By Omoh Gabriel
When the global financial melt down started mid last year, it was widely believed that the toxic assets in America and European banks were not in African banks. The banks were thus given a clean bill. But right from the very beginning experts had warned that the financial crunch could lead to economic recession which would have a dire consequence for the Nigerian economy. Crude oil prices then had come down to $82 per barrel. Nigerians took the whole thing for granted faithing that in the least crude prices will stabil;ise at $50 per barrel. So the government went ahead and proposed the 2009 budget on $45 per barrel of crude. Today oil prices are in the region of $40 per barrel and some things lower. Revenue from oil has plunged, external reserves in which the country boosted has dropped to about $50billion from close to $70 billion mid last year. The naira exchange rate has depreciated by about 25 per cent.
The government faced with the stack economic reality set up an economic crisis management committee headed by the President himself. The committee, which will coordinate a new economic framework, is to be headed by the president himself, according to the Punch newspaper Wednesday. Special Adviser to the President on Communications, Olusegun Adeniyi, who announced the new arrangement while addressing journalists at the State House in Abuja, said the Steering Committee, would work with a reconstituted and reinvigorated Economic Management Team. He explained that the new national economic management framework would provide a more holistic and well-coordinated response to the economic recession.
He said the National Economic Management Team would establish technical working groups that will be required in accordance with the objectives of the new economic management framework. According to him, the new committee would be responsible for assessing the impact of the global economic crisis on Nigeria with particular reference to the nation’s annual budget, financial and commodity markets. If the government was caught unawares by the global recession it is not because it was not well informed but probably because it chose to be complacent about it.
Dr. Ngozi Okonjo-Iweala, Managing Director World Bank in October in Washington had said that Nigeria and other oil exporting countries face the danger of dwindling revenue as the world search for alternative source of energy and must act quickly to diversify their revenue base. She said ‚ÄúOil is a very difficult thing to forecast you see the volatility, the movement of oil prices, the trend is down and oil is about $82 a barrel if I am not mistaking this is a far cry from the $147 that we are talking about not so long ago. What does this mean, there is so much volatility in the oil market we do not know where the price is going to, if these developed countries go into recession the demand for oil will fall and that will have an impact on the price unless OPEC decides to restrict supply even more. If you are in that position it means you have to be much more prudent with your budgeting.
The World Bank Managing Director said ‚ÄúOil exporting countries have to be mindful that alternative sources of energy could be generated and they have to themselves diversify their economic base, that is what it means that if you focus only on one commodity and something hit that commodity you will have a lot of difficulty. They have to focus on: diversifying, that is what Nigeria and other oil exporting countries should be doing, Nigeria has good agriculture, it has to build up the good value chain, it has a strong financial services chain, Nigeria has so many other things such as other minerals, it have not even developed them. So diversification and prudent management of the resources being generated now and in the past years of oil boom.
So the economic management thing has to take her advice by developing policies that would diversify the economic, revenue base of the country.
The IMF recently said that the current global financial crisis will have a significant impact on Sub-Saharan Africa this year. Although the region is positioned to record positive rates of growth of 3.3 per cent, compared to negative output in the advanced economies, this represents a sharp slowdown from recent years, according to Antoinette Monsio Sayeh, the International Monetary Fund’s African Department Director.
Ms. Sayeh spoke at the seminar Africa: Sustaining Success in the Face of Global Turmoil, held at the European School of Management in Paris and co-hosted by the IMF and CapAfrique. Lionel Zinsou, President of the Strategic Council of CapAfrique; Daniel Cohen, Professor at the Ecole normale sup√©rieure et Ecole d’√©conomie de Paris; Jean-Michel Severino, Managing Director of the French Agency for Development, and Mand√© Sidibe, Chairman of the Ecobank Group Board of Directors, were among the panelists.
Ms. Sayeh said in her presentation that countries in the region will have to deal with slower global growth, large falls in commodity prices, and reduced financial inflows and that the international community must maintain its assistance to Africa to live up to the Gleneagles commitments.
According to the IMF Fiscal balances for the region as a whole will deteriorate significantly, especially among oil exporters, the IMF expects. The Presidential economic crisis management team is expected to come up with policies that will encourage prudent management of the available scarce resources and reduce corruption to its barest minimum.
The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) believes that the Nigerian economy has been characterised by structural imbalance which has been responsible for the macro-economic instability in the country. The body of businessmen feel very strongly that this is the time to restructure the economy and ensure proper diversification of the resource base of the nation. The Director General of NACCIMA, Mr Lawrence Adekunle, while addressing the export stakeholders meeting, stated that the economy is heavily import-dependent, both for industrial raw materials and finished products. In his view this has far reaching implication for the country which he said are grievous on the country‚Äôs foreign exchange, adding that this will as well result in huge debt profile, unfavorable balance of payment, weak industrial base, poverty, underdevelopment and host of others.
According to him, since the 1980s government have decided to make policies to promote exports, as a way of redressing the structural imbalance in the economy as well as putting the economy on a track of growth and development. He noted that the emergence of oil in the nation economy since the 1970s which is now the major contribution to government revenue as well as foreign exchange earnings, has led to the neglect of other sectors of the economy at the same time creating serious structural imbalance in the economy.
Furthermore, he stressed that the ability of a nation to generate foreign exchange determines the strength of the nation‚Äôs currency as well as the economy, adding that this will work out adequately where there is diverse sources of foreign exchange and not from a single products as is the case with Nigeria. Adekunle said the policy focus failed to adequately take cognisance of the existing structure of production, which reflects inadequate production of exportable surplus that can quickly take advantage of change in relative international prices.
However he noted that no account was taken of the raw material needs of domestic industries, even where it was clear that the supplies of such raw materials could not be increased in the short run, saying that this led to shortage of locally produced raw materials for domestic processing of manufacturing industries, as was the case with cocoa processing industries.
He pointed out that the Nigeria state has failed to realise that most of the country‚Äôs current manufacturing outfits grew out of the policy of import substitution, and therefore, not geared for export promotion. ‚ÄúNon-oil export promotion is an economic task that could no longer attract mere lip service. He urged the Economic crisis management team to develop specific programmes, assigning definite responsibilities to the banks. In constituting a committee that should be charged with the production of programmes in form of an economic blue-print for non-oil export promotion, Nigeria banks, which are expected to play significant roles, must be included. The Nigeria Export-Import Bank (NEXIM) should also be overhauled in order to become more functional and more effective‚Äù he sated.
Federal government has been called upon to establish a dynamic national export strategy that would help improve the dying non-oil export industry which has become eminent in the country. The call was made at a discussion at a discussion forum held in Lagos by some stakeholders in the export sector during the week in Lagos. The forum which was attended by some experts in the export sector came on the heels that the country’s export industry is facing some challenges that might probably not make the industry work effectively if nothing is done on time.
Amongst those who attended include, Lagos State Commissioner for Commerce and Industry, Mr. Niyi Oyemade, Principal Manager, Market and Product Development, NEPC, Mrs. Evelyn Obidike, MD Koinonia Ventures Limited, Mr. Femi Boyede, Publisher M2 Magazine, Mr. Akin Adeoya, and Senior Manager, NEPZA, Lagos, Mr. Mu’azu M.H. Ruma.
Femi Boyede suggested that there should be a strong case for the diversification of the economy and for the government to make policies that will revive the non-oil sector as there was no future in oil-generated revenue. According to him, “Our dependency on oil-revenue has badly affected our psyche and it is killing the non-oil export industry. Today, we are calling on the government to go back to the drawing board and review policies and practices that are not favourable to the exporter and also to apply a national export strategy which will inculcate the export culture in the country.”
Other problems identified also include lack of domestic competitiveness, infrastructure and undue liberalization of the economy which facilitates dumping of products made from Asian and other advanced economies into the Nigerian market.
Although, Bashir Borodo, the President of MAN described the present situation as unfortunate he said that the time has come when the country is likely to pay dearly for the recent devaluation of the Naira and its neglect of infra structural facilities like power, roads, rail transport and water. He said that the country’s refusal to address the problem of high interest rates which he said had combined with the poor state of infrastructure to increase the cost of doing business in the country would also manifest during the year. “These things should be expected because the problems are increasing on hourly bases. The devaluation of the naira alone will make importers and manufacturers to pay about 30 to 40 per cent rate. “The port congestion and lack of easy access to credits are all affecting the performance of the sector,” he stated. The team of course will do well by designing policies that will in the short and medium term address power supply, interest rate charges, port congestion and the reduction of the cost of doing business in Nigeria
The President of Lagos Chamber of Commerce and Industry Solomon Onofowoko said the composition of the team is faulty in that the organise private sector bodies are not represented in Mr. President team. He said ‚Äúwe believe that what is proper is to take those in the business world into the team, we expected them to take those who are in the business world, apart from Aliko Dangote, most of the private sector bodies are not selected in the team and we also believe that government has the national planning commission and other relevant bodies charged with managing this economy including the CBN should be those involved and not states governors. What is important for us, is to set this economy in the right way, and the only way we can do that is to try and harness all the material and human resources available to develop the economy.
The team he said must address the capital market crisis. According to him so many people have lost money in the capital market, some peoples‚Äô life savings have been lost and that is unfortunate. What is happening all over the world is that governments are trying to re-organise their economies by either buying shares from banks or capital market, this he suggested the government of Nigeria should go on to do. If the government is not going to do this it should stimulate the economy in other direction. If the power situation is addressed seriously, a lot of money that our members are spending on power alternative, will not be spent. Some foreigners who wants to invest in Nigeria will always say they don‚Äôt want to start buying generators, they don‚Äôt want to start buying diesel, Ghana today has steady power supply, they hardly have blackouts, which is very common in Nigeria, so these are the type of thing that can humiliate the economy and that can also save a lot of money for businesses and manufacturers, so they can also channel that money into buying more machines, and when you have more machines, you have more people to man the machines, so you are taking many more people out of the unemployment market. So these are the things that the steering committee should look into.