Economy heading for recession?

…As stakeholders urge Buhari to convene emergency economic summit
By Bimbola Oyesola and Uche Usim
IT may not be good news for Nigerians that more than half of the jobs in the nation’s private sector may be lost before the end of the first quarter of this year if nothing was done to hedge the headwinds blowing across various sectors of the economy. With several companies already operating below capacity, there are strong concerns that only a few may be able to survive beyond the first quarter due to the challenges in their operating environment.
The present dark cloud over the economy stems from the fact that nearly eight months after the Central Bank of Nigeria (CBN) came up with its foreign exchange restrictions policy on 41 raw materials items, the ripple effects have turned out more catastrophic than the apex bank originally intended.
Though the CBN explained its policy aims to sustain the stability in the foreign exchange market, resuscitate local manufacturing of those items and change the structure of the economy, observers are worried that the naira’s free fall against the dollar in the aftermath of the policy pronouncement has refused to abate. As at the close of work on Thursday, the rate was already heading to over N400 per dollar in the parallel market, compared to under N200, when the restriction was implemented, raising fears Nigeria’s economy may be heading for recession soon.
The CBN had in a circular dated June 23, 2015, stated that the policy would help to conserve foreign reserves and facilitate the resuscitation of domestic industries as well as generate employment. But rather than bringing stability and creating jobs, it is killing manufacturing and taking jobs from Nigerians.
Already, stakeholders across different sectors are lamenting the looming job losses, low productivity and low capacity utilisation, among other current challenges.
Only last weekend, Nobel Laureate, Prof. Wole Soyinka, called on President Muhammadu Buhari to convene an emergency “National Economic Summit” to address the problem. But what is really not certain was whether the Presidency is thinking in that direction.
Similarly, the Lagos Chamber of Commerce and Industry (LCCI) had at the inception of the policy, warned that most manufacturers might be forced to shut down and move their operations to neighbouring countries due to their inability to access foreign exchange for raw materials and other critical inputs.
The Chamber had specifically said then that one of the downside of the policy was that it could lead to massive job losses as an estimated 40,000 Nigerians in the manufacturing sector may be laid off because resources to import raw materials are not available.
But this may have been underestimated with recent developments as operators in the food sector, which appeared worst hit by the policy, revealed that over two million jobs may have already gone in the industry with the restriction.
On its part, the Manufacturers Association of Nigeria (MAN) is predicting that towards the end of this first quarter, many of its members may close shop if the present situation prevails.
MAN President, Frank Jacobs, said unless government devices ways of making the scarce foreign exchange available to manufacturers that need it for their raw materials import, Nigeria’s economy may be heading to recession in relation to the real sector.
He said, “the outcome which will be felt very soon is the closure of more factories. If they don’t do that, we are predicting that towards the end of this first quarter, many of our members will close shop. Already, we have received letters from some of them threatening that before the end of this quarter they will close their factories and lay off a lot of workers as most of them have as many as 500 workers. That is for one company, and if that company closes down and these 500 workers are sent home, we know the social implications. I’m sure government is aware of this and we are hoping that they are going to do something because it might be disastrous for the nation.”
The MAN President lamented that the impact on the cost of production for the manufacturers who would have to resort to black market or bureau de change, would be monumental.
“That is why we are concerned, and when these become too high, it means the product will be more uncompetitive, and people may not be able to buy them. The result will be the same effect as closing down some of these factories and we hope it doesn’t happen,” he said.
But he also pointed out that, “towards the end of the first quarter, when most of these raw materials would have been exhausted, we would see that there would be increase in the prices of these commodities. I know there would be increase in the price of commodities, considering the fact that the naira now, although officially is N199, we know bulk of the people buy some of these foreign exchange from the black market far above N300.
The Nigeria Employers Consultative Association (NECA) also shared similar sentiments that the nation’s economy is in distress.
Its Director General, Olusegun Oshinowo, noted that the present administration had inherited an economy that has gone into depression, and more unfortunately at a time when the price of crude oil has been declining. According to Oshinowo, “things are really tough out there. The point about it is that the decline in our foreign exchange reserve, which has necessitated quite a number of administrative measures by the CBN, is sending businesses and enterprises to their early graves.”
The NECA DG warned that the current policy would also impact negatively on the ability of government to generate revenues as economic attributes are shrinking due to the inability of businesses to access foreign exchange.
“And we’ve began to see that from figures that are declared by the Customs in their monthly revenues. It is an open secret that there has been a decline. So if the budget is anchored on optimism, that what will be lost due to decline of revenue from crude oil will be made up from internal sources, then we have to be careful because those internal sources are coming from the same businesses being affected and are closing shop.”
He explained that NECA in recent time has embarked on a survey to determine number of companies set out for redundancy due to the share frequency of companies that are coming around to seek counsel on how to go about the redundancy exercise.
“This cuts across all sectors. There are companies thinking of 50 per cent slash on their staff strength, as a first exercise, not the final exercise. It is that bad,” he said.
Though he shared the view that CBN’s decision was borne out of crisis and not expected to be kept a long time, he lamented that it’s now getting out of hand and there could not be any better time than now for the apex bank to review the policy.
He said, “we cannot develop or evolve substitutes locally within a short time frame and that is where I will expect the CBN to come up with a critical list of the priority sectors, for which it must accord priority of allocation of foreign exchange so that national development will not really be static.”
Among the 41 items marked as “Not Fit for Forex” also include rice, cement, margarine, meat and processed meat products, vegetables and processed vegetable products, poultry chicken, eggs, turkey, private airplanes/jets, indian incense, tinned fish in sauce (Geisha)/sardines, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), iron rods and reinforcing bar, wire mesh and steel nails, wood particle boards and panels, wood fibre boards and panels, plywood boards and panels, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles (vitrified and ceramic), textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules, cellophane wrappers, security and razor wine, soap and cosmetics, tomatoes/ tomato pastes and eurobond/ foreign currency bond/share purchases.