Economic Revival Scheme: A Waiting Game Without End?

Thousands gather in protest in Ojota Lagos during the general strike over fuel subsidies in the Federal Republic of Nigeria. The West African state is the largest oil exporter in Africa to the United States., a photo by Pan-African News Wire File Photos on Flickr.

Economic revival scheme: A waiting game without end? .

Wednesday, 29 February 2012 00:00
By Femi Adekoya Business Services
Nigerian Guardian

SINCE 1986, when the nation’s economy walked into the traps of Bretton Wood institution’s dictates, its revival had remained the recurring rhetorics of successive administrations, with the populace being persuaded to wait for results of their respective turnaround measures.

There were talks about light at the end of the tunnel. But this appeared visible only to the political elites and their collaborators in the business world.

While the burgeoning class of rulers continued to revel in opulence, the middle class assumed a shrinking profile while members of the lower class appeared to have resigned themselves to fate, awaiting a divine intervention.

Amid a still struggling economy, bedeviled by woes of rising unemployment, inflation and corruption, more Nigerians now live in poverty as revealed by the National Bureau of Statistics (NBS), even as the effective implementation of government economic policies fail to provide the soothing balm for the impoverished majority.

Based on the recent figure from the NBS, about 36 million Nigerians are in need of full-time work, with many of the present workforce without health insurance. A good number of the poor have jobs, but receive too little pay to lift their family up from poverty—the lowly paid are most at risk and are hit proportionally more by rising utility prices.

With the 2011 financial year closing on a gloomy note, amidst reforms in the financial sector, the middle class, which has been losing ground for over three decades continue to lose its membership as the poverty line widens.

Although, the Debt Management Office attests that Nigeria’s present debt profile is sustainable, economic analysts however fault the motive behind the continued need for loans by the government, especially when the impact of such loans is barely felt in critical areas of the economy.

Like some analysts put it, the Greek mythology may sound interesting, its debt and consequent bailout plan however is on the contrary. Nigeria presently walks a tight rope considering the economic implication of government’s actions, even as the 2012 fiscal policy awaits amendment and implementation.

If the legislature approves the N1.3 trillion being sought by the president, Nigeria’s debt stock will rise to N7.489 trillion. The country’s external and domestic debts as at September 2011 were put at N6.189 trillion. The domestic debt was N5.3 trillion while the external stock hit $5.6 billion. The Federal Government owes $3.316 billion while the 36 states of the federation were indebted to the tune of $2.317 billion, bringing the total external debt owed by the two tiers of government to $5.633 billion.

Recent statistics from the NBS showed an alarming data of deteriorating standard of living in the country, confirming that an estimated 71.5 per cent of the population to be relatively poor as at the end of 2011.

Specifically, the figure showed an increase of about 2.5 per cent above the 69 per cent rate recorded in 2010. With a population of about 150 million, the report said about 112.52 million Nigerians were recorded to be living below poverty line during the period under review. The proportions of the extremely poor, moderately poor and non-poor Nigerians were 38.7 per cent, 30.3 per cent and 31 per cent respectively last year.

Furthermore, the NBS placed the country’s misery index at 34 per cent. The misery index measures the level of hardship in a country and is calculated using the unemployment and inflation rates of that economy. According to the bureau, the figure of unemployed Nigerians in the first half of 2011 was 23.9 per cent, up from 21.1 per cent in 2010 and 19.7 per cent in 2009.

The report also showed that poverty was worse in the North West and North East zones of Nigeria whilst the South West and the South East recorded the lowest poverty rates in the country. But the number of persons living in poverty has been rising since 1980 as revealed by the following table from NBS: 1980: 17.1 million, 1985: 34.7 million, 1992: 39.2 million, 1996: 67.1 million, 2004: 68.7 million, 2010: 112.47 million.

The NBS report makes it quite clear that with more and more Nigerians being sucked into poverty, a second mishap is also waxing stronger – the gap between the rich and the poor is widening. Such income inequality can be seen from consumption patterns.

Specifically, the top 10 per cent income earners were responsible for about 43 per cent of total consumption expenditure; the top 20 per cent were responsible for about 59 per cent of total consumption expenditure and the top 40 per cent were responsible for about 80 per cent of total consumption expenditure.

Although the poor quality of data available for assessments has been identified, experts still believe that the unemployment rate is much higher than the data made available by the NBS.

With a gloomy 2011 financial year, there have been questions about Nigeria’s economic state considering President Goodluck Jonathan’s call to the National Assembly to clear the coast for him to borrow N1.3 trillion from the World Bank, African Development Bank (ADB) and others in order to execute some critical projects.

The call is contrary to the claims by President Jonathan, last year December that the country was not broke, saying the current push for fuel subsidy removal by his administration was meant to strengthen the country economically.

Jonathan had said, “we are not broke, the Nigerian government is not broke, but as a responsible father, we must prepare for the future of our children,” he emphasised, adding that no responsible country could survive by a borrowing spree.

While government tries to defend its position, economic experts, however, believe that with the government’s continued profligacy and the several distortions in the economy, Nigeria may soon be looking at the need for a sustainable bail-out plan.

Furthermore, the need to stem the rising inflation in the country has also reared its head in economic discussions, especially after the nationwide protests on the removal of fuel subsidy early in the year.

Although economic experts believe that a measure of inflation is good to stimulate economic growth, but the problem arises when the general price level (of goods and services) rises above five per cent every year. In successful economies, the authorities aim to keep inflation rate below two per cent to stabilise purchasing power of income earners and preserve their welfare and value of pension funds. In Nigeria’s case, except the inflation rate is addressed, the present rate, which has generally been in excess of 10 per cent, may rise to about 15 per cent.

Since the partial deregulation of the downstream sector in January, many Nigerians have had to cope with the increased price of goods and services. Thus, a family will need to grow its income by at least 10 per cent yearly in order to survive. In progressive economies, the general wage structure is intrinsically tied to inflation rate so as to prevent a meltdown of the social and economic welfare of citizens.

With some states still complaining about the inability to pay the N18,000 minimum wage, the rising inflation rate will soon outstrip static income for a long while before attempts are made to remediate the disparity.

Based on the figures above, the National Bureau of Statistics recently captured the grimy situation in its survey in which it noted that about 100 million Nigerians live below $2 per day.

A school of thought, however, believes the growing concern about the excess liquidity in the system which has subsequently affected inflation rate may be attributed to the payment of monthly allocations to the three tiers of government by the apex bank, which proceeds soon after to borrow back and sterilise a large chunk of the funds, that is, mop up its self-inflicted excess liquidity. Thus, the greater the monthly allocations, the greater is our national debt and higher also the service charges and cost of borrowing to the real sector, and ultimately the higher the rate of inflation, with increasing deprivation for most Nigerians.

In his view, an economic analyst and company executive, Timeyin Ejoor noted thus, “it is difficult to fathom reason why government does not want to admit it is broke. The truth is that the nation’s economy in real terms is in recession, not just broke. All social indicators show that all is not well with the economy, and most of the ills are self-inflicted. Figures being thrown at us in the 2012 budget and CBN analysis of monetary operations are to say the least ambiguous. They say the economy is expected to grow by about eight per cent in 2012 while inflation is in double digits and unemployment a frightening figure of 24 per cent of the population, one of the highest in the world.”

“In simple terms it means that a quarter of the working population made up adults between the ages of 18 and 60 years are out of job. In real terms, the figure could be in the range of about 30-40 million Nigerians being jobless. Herein is one reason for our current social malaise, if you need one. The CBN further announced recently that it would keep lending rate at 12 per cent, which translates into continued high cost of funds. Simple economics dictates that in a regime of high lending rates, investment takes a dip. Simply put, it means cost of doing business remains high,” he added.

Ejoor explained further that the implication of monetary policies and economic decisions means many industries; already battling with several socio-economic travails, may produce below capacity. This is further compounded by the high inflationary trend occasioned by the recent hike in the cost of petrol by fifty per cent.

“I am wondering where the expected growth is coming from and indeed where the seven per cent growth recorded in the last financial year came from. I am talking of real growth, not that in the minds and books of government. I don’t know if the government is comfortable with the all-time low productivity in the manufacturing sector. Many have in fact closed shop because of the unfavourable operating environment, particularly as a result of government’s policy inconsistencies,” he stressed.

On his part, a lecturer at Guidance and Counselling Department, Faculty of Education, University of Ibadan, Dr. Ayo Ahmed while commenting on the need to address unemployment in the country, said, unemployment in Nigeria today has already reached a crisis point. This is so because, a lot of graduates turned out of our school systems do not have what is expected of them.

Education is expected to combine the hand and the heart. That is, an individual is expected to acquire the skills, the competencies and the knowledge that will make him, not only to be useful to himself, but also to the environment in which he has found himself. However, there is a disconnect in the content of the education and the students that acquire the skills in the school.

“Majority of the training that most of our students receive in most of our institutions today are just theoretical. We do not have the opportunity to allow majority of the students to be involved in what they are learning. If in the course of training, the needed skills are not properly acquired, what do you expect when the person gets out of the school system and tries to fit into the society?

In essence, the training in the educational system is bedeviled with a lot of challenges in terms of facilities to train the students so that they can match up with societal expectations. There is a need for the town and gown to connect in order to develop a relationship that will address unemployment in the country,” he added.

It could be recalled that President Jonathan in a letter to the Legislature recently, urged it to endorse his bid to borrow N1trillion (about $7,905,690,000) for the execution of the projects, even as there were also concerns in the Upper House that the executive arm of government did not properly package the 2012 budget.

The Senate Committee on Appropriation, which is scrutinising the budget, alleged that Ministries, Departments and Agencies (MDAs) had smuggled N1trillion into the document.

In a communication to the Senate and the House of Representatives, the president had explained that the fund would be used for Pipeline Projects for the Medium Term (2012-2014) as outlined in the 2012-2014 External Borrowing Plan. Jonathan further said the plan was designed to create jobs for Nigerians and grow the economy.

The letter reads in part: “I wish to inform you that a number of special initiatives were designed to put the economy back on track through growth and employment activities geared towards the implementation of the Transformation Agenda.

“The pipeline projects are at various stages of completion. Therefore, I present herewith a total external pipeline borrowing in the amount of $7,690,000 or $2.64 billion a year being cumulative facilities offered by the World Bank, African Development Bank (ADB), Islamic Development Bank, Exim Bank of China and Indian lines of credit.”

The Chairman, Senate Committee on Appropriation, Mohammed Maccido, who insisted that the Ministries, Departments and Agencies (MDAs) overloaded the budget, said, “the problem is that we are seeing projects that are not in the original version of the budget presented to us by the president and substantial part of these projects are being smuggled into the budget by the MDAs and ministers. Over 40 per cent of the projects in their budgets are not in the original budget. And we are saying no to the items so smuggled into the budget, which are over N1 trillion.

“So, we are right now comparing the budget as originally presented by the president and the version presented by the MDAs. Unless these projects are there in the original budget, we are going to scrap them. It is no longer going to be business as usual. These people are just smuggling in projects that are not in the budgets. And we are going to remove them,” he said.

Reiterating his stance on the need for government to cut down on its spending, Ejoor noted,” maybe we must agree with the president that the Federal Government is not broke. Indeed a nation that earns no less than 100 million dollars daily from crude oil sales cannot be broke. What currently obtains is the inability to allocate funds proportionally and dispassionately.

Recurrent government expenditure remains a whopping 85 per cent of annual budget, leaving only 15 per cent for capital spending. So, how then does the government expect to stimulate the economy?

With government seeking more funds to execute developmental projects, economic experts have continued to query the decision to borrow more, especially after the partial deregulation of the downstream sector.

In the course of the fuel subsidy debate, President Jonathan had said that government’s action was being misconstrued in some circles as one meant to inflict hardship on the citizens, whereas there were immense inherent benefits in removing the subsidy.

According to him, the gains of removing fuel subsidy include the fact that the government will have a breathing space, as it would have more funds to further intervene in key sectors of the economy and tackle critical issues in other areas.

He had said that though the nation was not broke, it would be economically suicidal for the country to further delay the removal, say for the two or three years, adding that the policy would restore greater confidence of foreign investors in the country’s economy, especially the oil sector, claiming that the move had already elicited positive responses from a few of them.

However, a month after the partial deregulation of the downstream sector, which would have provided some of the needed funds for infrastructural development, the nation is about to borrow more money to finance itself.

President Jonathan last week said the Subsidy Reinvestment and Empowerment (SURE) programme promised by his administration was no longer realistic.

The President said SURE was hurriedly conceptualised in January on the heels of the nationwide protest against the removal of the fuel subsidy. Jonathan added that the implementation was no longer feasible since the zero-subsidy policy planned by his administration was not being implemented.

In the withdrawn SURE document, government had put the total subsidy reinvestible funds at N1.134 trillion based on an average of $90 per barrel of crude oil.

According to the document, out of the total, N478.49bn would accrue to the Federal Government, while state governments and local governments would get N411.03 billion and N203.23 billion respectively.

The document adds that N9.86 billion would go to the Federal Capital Territory while N31.37 billion would be transferred to the Derivation and Ecology, Development of Natural Resources and Stabilisation Fund. Among the items the Federal Government promised to spend money on were the construction of the East–West road, construction of some roads and bridges in the six geo-political zones of the country and the completion of rail routes.