Conversations on the economy

The national discussion is now finally turning fully towards the economy after ten months of the Buhari presidency. On the same day, at three important locations in the nation’s federal capital territory, Abuja, three significant conversations were commencing all focused on the nation’s economy, as they rightfully should.

The data is unambiguous on current economic conditions-GDP growth in the last quarter of 2015 was a meager 2.11% with full year growth of 2.79% according to the National Bureau of Statistics (NBS); inflation rose sharply to 11.4% in February with prospects of reaching 12% by March; capital markets have remained bearish; according to UNCTAD Nigeria’s FDI fell by 27.7% to $3.4billion in 2015, and on current trends may fall even more precipitously in 2016; the de facto exchange rate of the Naira for most producers and consumers is now N322/$ even though CBN maintains a nominal N197/$ for privileged persons; several economic sectors-construction, government, manufacturing, oil and gas and hotels and restaurants are in recession or barely out of it; government’s official foreign reserves is down to $27.8bn; and unemployment and under-employment rates have worsened 10.4% and 18.7% by the end of 2015.

At the National Assembly, the Senate President Bukola Saraki convened the inaugural National Assembly Business Environment Roundtable (NASSBER) on March 21, 2016. It was a platform conceived to enable stakeholders from the legislature, executive/regulators, business and civil society discuss mechanisms for improving the ease of doing business, investment climate and business competitiveness. The event was a culmination of a joint initiative of the Senate President and DFID’s ENABLE 2 and GEMS 3 programmes and had been preceded by a comprehensive research into laws inhibiting businesses in Nigeria leading to specific legislative proposals to improve the business environment in terms of competition and consumer protection, transportation and infrastructure, improving MSMEs access to finance, reform of land use and construction laws and administration, doing business reforms amongst others. I presented an economic impact study at the inaugural roundtable which suggests significant benefits in terms of incomes, growth, employment and poverty reduction if the suggested legislative proposals are adopted.

At the presidency, Vice President Yemi Osinbajo was convening a two-day National Economic Council (NEC) retreat on the economy also commencing March 21^st. Osinbajo is a professor of law and respected pastor. As Lagos State Attorney-General, he led the reform of the administration of justice which has made the state a beacon for other states to follow in terms of justice sector reforms and was part of Asiwaju Bola Tinubu’s first class cabinet that included Yemi Cardoso, Leke Pitan, Dele Alake, Idowu Sobowale, Muiz Banire and Olawale Edun. Perhaps after that retreat and the specific resolutions and implementation mechanisms it outlined, the Vice President and his colleagues may be able to exert the required impact on the nation’s economy based on pragmatic, proactive and rational economics rather than the president’s probably well-meaning but misguided ideological positions. The retreat re-affirmed outlines of the Buharian economic philosophy-borrowing to finance infrastructure, diversification aspirations in agriculture and solid minerals, greater tax compliance and social investment and has not addressed the key structural problems-exchange rates, fuel subsidies, lack of investment, higher taxation rates especially VAT and leveraging private capital.

The third theatre of economic conversation on March 21 and 22, 2016 was at the Central Bank of Nigeria (CBN) whose monetary policy committee voted to return to a policy of monetary tightening as its response to rising inflation. The MPC’s solution was based on wrong diagnosis and therefore a flawed prescription-current inflation is not a consequence of excess money supply but the bank’s disastrous FX policies which has pushed up the dollar cost of inputs for producers to N322/$ instead of probably N250-260/$ in a worst-case currency adjustment scenario. Other probable contributors to inflation-petrol shortages, insecurity and food prices have little relationship to money supply. Most importantly the CBN’s monetary tightening illustrates the misalignment of monetary and fiscal policy, with the 2016 budget almost completely premised on a counter-cyclical fiscal stimulus!

Back to the National Assembly where a wrong type of economic conversation was going on in relation to the beleaguered MTN Nigeria as some members of the House of Representatives decided that in addition to their considerable legislative duties, they desired to hijack the duties of the Attorney General of the Federation (AGF), those of the telecommunications regulators-NCC and the Ministry of Communications and indeed the judicial functions of our courts as well!!! Our constitution is rightly designed on the basis of a separation of executive, legislative and judicial powers, and there is more than enough work in the legislature fashioning new legislative proposals, proposing amendments to existing laws, proposing and generating support for required constitutional amendments, working effectively on national appropriation laws, as well as representing their suffering constituents such that any legislator may not need to contest regulatory roles with NCC or executive ones with the AGF or Minister of Communications!!!

The overwhelming need of businesses in Nigeria today is for improvements to the very difficult conditions under which Nigerian firms are forced to operate. Businesses need enhancements to tax laws, access to property and finance, improvements in regulatory and business environment, improvements in petrol and electricity availability, and in the context of current policy, a flexible exchange rate policy that allows producers secure foreign currency to procure imported inputs! The House of Representatives may consider focusing on these critical priorities. The involvement of petulant legislators in regulatory issues sends another wrong message to investors and raises rather than reduces the risks of doing business in Nigeria.

 

Opeyemi Agbaje