A former Governor of Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, has urged Nigerians to demand good governance and accountability from political leaders. Soludo made the call at “The Big Ideas Podium’’ with the theme “Nigeria: The Economics of Failure’’ of the African Heritage Institution (Afri-Heritage) in Enugu on Tuesday. He said that the…
By Ikenna Ifedobi
IT has become clear that the Nigerian economy has slipped from recession into a depression. The economy has suffered a sustained downturn in economic activity which is the textbook definition of an economic depression. To describe it as a recession, which is merely a slowdown in economic activity over the course of a business cycle is quite inaccurate. We shall attempt in this article to proffer concrete solutions and practical suggestions for short-term and long-term strategies towards bringing the comatose economy back to life. In the first quarter of 2016, the Nigerian economy for the first time recorded a negative growth of -0.36%. This means that the economy didn’t just slow down, it shrank and shriveled.
Since then it has not gotten much better. It should be understood that the Nigerian economy is the foundation for the socio-economic stability of the West African region and if Nigeria succumbs to political and socio-economic chaos, then the domino effect would immediately ripple into other African countries, especially those in West Africa. Not only would these countries experience strong and unfavorable economic shocks and supply side deficits, but they would encounter a severe social catastrophe in the form of refugee crisis. The entire West African region depends on Nigeria’s stability to not just sustain itself economically but to also exist safely. It is, therefore, imperative that the economic recovery of Nigeria be of great concern to the entire African continent as a whole.
It is essential to bear in mind that like most sub-Saharan economies, Nigeria is not your conventional economic model. The mechanism for retrieving accurate economic indices is not functional. Unlike developed states where everybody has a social security number and a means to enable fiscal accountability, majority of the Nigerian economic units are outside the fiscal radar. Therefore, while statistics may say there is 13% unemployment, in reality it’s actually 53%. While the government may report inflation to be 18% it really is 58% and rising. All you have to do is go to your neighborhood market and you would find out that prices for everyday goods have doubled and even tripled! The exchange rate went from almost 200 Naira to the dollar at the end of the last administration to a peak of 500 Naira just weeks ago. Given that most capital and even consumable goods are imported, this subsequently created a state of hyperinflation and a significant depreciation in domestic purchasing power. Coupled with the terrible power outages and deplorable business environment, many companies are closing down or leaving the country. Clearly, the current state of the Nigerian economy is not attractive for any type of foreign investment.
While this scenario may seem daunting and overwhelming, it is actually an opportunity for this administration to establish itself in the history books as being responsible for the greatest economic comeback in the history of Africa. Something like what President Roosevelt did for America during the great depression of the 1930s. It takes adept statesmanship to achieve such feats and this administration should embrace the opportunity and challenge squarely. They can change their image in the eyes of Nigeria from villains to heroes.
The basic premise for this proposition is expansionary economic policies using the fiscal authority of the government. Economic recoveries following a depression are never achieved by blind market forces but by careful fiscal planning and government adaptations. Therefore, in this case, something close to the Keynesian ideal of increasing aggregate demand through investments in key sectors of the economy using capital projects would immediately bring relief and stability. The capital projects would continue to generate long-term multiplier effects in terms of economic and GDP growth for decades to come, while the short-term effects of making these infrastructural upgrades using mainly local employment would boost aggregate demand by putting money into the hands of people who in turn spend it on suppliers. This will immediately resuscitate the ailing and dying economy, as well as improve the confidence of the people in their government. It’s a multidimensional approach that is ensured to succeed in less than two years once execution begins. From a political perspective, it also improves the chances of the ruling party against the next gubernatorial cycle. Everyone wins and everyone is happy.
Now, because the Nigerian economy is centered on oil and gas, and over 90 percent of government revenue comes from crude oil sales, it becomes imperative that this industry is properly restructured and upgraded to function in the 21st century. This is a case of taking care of the goose that lays your golden eggs. At the foundation of Nigeria’s oil and gas industry is the issue of bringing the national pipeline grid back online. The recent policy where the government attempted to legalize illegal bunkering is quite laughable. This sends a message to the world that the government is helpless and, therefore, is joining the crooks since it can’t beat them. The national pipeline grid can be upgraded and policed adequately using state of the art technology like distributed acoustic sensing (DAS) and miniature drones.
Without a functioning pipeline grid, refurbishing the old refineries and building new ones would result to nothing. Also, the destruction of these pipelines causes severe power outages and electrical issues. This issue is discussed in-depth in my earlier article titled “pipeline protection and industrial security” available on line and published by multiple media outlets. The national pipeline grid is at the foundation of Nigeria’s electrical power and petroleum industries and cannot be repaired simply by legalizing bunkering.
Next is the Apapa tank farm, which holds about 80% or more of Nigeria’s refined petroleum products. This area is a tank farm with over 200 tanks-one of the largest in the world- and has a very poor record of industrial inspections and maintenance. Because there is a poor piping grid, the nation must rely on tankers to distribute the products which leaves the traffic situation in Apapa hellish.
Given that this area also leads to the primary seaport of the country, it’s an absolute eyesore to behold and indeed a terrible experience. However, congestion is the least of the problem. If there is a leak from one of those tanks due to poor maintenance, the domino explosions would destroy a major portion of Lagos and indeed cripple Nigeria for a long time to come.
This issue is deeply elaborated in several articles titled “Apapa tank farm: Nigeria’s hidden danger, and Apapa tank farm: a disaster waiting to happen”, both accessible online and published by various newspapers. The government can begin building another tank farm in the Lekki area not just as a backup facility, but to aid in reducing the risk factor in case something bad happens.
Ifedobi is an economist and consultant for the American Petroleum Institute (API), USA.
Also it will function as an auxiliary product storage unit while the Apapa facility is being inspected according to API 653 standards and fitted with proper gas and leak detection equipment.
This will decongest the area, improve productivity, reduce and spread the risk factor and use mostly local employment in the repair and new construction activities, thus boosting aggregate demand. The danger, necessity and immediacy of this issue cannot be overstated.
Furthermore, the government must improve the electricity situation in the country which may very well be the worst in the world. The epileptic power supply is the greatest deterrent to foreign investment. Foreign investors will not entertain an environment where they must provide their own electricity using gas powered generators. Sometimes the generators too are useless when the fuel supply is plagued by periodic shortages. This is just too much headache and overhead cost for most investors. Nigeria is losing a huge opportunity and potentially can be the China of Africa, attracting foreign manufacturing companies and enjoying technology transfer. The electricity issue is really a shame. The government can begin looking into alternative sources to diversify the age-old Kainji-dam. The large expanses of land in the middle belt can be equipped with wind turbines to boost the national power grid. This investment will serve the country well for decades to come and will improve national productivity. This too is a worthy capital project to invest in immediately.
Finally, there is the issue of industrial farming: large scale government sponsored farmlands all across the country and the subsidization of private farmers to supply food. It should be understood that the main reason this administration is having all these social vicissitudes is because people are hungry and can’t get food. Food has become seriously expensive and a hungry demographic is a dangerous one indeed. The government can open large scale farmlands to service every region of the country. The country is blessed with land and agricultural potential, there is no reason it should be importing food that it can grow for itself. The benefits of industrial agriculture can be seen from the giant improvements experienced in Anambra state today by Governor Obiano, who has displayed this policy quite intelligently. Anambra today exports excess food under his tenure for the first time in its history. This reality can be experienced nationally.
These key public investment directives along with the usual road and urban expansion programs will in less than 4 years create a new atmosphere for Nigeria. The domestic employment used for these capital intensive projects would boost aggregate demand in the short run and keep the micro-economy liquid and buoyant. On the supply side excess capacity would be reduced, while the multiplier effects of infrastructural upgrades would ensure that national productivity operates on a higher plateau than previously. This is synonymous with the ‘New deal” by President Roosevelt that saved America from the great depression. Remember the Nigerian recession has turned into a depression and it will not fix itself. It would require great statesmanship and strategic policy initiatives carried out in a timely manner. The time, therefore, in now. Any further delay may spell doom.
Ifedobi is an economist and consultant for the American Petroleum Institute (API), USA.