God knows I tried. For years I wrote and laboured, even getting into politics to see how I could directly help, since joining the big 2 was an impossible or untenable option. I put out all my ideas on our economic situation, from how I believe we could attain growth, to how to manage inflation, and how to urgently manage the Naira value. I’m afraid the situation is no longer redeemable. And Nigeria hangs at the edge of a fiscal cliff, which may likely lead to a massive economic decline: a meltdown.
I worry at how little rigorous economic discussion has gone on in this country in the past 13 odd years, with the last 7 being the worst of times. What we passed off as “economic discourse” is full of deception. So-called “respected economists” and the impostors who often occupied their positions came to the table bearing biases and agendas. Some came to work for the banks, and some for even larger, more sinister principals.
Now, we face the likelihood of a meltdown. Inflation promises to run away. I don’t see what anyone is doing to prevent this, or any discussion as to what people should do if this happens. Should we just live through it, as our people become food insecure by the millions? Is there anyone thinking about food sufficiency if the entire world goes into a crisis and everyone clams up and fends for their own people? I had been an advocate of double-digit growth. I still am. But we didn’t seize our chances when we could. Today, it is about sheer survival. Why do we roil around in perennial regret?
This means that soon enough, the Nigerian government will be unable to meet its obligations. I fear for those who are attempting to go into government today, whether in elective or appointive posts. Nigeria’s statistical figures recently showed that we now spend over 100% of our revenue on service debts. So, where will we find the money to meet other obligations? And, as our crude oil profits are offset by our imports of gasoline, the federal government is forced to look for alternative sources of funding. The national oil company, NNPC Limited, recently attained a limited liability status, saying that it will no longer contribute to federal allocations on a monthly basis. The point is really that there is nothing to contribute. Will the company, however, be run as a proper limited liability company, or will it continue to be wasteful? Where are the necessary staff rationalization and salary cuts that will be the next action of a limited liability company? Are states and other stakeholders still spellbound? Or will they wake up sometime in the near future and discover they’ve been shortchanged?
The Federal Government under Buhari has also shown no capacity, and the fiscal side, led by the Ministry of Finance in particular, has been shy about taking the needed firm action that may save us from this fiscal cliffhanger. They have been timid in pushing through luxury taxes, excise duties, capital gains taxes, road taxes, and other forms of revenue that are progressive and could generate the needed funds. They like to speak about how we have a revenue problem – and yes, we do – but are short on moving on it for political reasons. Now, the chicken has come home to roost.
On the monetary side, the naira value is becoming uncontrollable. The Central Bank of Nigeria (CBN) is left to carry the can. A gap of at least N230 has emerged between the official rate and the more-accessible ‘parallel market rate. This is one of our worst nightmares – perhaps simply the worst – because the exchange rate is tied to inflation and perception. It is a phenomenon that feeds on itself and leads to a spiral for the following reasons:
Inflation stands at 18.6% and the Central Bank’s Monetary Policy Committee (MPC) has raised the benchmark rate by 100 basis points (1%) in the last two consecutive meetings. As much as rates are being raised—which should theoretically slow down inflation—the opposite has been the case. The higher the Monetary Policy Rate (MPR), the higher the inflation. This could be traced back to the origin of inflation. My view is that our inflation is multi-dimensional. Some of our inflation comes from interventions for COVID-19, which meant that people were paid a lot of money for doing nothing. This is what is happening in the rest of the world. Inflation caused by free money.Also, part of our inflation comes from importing inflation from all parts of the world. Lastly, producers, retailers, and importers have to reflect to survive by marking up the cost to consumers since they now get their supplies at higher rates.
Higher MPRs mean that banks raise their lending and, to a lesser extent, deposit rates. When this happens, productivity reduces as investors park their money in banks to earn high-interest rates. Companies also stop employing or expanding their capacities. Some lay off or even close down entirely. Higher MPR should be bad for an economy like ours because it slows economic growth. And we direly need growth. In our instance, though, it is a double tragedy. Not only has it not led to a slowdown in growth, but it may lead to the new lending units like Fintechs increasing their already prohibitive interest rates on very small borrowers who are presently groaning under the burden of predatory borrowing with rates already as high as 120% per annum (100% flat monthly).
And some pundits say Nigeria should summarily deregulate the petrol sector. In fact, that is being mouthed off as the singular solution to our problems. No chance! Even the government knows that it will be the recipe for collapse – of the government and perhaps the country. If the price of petrol should hit N900 per liter as a result of subsidy removal today, inflation will hit 300% easily, and that inflation will continue to feed itself into a spiral. Companies will close and turn people out. And there will be riots on the streets—this time worse than in EndSars. The issue is that such social breakdown may continue until interlopers seize control as they did under the Endsars, but this time much worse. Those into regime change for the heck of it are around the corner. Those who are interested in separatism and anarchy will also show up for the party. I believe, though, that we can embark on gradual deregulation, and we could also combine that with petrol taxes—as is done everywhere in the world. That way, we might exit the quagmire earlier. An N50 petrol tax per liter will go a long way if well-utilized. This will require legislation too.
Nigeria is also stuck in a perpetual trap of low productivity. The truth is that all of us are not producing enough. I never get tired of analyzing our exports against our imports. This situation has been going on for decades now. In fact, it was a poisoned chalice handed to us by departing colonialists. We are primary product producers… mostly crops… till today. We are locked into a situation where we can only grow crops and sell them yearly. Yet we need the most sophisticated imports from the world. And we are indeed bingeing on it. Abroad, nobody buys a phone in cash. But here, we buy the most expensive phones, cars, and other technologies, cash down, without worrying about what it is we are producing that justifies that, since we live in the same globalized world as everyone else. If the producers are buying everything on credit, who are we to buy in cash? And why are we not thinking of being modest about it? People buy houses on 30-year mortgages abroad, but we buy or build in cash over here. How do we help our productivity crisis? How do we ensure we deepen the economic complexity of the goods and services we sell to the rest of the world? We say we have a dollar shortage. Instead, I believe we are experiencing a scarcity of productivity, innovation, and common sense. Unless this changes, this economy can never get into the balance of payment positive territory in real terms, even in 500 years.
And in order to force us to be productive and innovative, we need to close this economy down in a clever manner. The biggest disservice we’ve done to ourselves is devaluing our currency while at the same time opening ourselves up to foreign imports. A devaluation means that foreign imports are far more expensive. This means that everything must be done to help your people replace what they cannot now afford that comes from abroad. If you don’t achieve that, you expose your people to poverty, hunger, and malnutrition on an industrial scale. The same thing happened when Nigeria deregulated the petrol sector in 2016 by increasing fuel prices from N87 to N145. People accepted it because this was Buhari. But the next thing that happened was that this N145, which was about 80 cents when the Naira was N199=$1, soon became like 40 cents after we devalued to N360. The subsidy gap opened again and was rechristened “under-recovery”. Devaluation and deregulation are two mutually exclusive policies for countries that want to stay out of trouble. So too are devaluation and an open economy.
AMCON ETC. DEBT CRISIS
Our Ministers of Finance like to say that Nigeria has a revenue crisis. For one, they did absolutely nothing about that revenue crisis. They are usually politically emasculated. Rather, we hear of import duty waivers given to very powerful people in society. In my view, we have a debt, revenue, and expenditure problem. Our fiscal cliff reflects our debt crisis, as we now spend ALL of our revenue servicing debts. This past quarter, we spent N1.94 trillion servicing debts, while our revenue was less than that figure by N300 billion, at N1.63 trillion. This is ridiculous. And I believe we haven’t started paying the principals of our debt; we are only dealing with interest for now. Kemi Adeosun was big on debt, and perhaps because of her patronage, she recently got tax-exempt status from the US government to raise funds for her NGO.
Our national debt stock is about N41 trillion, or close to $100 billion. This is about a quarter of our GDP. But when we add government borrowing from people’s pensions, the borrowing that was used in intervening in the bad bank, AMCON, and the Federal Government’s exposure to the Central Bank of Nigeria, perhaps we are looking at at least another N35 to N40 Trillion, taking our debt to GDP ratio to over 50%. Of course, debt to GDP is a meaningless index. What about debt to revenue? That is where you find our economy is legless.
You ask yourself, why has the government played deaf and dumb since 2015 at least? When people cried and shouted and complained about the choices our federal and state governments made—their fleets of luxury cars, their frequent luxury travels, and crazy emoluments—this government behaved like they had no ears. Is it not wickedness to sleep through this and then wake us up to this nightmare? This is the expenditure problem I speak about. It has been sheer insanity since we returned to democracy, but more so in these past few years.
What may come
We could potentially sit at the precipice. This time it is potentially for real and all we need is a trigger or a rash, not-well-thought-through action and boom! We may see the Naira devalued to N1,000 or less. We may also see inflation spiral to over 3-digit numbers. We may not feel much impact, apart from a moderate addition to inflation if, for instance, interest rate levels climb to the 20s or 30 percentage points. Our biggest challenge may be spiralling inflation as a result of price adjustments, price gouging, loss of confidence in the government, devaluation, and the reaction to a new global economic, financial, and/or currency crisis. It could easily be bedlam on Nigeria’s streets as people’s wealth gets totally eroded. We need great economic thinking by patriots now more than we ever did. Truth. No jokes anymore. We’ve wonged as many bullets as we possibly could.We may potentially be staring at a Wiemar, Germany scenario, with crimes spiking on our streets as we need a wheelbarrow load of money to buy bread. We may need our traditional African social capital to kick in at short notice and hold up for us. I think we are at the epoch where the world totally hands off Nigeria and sees what we can do with ourselves, especially now that every country is nursing their own wounds.
What to do
Claw-backs through an elite consensus. We have to sell the idea that we all must save our country. We need highly communicative leadership that will:
It is not enough to point fingers. Also, pick up a mirror and look at one of the culprits. Only irresponsible people will think that this is another opportunity to destroy the little infrastructure that Nigeria owns. Protests are good. But productivity and a reordering of our individual priorities is even better. We all should declare a moratorium and focus on the very bare essentials for at least two years. And those who have wantonly stolen what was not even enough may be hung, drawn and quartered.