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An Economy’s Twelve Months Of Uncertainty

As dwindling economy persists, with negative impact on the life of the citizens, uncertainties have dominated the first year of President Muhammed Buhari in office, writes Afolabi Idowu

The pressure on foreign reserves has intensified as crude oil prices continue to plunge.  There is a resultant impact in all sectors of the economy. The macroeconomic outlook is a cause for concern and there are doubts over the ability of the monetary and fiscal policies responses to yield the desired result such that citizens and other stakeholders could be happy.

At present, the foreign exchange market is characterised by high uncertainties, a situation that drives speculative trading with negative impact on investors’ confidence. Examples are the various capital tightening policies such as the restrictions of a number of imported items from being funded with foreign exchange sourced from the official window.  The real sector operators have lamented the negative effect of these policies on their activities because, according to them, most of the affected imported items serve as raw material inputs to their businesses. The result has been loss of jobs as businesses close down in droves. Industry experts have questioned the rationality in such policy measures that are now seen as capable of de-industrialising the economy.

The consequences of import prohibition are far-reaching and go beyond the narrow perspective of conservation of foreign exchange.  The dimensions of inter-sectoral linkages, employment implications, customs revenue implications, breaches of regional and other international trade treaties should be taken into account. Fiscal policy measures (taxation and import tariffs) could be used, as and when necessary, to shape the behavior of economic operators as the policy thrust of government dictates.

There is obvious slide in the economy due to factory closures, job loses, hike in the pump price of petrol which, put together, weakens the gross domestic product (GDP) which erodes investors’ confidence.  The impact is being felt across all levels of investments – large companies, medium enterprises, small business, micro enterprises and the informal sector.  The systemic significance of foreign exchange policy in the Nigerian economy needs to be well appreciated. This is partly as a result of the high import dependence of the economy, and also a reflection of the increasing integration of the Nigerian economy into the global economy.

To confirm this, the Vice President of Nigeria, Professor Yemi Osinbajo said in a panel discussion at the World Economic Forum in Davos, Switzerland, last January that Nigeria, Africa’s largest oil producer, would still face challenges in financing its budget deficit and aims to increase Value Added Tax (VAT) and customs duty collection to help plug the gap. “We think with adequate governance around budget management and around expenditure management, we can do quite a bit. If we are able to do those things, we might be able to come away with under $30-per-barrel-per-day oil price,” he explained

The World Bank’s Ease of Doing Business 2015 Report ranked Nigeria 170th out of 189 countries profiled, improving slightly from 175th rank in 2014 rankings. The World Economic Forum’s Global Competitiveness Index for 2014 ranked Nigeria at 127 in 2014 compared to 126 in the previous ranking. The Corruption Perception Index also ranked Nigeria at a dismal score of 27 over 100. Also, on the Index of Economic Freedom, Nigeria ranked 129 in 2014, worse than the rank of 127 last year.  All these are reflections of the poor quality of investment climate, which if care is not taking may be worst in 2016

As a way out, the director general, Lagos Chamber of Commerce and Industry LCCI, Muda Yusuf, said a foreign exchange market characterized by transparency, liquidity and stability is imperative for rebuilding the economic growth momentum, boosting investors’ confidence, encouraging foreign exchange inflows and creating of jobs.

The recent foreign exchange policy announced by the Central Bank of Nigeria (CBN) which centres on flexible currency management, has been described as the right step in the right direction. It is instructive that the Buhari-led administration has, eventually, decided to tell itself the home truth that there was no way the economy could have been salvaged under a controlled exchange rate regime. The President had, on various occasions, maintained an opposing stance against deregulating the downstream of the oil sector as well as allowing the exchange rate to be determined by market forces.

He had argued that he would not wish Nigerians subjected to harsh economic conditions that would contradict his election promises. However, political realities cannot supersede economic realities. Nigeria is not a producing economy; that is a truth that cannot be swept aside under any guise. While we have been celebrated as Africa’s biggest economy, it remains obvious that critical fundamentals such as employment, inflation, interest rate and foreign investments have all worked against us.

The successful attempt to hike the pump price of fuel which has sparked a regime of social inequilibrium in terms of the well-being of the people has been commended by the real sector among other concerned stakeholders. This is because of the relief it will provide to Nigerians who lost huge man-hour queuing for petrol at the retail outlets and, in most cases, at exorbitant prices. This new system is believed to translate into efficiency in the management of the economy.

For failing to adopt these measures since he assumed office amid incontrovertible realities, has been described as a minus to Buhari-led government. The plethora of conflicting policy actions taken by this administration since inception did not show government under Buhari as one that was clear about where it was going. The energy invested on fighting corruption at the expense of well thought-out economic policies compounded investors’ waning confidence. The consequence showed in the Nigerian Stock Exchange (NSE) where equity prices have taken a deep plunge in the last one year as capital flight intensifies.

Recent GDP, Inflation and Unemployment reports by the National Bureau of Statistics (NBS) shows the economy walking a tight rope. Notwithstanding the huge budget of N6.06 trillion meant to reflate the economy, it is obvious that the dividend of this quantum leap in ‘audacity of hope’ will take the next eighteen months to begin to materialize. By then, the necessary adjustments would have taken place in the economy and the infrastructure deficit that had bedeviled the system taken care of.

Furthermore, persistent security challenges have kept investors away, while poor electricity supply seem to have deferred all remedies the administration think it had. Promises of better days ahead and admonition to Nigerians to bear the excruciating pains in the spirit of patriotism needed to support a government with the mantra of CHANGE which, unfortunately, has registered a boost on paper but seen uncertainty as the reality.


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