give room to the long overdue expansion of the tax net. This does not necessarily mean that Nigeria cannot borrow to fund development projects but increasing the debt profile in the current interest rate environment may have more worrisome implication for the country. An alternative to open market borrowing is to leverage on the Central Bank balance sheet through a transparent PPP-led infrastructure development programme that provides funding to the government at zero or subsidized rate.

More importantly, Nigeria must always understand that there is a trade-off for every action and inaction, and must always be prepared for the outcomes of every decision taken! Whilst there is no right or wrong approach to stimulating the economy, the costs and benefits of every decision is unique!