The long wait for economic renaissance

At the outset of the Buhari administration, there were expectations and hopes of economic rebound within the shortest possible time. The events to follow, however, show the contrary as the administration seeks to re-appraise its priorities and implement agenda for possible action. How has the economy fared in the last two years? Members of the Organised Private Sector (OPS) assess the government’s two years of managing the economy. FEMI ADEKOYA and HELEN Oji write.

The goal of every fiscal policy, especially the industrial policy, is to stimulate industrial growth and, ultimately, the transformation of the economy from low-productivity agriculture and dependence on oil to high-productivity manufacturing and services.

Unfortunately, with very little seen in terms of fiscal policy initiation and implementation, the results have been disappointing, especially as monetary policies have shown that they are not self-sufficient in revamping the economy. In Nigeria and other sub-Saharan African countries, the ratio of manufacturing value added to GDP is lower today than it was in the 1970s.

Anxiety over Buhari’s assumption of office
On May 29, 2015, a new era of political dispensation commenced with high expectations by Nigerians seeking solutions to various concerns in the country.

According to the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, the regime came on board with an exceptionally high goodwill and with very high expectations from the citizens but was up to a slow start, in terms of economic interventions.

“The key reforms, especially in respect of the petroleum industry and the infrastructure sectors were also slow in coming.  The collapse of oil price and the activities of the militants in the Niger Delta regrettably compounded the economic challenges of the country, culminating in a recession”, he added.

Government’s policy direction
According to many operators in the Organised Private Sector (OPS), the absence of an economic blueprint was one of the concerns in the early days of the administration as they noted that unclear economic policy fuelled worsening inflation record, while the general macroeconomic outlook such as GDP, interest rate, fiscal deficit (debt profile) and FDI remained negative with attendant consequences on business and the economy as a whole.

Indeed, with various monetary policy interventions came some market disruptions and negative effect on the nation’s currency.

LCCI’s appraisal revealed that while the anti-corruption war is still on-going with emphasis on recovering looted funds from both onshore and offshore, government needs to review its processes and implement reforms and frameworks that make corruption difficult to thrive.

Indeed, a review of activities across the sectors within the first year showed a negative profile of activities in the sectors between June 2015 and May 2016.

For instance, the agricultural sector recorded a 1.61 per cent decline in growth from 4.70 per cent in 2015 to 3.09 per cent in 2016, followed by the industrial sector which further slipped into recession, dropping by 8.02 per cent, while the services sector recorded sharp decline in growth by 6.24 per cent.

In the aviation sector, the LCCI review showed that the sector equally witnessed a decline with some players exiting the country, while the real estate industry continue to experience high and increasing rate of vacancies for both commercial and residential real estates.

In terms of power, the average hour of electricity witnessed by consumers dropped to five hours from 13 hours, even as consumers continue to pay much higher with rampant cases of estimated billing system, while non-performing loans from the financial sector rose by 38.6 per cent due to inability of ailing firms to service their loans.

However, Yusuf noted that the Economic Recovery and Growth Plan (ERGP) launched recently by the President provided clearer economic policy direction of the administration.

According to him, this enhanced the level of investors’ confidence and lessened uncertainties, adding that the indications are that the government is committed to the implementation of plan.

“The establishment of the Presidential Enabling Business Environment Council (PEBEC) is also a boost to investors’ confidence. This is a body chaired by the Vice President which underscores the political will of the government to drive its activities. The Executive Orders released recently provide further proof of government commitment to fostering an enabling environment for investors”, he added.

Stakeholders’ assessments reflect lingering concerns
In his assessment, Yusuf noted that the forex policy was one of the major challenges faced by investors in the past two years.

He said: “There were issues of uncertainty, volatility of exchange rate, round tripping which resulted from the huge differentials in the rates, multiplicity of rates, acute liquidity crises which adversely affected investors’ confidence.  However, the recent reforms in the forex market have mitigated these problems.  The upswing in oil price and increase in oil output had brought a great relief to investors in the year.”

The Chairman of Stanbic IBTC Holdings Plc and Cadbury Nigeria Plc, Atedo Peterside labelled the foreign exchange and demand management policies of the Central Bank of Nigeria (CBN) a failure leading to the underperformance of the economy.

To him, CBN inadvertently created a siege mentality, thereby making privileged access to its forex allocations, which are reserved largely for the politically well-connected, the best investment game in town.

According to Peterside, while some actors, including the economic management team are making efforts to address the lingering economic problem, many of them are working in isolation as government has yet to clearly define its policy direction and harmonise efforts under a holistic plan.

If the situation prevails, Peterside warned that Nigeria may tow the path of Venezuela and Zimababwe, adding that relying on debt alone to get the nation out of the present low foreign exchange trap is a high risk strategy that may further impoverish the nation.

Way forward
An economist and investment analyst, Biodun Adedipe argued that with the persistent volatility witnessed in the economy in the last few years, causing the market to decline, there was need for increased local investors’ participation in the market.

He however, maintained that government must begin to apply the principles of all-inclusive growth where policy choices must align with monetary, fiscal, trade and investment, which, according to him, would spur activities in all the sectors including the stock market.

Adedipe, however, added that local investors should ensure that their investment in the market are made on a longer-term perspective rather than short term.

The Chief Executive Officer of Cowry Asset Management, Johnson Chukwu maintained that the economy recovery depends on the policy decision of government. “I am hoping that the Monetary Policy Committee (MPC) will look at that and debate on it because that is one of the key challenges we are having today. If they are going to come up with policies, they should initiate policies that are sustainable and not policies that are basically in silos because if the policies are not sustainable, then they are not policies.

He argued that the stock market is also suffering not because the fundamentals of the quoted companies have failed but rather because the economic policies are not clear, so investors, both local and foreign ones, have decided to stay at a sideline. “If the policies are appropriate, investors will come back to the market.  One of the key challenges that are holding back the market is the exchange rate, which the government needs to address,” he added.

On the reforms in the manufacturing sector, Yusuf and President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs agreed that the manufacturing sector experienced some major challenges during the past two years.

“The factors were both external and domestic. The main external factor was the collapse of oil price, which affected forex availability and triggered sharp exchange rate depreciation.  There was very little the government could do to stem that.  However, the policy component of the problem resulted largely from foreign exchange policy choices, which aggravated the problem of forex liquidity.  The restriction of 41 items from access to interbank forex market added to the plight of some manufacturing firms.  The high interest rate and unfair competition from imported products were also factors that constrained the growth of the industrial sector. High energy cost continued to impede the competitiveness of the sector. Capacity utilization was between 40 – 45 per cent over these periods.

“The import dependent nature of the Nigerian manufacturing sector also posed considerable adjustment challenges for the sector over the past two years.

“The good news is that segments of the manufacturing sector that had substantial backward integration capabilities had a very good leverage during the review period.  Such firms became more competitive and more sustainable and profitable. They are largely in the food and beverage categories,” Yusuf  added.

For Jacobs, he expressed optimism that the processes and procedures required to fully actualise the objectives of PEBEC would be effectively implemented so as to permanently remove constraints to the ease of doing business and improve the global ranking of Nigeria by the World Bank.

“MAN, therefore, urges the Federal Government to sustain and consolidate all the achievements recorded within this short period by removing all trade facilitation constraints and attract foreign capital inflow to the country. Government should also ensure that other aspects of the objectives that are currently Work-In-Progress are properly implemented with a view to improving Nigeria’s competitiveness. On our part, we will continue to encourage our members and other investors to take advantage of these initiatives to increase their investments.

“To enable the private sector to effectively key-in and benefit from an over-all lower cost business environment, there is the need for Government to expand the scope of this programme and take cognisance of other constraints to businesses,” he added.