Beneficial economic decisions were lost to political considerations, says Ndukauba

Managing Director Afrinvest, Victor Ndukauba

Managing Director Afrinvest, Victor Ndukauba

Since the official acceptance of Nigeria’s economic recession, economic analysts and others have been making postulations of what is, what was and what should be. The Deputy Managing Director Afrinvest, Victor Ndukauba, shared with CLARA NWACHUKWU, Business Editor, how the current crisis could have been avoided. Excerpts:

Were you surprised by the National Bureau of Statistics data confirming that Nigeria’s economy is in recess?
It was expected, there were no surprises, I actually expected the GDP would have contracted further than announced based on what was happening in the economy.

With the lack of spending from the public sector, no fiscal inflow, no dollar, therefore little investment, it couldn’t have been otherwise.

This is because in a period of economic uncertainty, businesses and individuals tend to shut down, so investment decisions are either deferred or withheld outrightly. So without investment, without consumer spending because consumers were saving for the future because of the economic uncertainty, and once money is frozen that is what is likely to happen.

Do you think only the oil crisis plunged the country into recess?
It’s not all about oil prices. Yes we can point fingers to the oil prices – but it’s more a question of governance. There are two sides to it, there is a fiscal side, which is government revenue, which fell and spending declined, the only way to shore up spending is through issuing of more bonds to borrow from the system with higher yields.

Budget shortfall of over N2trillion, which at the time the budget was set up we were projected to borrow $10billion externally. They had worked out a programme with World Bank, predicted on Nigeria funding $1billion directly as counterpart funding, which government was planning to borrow from the Eurobond market, again that hasn’t happened despite the couple of road shows abroad. But it wasn’t met with a lot of enthusiasm, and once the market is not enthusiastic, then there won’t be much progress. If I lend you dollars, how do you pay me back in an environment, where your dollar income had declined and you don’t have so much in terms of export to generate.

Furthermore, the import bill remains at a level still high – $20billion on rice, $5billion on foreign education, $2billion on medical tourism. All of those arguments which are macro-related play in.

Do you have confidence in the current Economic team in terms of prescribing policies that can possibly take us out of recession?
Economic team – The other angle is the monetary policy and economic team and Central Bank’s foreign exchange policy.

The biggest challenge to the economy is derived from two things – was the exchange rate was frozen for so long, which was artificial in the market, it essentially meant that all key markets participants just stayed away. While it was at N197, or N199, we saw a complete freeze in remittances; Nigerians were no longer sending money home, and all facilities for people to buy short-term investments because of yield either in bonds in a world where yield was scarce also stayed on the sidelines because it doesn’t make sense to pursue such avenue because of the uncertainty of whether or not you can get out with their investments with a long queue of foreign investors hoping to get out at the same time on a queue at the CBN because of its policies. For example, dollar was provided at N197 created dollar scarcity without the dollar trading you can’t get it moving.

What are the fears in terms of impact on the economy?
There is no easy fix, because we have high inflation, low growth, GDP is stagnating. So there is no silver bullet. But a number of things need to be done. The biggest is the crisis of confidence Nigeria suffers locally and globally, the damage had been done by the fx regime; thankfully we have a flexible regime now, but knowing the attitude of foreign investors people are still not convinced that the current framework will not change overnight, the lack of clarity or confidence will keep people on the sideline. We are closer to the end than we were before.

For every investor in our fiscal or money market, or buying short-term funds in a forward-looking market might potentially hedge a little bit.
However, the Lack of liquidity being the concern, govt needs to boost the economy through fiscal spend. When you’re in recession you have to spend your way out and government has to take the lead because of the low level of confidence.

Are there quick wins or low hanging fruits that Nigeria can easily plug into?
At this point in time, there are no low hanging fruits. The ones that would have been like taking away subsidies and forex (FX) gap between parallel and official markets, we didn’t take those decisions for over year, so we effectively created our own crisis by delaying those critical decisions that would have sent the right signals. Where we are today, there are no quick fixes because anything government does today will more or less be setting up the country for a better 2017.

What can Govt. do in the short, medium and long term to get Nigeria out of it?
Any money spent on projects nowt has to be with the sole purpose of getting the economy kick-started but how much more can you afford to spend when there is a fall in revenues and unable to access the debts required to match the budget projection is anybody’s guess.

The quick fix is for government to start spending on infrastructure, social interventions. But they also need to earn the money in order to make those expenditures. The budget is a spending plan and for it to work you have to earn the money expected in the plan. So if government hasn’t earned the money, then you have an issue at hand.

In the long term, Nigeria’s problems are fairly simply to solve. Unfortunately, we diametrically uphold the objectives of politicians and monetary and fiscal authority. What is good for the country long term is not good for the country politically. If we are to get out of the recession we need to do macro-investment in infrastructure, and the productive sectors – agriculture, industry, trade.

It requires deliberate concerted efforts at maintaining the same policy going forward for the next 10-15 years. I mean physical infrastructure, education, in healthcare to have people fit and able to work, transportation for ease of movement of persons and goods, power, technology/telecoms so people don’t necessarily have to move around and build your business on the internet. We have to do import substitution for commodities like rice, sorghum, palm oil cocoa, but they are not short term fixes. Capital required to build infrastructure moves around the world. We have to look at ourselves and tell ourselves the truth; the business environment in Nigeria is not the most appealing or friendly. Most of these are just policy measures that we can change, consolidate the legal framework and tax environment.

There has been a lot of talk but less action, need to provide the security that investors need to ensure that they can get out whenever they want to.

What are the prospects if any, in terms of getting out of it?
This Government came in 2015, and all of 2015 was lost to the election. Prior to election, nothing was happening; post-election, we waited for almost six months before things started happening. We started the year on a slow pace, revenues slowed down a lot of business structures being torn up and rebuilt. But by the time we get half way, electioneering starts again. Long term measures require to put the country on track because of political expediency things that we need to do might not get done because of elections. Some of the painful things we need to do to build a solid future were sacrificed on the alter f politics. If in 2019 another party comes to power, then Nigeria realises a new government will start afresh.

Are you saying it will take us many years to get out of the recession?
No, not at all; we can get out of it in a two-three years cycle. The more government spends; the more capital begins to come in, we will get more positive results. We have had growth over the last decade, seven per cent was not inclusive because the bulk of the population did not experience the growth. So the moment there was a crisis, everything collapsed, so we have to build a more broad based economy with more people involved.

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