Governors elected on the platform of the All Progressives Congress (APC) last Tuesday literally opened a Pandora’s Box when they admitted to President-elect, Gen. Muhammadu Buhari that the President Goodluck Jonathan-led PDP had milked the economy dry, a development, which set off a chain of reactions. Ibrahim Apekhade Yusuf in this report examines the issues
WHEN Nigeria’s famous hip hop sensation, Eedris Abdulkareem, born Eedris Turayo Abdulkareem Ajenifuja, in 2004, waxed the above lyrics, he was made the butt of derisive jokes and roundly condemned by government apologists, many of who believed he was buoyed by selfish reasons rather than by patriotic fervour.
But when you fast forward to 2015, the import of what Eedris Abdulkareem sang about remains a sad reality still: Nigeria’s economy is in the doldrums. Put more succinctly, Nigeria is dead broke!
But how? Why? What happened? A penny for your thought: after constant self-denial that Nigeria’s economy was in good standing, albeit, financially, those vested with the responsibility of managing the nation’s common wealth have since recanted. Finally, the chicken has come home to roost and the jury is out: there is no money left in the treasure. Truth be told, all the assurances of the past years, it does appear, were all false claims after all.
Reality bite
Peeved by the gloomy reality that stares them on the face, the APC governors had last Tuesday met with President-elect, Major-General Muhammadu Buhari (retd) at the Defence House, Abuja, to express their displeasure over the parlous state of the economy.
The governors cried out that most state governments had gone bankrupt and, therefore, cannot pay workers’ salaries.
According to them, it was obvious that they were going to inherit huge debts which may delay speedy progress in their respective states. They were, however, silent on APC states like Lagos, Edo and Osun, which are currently the most indebted in the country.
Addressing journalists after their indoor meeting with Buhari, chairman of APC governors, Chief Rochas Okorocha of Imo State, said the outgoing government had ruined the economy.
According to him, the fact that the federal government has not paid April salaries was an indication that the economy was not healthy.
“One of the issues that became of concern to all of us is the state of the Nigerian economy which is really in bad shape. We have come to notify the incoming president of the challenges ahead of him,” Okorocha said.
Pressed further, he said: “As it stands, most states of the federation have not been able to pay salaries and even the federal government has not paid April salary and that is very worrisome.
“By May and June, the salary will be in cumulative of three months. With the huge expectation from Nigerians and people who have voted us into power, we wonder. We are hoping that the president-elect will do whatever that is humanly possible to bring about a bailout not only in the states but the Federal Government, at least for people to get their salaries and turn around the economy.”
Nigeria’s troubling debt burden
As at December 31, 2014, Nigeria’s debt burden was put at N11.24 trillion.
After the Paris debts buy back, a lot of people expected that die down but that has not been the case.
In its 2014 Debt Sustainability Analysis (DSA), the nation also adopted a subsisting debt management strategy as captured in the approved Nigeria’s Medium-Term Debt Management Strategy (MTDS), for 2012-2015, which seeks to achieve an optimal mix in the debt portfolio of 60:40 for domestic and external debts respectively as against the current mix of 83:17 through a gradual substitution of relatively more expensive domestic borrowing with cheaper external financing.
Thus, the 2014 DSA has already incorporated government’s policy objective of reducing the overall cost of government borrowing at an acceptable level of risks. This may have informed the minister’s statement of government’s preference for approaching multilateral agencies.
The objective of the 2014 DSA is to assess the country’s capacity to finance its projects/programmes and service its debt obligations, without undue large adjustments that may compromise its macroeconomic stability, overall growth and development.
The growing concern over the country’s debt overhang has been on the front burner for years, but often times, government officials have always argued that the nation’s debt level has not gone out of a safe trajectory. However, the lid over this confidence margin, appears to be weakening and increasingly contested.
A lecturer at the Pan Atlantic University, Lagos, Dr. Austin Nweze, pointed out a grave danger in accumulating excessive foreign debts as such would place undue burden on future generations, especially if the loans are not channeled into capital projects. Nweze, however, said that there is nothing wrong in borrowing provided the funds are well utilised or invested in the provision of infrastructure.
According to him, the fall in oil prices has reduced revenue receipts, forcing the government to look for money to run the economy.
Dr. Isaac Nwaogwugwu, a lecturer at Department of Economics, University of Lagos, said there is no way we are going to finance capital budget without borrowing.
He said: “That is why the allocation to capital account or expenditure is very small unless the government says it not ready to invest or provide for the future then it’s going to borrow.
But how did we get to this sorry past? At this juncture a short anecdote would suffice:
Remote cause of cash crunch
Despite becoming the largest economy in Africa, the Nigeria economy faced major headwinds last year, from the substantial decline in international oil prices in the second half of the year to significant constraints to business activities in the north-eastern part of the country owing to the activities of insurgent and then the build-up to the 2015 elections.
Thus the cash shortage caused by low oil prices have forced Nigeria to borrow heavily through the early part of 2015, with the government struggling to pay public workers the federal government admitted last Wednesday.
“We have serious challenges. Things have been tough since the beginning of the year and they are likely to remain so till the end of the year,” said Finance Minister Ngozi Okonjo-Iweala.
Despite been Africa’s top economy and largest oil producer, Nigeria has been hammered by the 50 percent fall in oil prices, with crude sales accounting for more than 70 percent of government revenue.
Okonjo-Iweala said the federal government had a projected borrowing allowance for 2015 of 882 billion naira ($4.4 billion/4 billion euros). But N473billion had already been used up to meet recurrent expenditures, including public worker salaries. “We have front-loaded the borrowing programme to manage the cash crunch in the economy,” the minister told reporters.
While Okonjo-Iweala said the severity of Nigeria’s cash crunch requires daily management, the problem will certainly be off her desk in a few weeks time, as president-elect Muhammadu Buhari will be sworn in on May 29 and may not likely retain any of the key ministers appointed by outgoing President Goodluck Jonathan.
Okonjo-Iweala said Nigeria was still projected to grow at 4.8 percent this year and was therefore “doing much better than many other oil producing countries,” similarly hit by the collapse in crude prices.
Before the headwinds in the oil market, the country set its benchmark crude price between 75 and 80 dollars, and was supposed to deposit excess revenue in a savings account. But even when crude was selling above $100 last year, the federal government struggled to build savings.
The federal government had pauperised most states and made it impossible for them to pay the salaries of their workers by refusing to refund the huge funds they spent on federal projects.
Points to ponder
To Festus Keyamo, one of the sad reality of Jonathan’s government is the brazen crude oil theft which became so legalised that there was now what is known as “Bayelsa diesel” in the market, a fall-out of the 400,000 barrels per day of crude oil valued at $60billion stolen in Nigeria, which is the equivalent of the daily crude oil production of Equatorial Guinea.
Besides, he said, another case in point is the $20 billion missing oil funds which ought to have accrued to the Excess Crude Account (ECA).
“The crude oil benchmark for 2014 budget was $77.5, in which Nigeria made $33 per every barrel of oil, which amounted to about $24 billion in a year. But we recorded less than $6 billion in the ECA. So, the question is what happened to the remainder?” he queried.
Sadly, Keyamo said, over N1 trillion was budgeted for defence in 2014 with little or no result to show for it.
The Jonathan administration reportedly built a new banquet hall at the presidential villa to the tune of $100 million just as it bought a brand new private jet to add to the presidential fleet, much bigger than those of more endowed nations as well as most airlines across Africa.
Way forward
While attempting a prognosis of the economic fundamentals in Nigeria, Razia Khan, Managing Director, Head, Africa Macro, Global Research, Standard Chartered Bank, United Kingdom, said, “In terms of future monetary policy, there isn’t a great deal of new news at this point. The current monetary policy stance is considered to be sufficiently tight and this will continue.”
“Our sense is that this stance will be viewed positively by investors – many of whom will be looking to re-enter Nigerian markets post-election. However, we are only likely to see this happen in scale when investors themselves start to share the CBN’s optimism on the stabilisation of the Nigerian naira.”
Prof. Jide Osuntokun, Pro-Chancellor of Ekiti State University (EKSU), Ado-Ekiti, in an article titled: ‘Buhari: Sweat and tears’, he suggested a change in revenue mobilisation as a means to revamp the economy. “There has to be a change in revenue mobilisation, a situation in which Nigeria charges a VAT of seven percent while other African states are charging 18percent must change. We have to increase VAT to 18percent especially at a time when our income for oil has been reduced by 50percent.”
Otunba JK Randle, renowned financial expert while advising the incoming government on what economic template to adopt in terms of interest rate management, said: “You cannot isolate interest rate, you have to look at the entire picture. You have to look at the exchange rate, as well as the inflation rate and most importantly, the productivity rate. All of them have to be in alignment.”
On further devaluation if the naira, he said: “Devaluation of the naira is a function of supply and demand. Again, it is combination of two things namely: supply and demand.”
Continuing, he said: “There is element of confidence in other words, there is no panic-buying or speculative buying or round-tripping or what have you, you can establish a certain reasonable level of stability. What is happening now, volatility, which is being driven by equity factors. The reality is that you will be earning less and less. The price of oil has dropped considerably.
They have not explored the non-oil sector sufficiently enough for whatever reason, is very instructive that.”
The duo of Mr. Walter Ahrey, a former Director of Strategy and Performance at the Central Bank of Nigeria, and Prof. Jonathan Aremu, renowned economist and professor of International Economic Relations at the Covenant University, hold the view and very strongly too that what better way to address the legion of economic woes bedeviling the nation is by taken decisive steps aimed at blocking all leakages and wastages in the system.
Such measures, Ahrey and Aremu said would ensure an uptick in the economy sooner than later.
A cross-section of analysts have also assured that the second half of the year is expected to offer some respite to the domestic economy as political uncertainties taper, the international oil prices gradually inch upward on the back of the expectations of output cuts by OPEC at its next meeting in June 2015.
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