Nnadozie: Economic Conference is good so long it’s not the goal
Prof. Emmanuel Nnadozie is the Executive Secretary, African Capacity Building Foundation. He told KAMAL TAYO OROPO that organising a conference is one thing, ensuring that the conference achieves its objectives is another.
Would you say the Nigerian economy is in a precarious situation demanding a state of emergency?
It is clear that the turmoil in global commodity markets witnessed in the second half of 2014, had a significant impact on the Nigerian economy in 2015. Oil prices fell 67 percent from $114 per barrel in June 2014 to $38 per barrel by December 2015. According to a recent Report from the Nigerian National Bureau of Statistics (NBS) published in February 2016, Nigeria’s growth accelerated to 6.3 percent in 2014, from 4.2 percent in 2012, and witnessed a drop to 3 percent in 2015 due to the collapse of oil prices.
Besides, the country has been suffering from a persistent deteriorating security situation. Despite these challenges, the country remains the largest economy in Africa, with a Gross Domestic Product amounting to US$568.5 billion in 2014. Growth prospects are also relatively good for Nigeria; it is projected at 4 percent in 2016 and 5 percent in 2017. However, the weakening energy demand from emerging markets, coupled with the increase in oil supply and the strengthening of US dollar are transforming the global oil economy with direct impacts on Nigeria’s economy.
In 2014, oil accounted for 78 percent of the value of goods exported from Nigeria, from 96 percent in 2003. As a result of this excessive dependence on primary commodity exports, it is normal that the national economy is severely affected by global price shocks. With that background in mind, saying that Nigeria is in a state of emergency may be a bit alarmist and not totally correct. That notwithstanding, the country needs to consider serious reforms to improve its resilience.
In that light, there have been calls for the convocation of a conference to address the economy; is that what we need?
Convening discussions or conferences on key issues of national interest is always a step in the right direction provided the conference is properly planned and organised and effectively executed, with clear objectives and well-articulated expected outcomes. We must also pay particular attention to the composition of the participants in this sort of conference.
Having said this, organising a conference successfully is one thing, ensuring that the conference achieves its objectives is another and following up on or implementing conference decisions and outcomes is yet another and even more important thing.
Yes, I am not unmindful that some people may argue that past National Conferences in numbers of countries did not yield any good result as their governments still dump the confab recommendations. In the same vein, they could argue that in the specific case of Nigeria, conferences will not put an end to the security challenge that has significantly destabilised the Northeast, nor will they address the problems of poor governance.
They would be right if the country ended up with a conference as a goal, instead of viewing it as a means to achieve an objective. And if we really believe that it is a means of achieving an objective, follow-up actions should then be put in place to ensure that the recommendations from the conference are implemented and yield the expected outcomes. There has been a number of economic blueprints and policies in the past, but meeting with limited success. What has been the missing link?
Putting in place economic blueprints and policies is not enough. Many African countries have done so, without tangible results. Why? Because they have not paid attention to the drivers of the policies, which is the capacity.
So, I would say that the missing link is the capacity. The findings from the Africa Capacity Report (ACR), the flagship publication of the African Capacity Building Capacity (ACBF) show that Nigeria faces some capacity challenges. Over the past two years, Nigeria ranked ‘Medium’ on a scale ‘Very Low’, ‘Low’, ‘Medium, ‘High’ and ‘Very High’ of the Africa Capacity Index, an indicator which ACBF produces annually. As the Report shows, though Nigeria has made efforts in putting in place some economic policies, the country lacks capacity to implement them. As a result, development results, i.e. tangible outputs that permit development are not followed. And so is the case for the expected change in the human condition.
Capacity challenges, which are human, institutional and organisational, are related to the capacity for developing and financing world-class infrastructure, curbing violence and ensuring national security, fighting illicit financial outflows and corruption, implementing policies, creating jobs and ensuring inclusive growth.
A number of economic initiatives of the past administration have been embraced, why the piecemeal and not holistic adoption, especially those economic and industrial recommendations captured under the 2014 National Dialogue?
The current administration is in better position to respond to this question.
On the other hand, the government has taken some possibly ad hoc steps towards economic sustainability, especially those aimed at plugging leakages and discouraging importation of selected items. Are these measures sufficient in achieving desired goals?
In fact, the current administration is using anti-corruption and transparency drive to plug the revenue leakages and loopholes. An example is the implementation of the Treasury Single Account (TSA), which started on September 2015 and is expected to help create additional fiscal space. Now that we are talking about domestic resource mobilisation in order to finance Africa’s development, such an initiative is pretty much encouraging and well in line with the recommendations of ACBF’s Africa Capacity Report 2015.
However, it is to be noted that, to be efficient and sustainable, these initiatives will have to be complemented with other measures that deal with the right macroeconomic policies and structural reforms.
Discouraging importation of some goods that can be locally produced could strengthen local economy. However, discouraging importation may not be sufficient if a conducive business environment is not in place. In 2015, Nigeria was ranked 169th out of 189 nations in the World Bank’s Ease of Doing Business Index. This is indicative that the country faces significant challenges in building a stable business environment. Therefore, discouraging importation must be supported by policies and instruments that create and sustain the conditions for local companies to operate and emerge.
International financial agencies, IMF and World Bank, have suggested complete removal of subsidy, devaluation of the Naira, increasing and widening tax base (especially VAT). On its part, the government has insisted it will not devalue and it is still not clear on subsidy. What should be the right course of action?
The gain in removing subsidy is not significant in a context where the oil prices have dropped drastically from $114 per barrel in June 2014 to $33 per barrel in February 2016. Is it then worth doing so with the risk of creating a social turmoil?
Given the sensitivity of issues of devaluation and exchange rate controls, care must be exercised in dealing with the matter. Decisions must be evidence-based. Regarding the devaluation of the Naira, Nigeria has already been active in providing fiscal and monetary responses to the economic situation. A recent publication by PWC reports that in “November 2014, the Central Bank of Nigeria decided to accommodate the immediate downward pressure on the exchange rate by devaluating and widening the Naira/US$ band from 150-160 to 160-176; an effective devaluation of 8 percent. Later in February 2015, the central bank accommodated further by cancelling its dollar auctions and targeting a new fixed exchange rate of 196.5. This is to mention that the country has even been applying, to some extent, part of the recommendations international financial agencies made.
Now, devaluating Naira as a structural change is not an easy decision for the country and limited evidence exists on how this measure can consistently improve the economic situation. There is need to introduce incentives that guide resource allocation across tradable and non-tradable sectors, while keeping the issue of international competitiveness of the country’s tradable sector in mind.
With regard to increasing and widening tax-base, the Africa Capacity Report 2015, I mentioned earlier, strongly suggests the need for African countries to expand the potential tax base and not just increase the tax revenue pool from a relatively stagnant tax base by accessing formerly unreached parts of that base, a recommendation I agree with absolutely.
Caution must be exercised in swallowing hook and sinker, external policy prescriptions as Africa has been misled in the past. A country like Nigeria is more than capable of designing internally-generated macroeconomic policies that takes into account, the country’s political, socio-cultural and historical realities. This does not mean that policy prescriptions from highly reputable international organisations cannot be correct or should not be given serious consideration. Yet, one size does not fit all.
Most of the measures proposed by international financial agencies need to be balanced with their respective implications to find the appropriate mechanism that will improve the economic situation in a sustainable way.
No comments yet