Nigeria’s Economy Out of the Woods

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GIMFIS RNN. Few people would bother with acronyms if all looked or sounded like the foregoing jawbreaker.

Its longer version, Government Integrated Financial Management Information System Revenue Reference Number is, oddly enough, not tongue-friendly either, but must be endured by Nigeria’s famously venal public servants. For GIMFIS, pleasant-sounding or not, is the latest weapon in the country’s fiscal authorities’ arsenal of corruption-busting policy initiatives.

Lagos CBDIt comes on the heels of the Treasury Single Account (TSA) launched a year ago to compel Ministries, Departments and Agencies (MDAs) to pay all government revenues into a single account overseen by the Central Bank of Nigeria (CBN). Incidentally, the GIMFIS policy took off October 1, the same day President Muhammadu Buhari flagged off Nigeria’s National Day Celebration with a powerful address that reinforced his firm resolve to keep up the anti-corruption fight, a major plank of his administration’s economy-fixing work.

GIMFIS is an IT-based system for budget management and accounting designed to improve public expenditure management, and enhance accountability and transparency. The Office of the Accountant General of the Federation (OAGF) introduced the new system when it discovered that some die-hard venal public officials were already sabotaging the TSA through the use of multiple receipt numbers, thus frustrating the reconciliation of collections.

As an Independence Day “gift”, to the nation, GIMFIS was quite a shocker for Nigeria’s notorious public service. But not so for Nigeria’s long-suffering people who voted in the administration to clear the rot in the system. The Government’s efforts to block the gaping loopholes in the public accounting systems continues to endear President Buhari to the masses in spite of the leader’s long absence from office owing to a lingering illness in the early part of the year.

On taking over the mantle of leadership in May 2015, President Buhari had left no one in doubt about his anti-corruption stance. He had famously cautioned that, “if we do not kill corruption, corruption will kill us” and gone straight-ahead into battle against economy-destroying entrenched interests.

Two and a half years down the road, Nigerians are all witnesses to the barrage of odious revelations anti-corruption agencies regale the populace with on a daily basis. Not even the judiciary has been spared. Nor the military, hitherto treated with kid gloves by previous administrations. Over 15 judicial officers including Supreme Court judges are currently facing various disciplinary measures or prosecution for corrupt practices. A former Air Service Chief is now undergoing prosecution for looting funds meant for equipping the military, after allegedly relinquishing various sums of money and properties, suspected to be proceeds of graft and blatant pilfering of the Air Force’s Funds.

The administration’s Whistle-Blowers Policy has been a hit. High profile past and serving public officials have been caught with large sums of purloined cash, stashed outside the banking system to avoid detection. Information Ministry officials say many affected corrupt officials have been secretly refunding stolen cash in return for some clemency. In all, loot and asset recovery has gone even better than can be expected in Nigeria’s peculiar circumstance where political exigencies tend to mar such sensitive inquiries or operations.

According to Information Minister Lai Mohammed, the anti-corruption agencies have recovered close to N50 billion and $3 million since it look the fight to light-fingered public office holders. About $10 million found in suspects’ accounts have been blocked, he says, but government is yet to move in on them until results of investigations into their sources are completed.

The judiciary weights in
Perhaps, the most significant sign that the President’s war on corruption is finally gathering momentum is the recent unexpected support from the judiciary. Chief Justice of the Federation, Justice Walter Onnoghen, is creating special courts for corruption cases to speed up the embarrassingly slow pace at extant courts. In a surprise move, the Chief Justice has circulated instructions on the need for accelerated hearing in all corruption cases, with a threat of ignominious dismissal and prosecution for judges found to have sullied the bench’s reputation in the course of their duties. President Buhari has not been silent about the uncooperative attitude of the judiciary in the anti-corruption war which he says requires the input of all arms of government.

Encouraged by the turn-around in the judiciary, President Buhari enjoins the National Assembly to come up with laws to strengthen the hands of the brave men and women going after treasury looters and corrupt officials. Add to this the increasing number of multi-lateral and bi-lateral cooperation agreements on criminal matters with friendly countries world-wide, the anti-corruption war may be tilting in favour of government after a long period of frustration.

Respite from recession
President Buhari was most fortunate to have made his Independence Day Broadcast after Nigeria’s economy had exited a morale-dampening recession. It gave the leader and the led hope and the will to keep up the policy initiatives deployed in the wake of the downturn.

The Economic Recovery and Growth Plan (ERGP), conceived and launched in April is Nigeria’s medium -term plan to drive the economy to a 7 percent growth rate by 2020. Coming from a contraction of over 2 percent in 2016, the plan seems quite ambitious.

Headed by Vice President Yemi Osinbajo, the Economic Management Team in conjunction with the Ministry of Budget and Planning got stakeholders from various sectors of the economy and representatives of the 36 states of the federation to fashion the way forward.

Budget and Planning Minister Udoma Udo Udoma, names three main objectives as restoring growth, which has been achieved; investing in the people and building a competitive economy through execution priorities. The priorities are: stabilization of the macroeconomic environment; and increase in revenue and cost- cutting.

These, policymakers hope, will lead to the four pillars of future growth namely:
• Achieving agriculture and food security
• Ensuring energy sufficiency in power and petroleum products
• Improving transportation infrastructure, and
• Driving industrialization through local and small and medium-scale enterprises (SMEs).

Stabilizing the macroeconomic environment
Inflation hovers around the 16 percent mark today while federal rediscount rate is 14 percent. This has pushed market interest rates to 20 percent and more. Manufacturers and other real sector operators are crying blue murder. They rightly complain that surviving in such an environment is near-impossible, especially when they have to compete with products from economic climes that operate with 2 to 3 percent interest rate.

Monetary authorities say they are equally worried by the high interest rate and are working to bring it down. The Central Bank of Nigeria argues that it had to fix its policy rate at such a level that will not unduly spook investors. With inflation running at 16 percent after touching a high of 19 percent, it would make no sense to drop policy rate below the current 14 percent.

The Bank believes that the inflation rate has been negatively impacted by the shake-up in the foreign exchange market which in the worst moments pushed the naira cross-exchange rate with US dollar to N520/$1 from N197/$1 before its successful intervention and tactical liberation of the market.

Nigeria’s import-dependence made the currency’s crash particularly painful as the pass-through effect pushed up domestic prices.

Fortunately, the central bank’s new flexible foreign exchange regime is returning dollar liquidity to the foreign exchange market, after the shortages caused by Nigeria’s dwindling external reserves. The reserve position is now being helped by rallying oil prices and better reserve management.

At about N310/$1, some measure of stability has returned to the foreign exchange market, engendering more salutary macroeconomic variables, including interest and inflation rates.

Increasing revenues and cost-cutting
For too long, Nigeria has depended on oil revenues to fund its budget. That seemed right in the days of high oil prices in the international commodities market. A year before President Buhari took over the country’s administration, oil prices hit a dizzying $145/barrel, literally swamping the treasury in foreign exchange. Unfortunately, the government of that day chose to fritter away the windfall and allow its functionaries to dip itchy fingers in the till. The result was that the treasury benefitted little while reserves diminished rather than grow. Little wonder the country plunged into recession last year when prices swung southwards, effectively cutting federal revenues and putting a strain on the budget.

The Federal Ministry of Finance has, in response, embarked on a series of initiatives to shore up government revenues. All revenue-collecting agencies including the Customs and Excise are being reformed and restructured for efficiency. The tax authorities have introduced measures to check tax evasion and to bring more people into the tax net. For instance, the introduction of tax identification numbers (TIN) for corporate bodies and individuals has enabled the Federal Inland Revenue Service (FIRS) to increase collection as tax-dodging has become less appealing to corporates and citizens alike.

By adopting the International Public Sector Reporting Standard (IPSAS), the Ministry is generating a United National Database of Assets, an assets register for tracking and managing government’s huge investments in capital assets. This makes sense in view of government’s increased allocation of resources to capital expenditure: 30 percent vs 20 or less in the previous dispensations. The result has been better control and management of government assets in the service of the nation.

Perhaps, the most visible cost-checking measure is the administration’s Payroll Clean-up initiative. Government has saved up to N6.6 billion on a monthly basis since its inception. Government is also cutting down on public office holders travel and sitting allowances. All these are part of the Fiscal Sustainability Plan (FSP) which is all about discipline.

Designed to run for 18 months, FSP reforms also set the tone for the relationship between the 36 states and the Federal Government. Significantly, the plan incorporates milestones which each state must attain to trigger funding from the federal purse. The five key objectives of the FSP reform:
• Improve Accountability and Transparency
• Increase Public Revenue
• Rationalize Public Expenditure
• Improve Public Financial Management and Sustain Debt Management.

Developing agriculture and food security
Nigerians cannot forget that before the oil boom of the 1970s which turned the country into a mono-economy, dependent on oil revenues, agriculture was the mainstay. Many believe that a return to agriculture is the answer to the economy diversification question.

So does the government of President Buhari, with, of course, the proviso that its value chain must be developed to lead to industrialization, without prejudice to the growth of other sectors that together make a country’s economy truly sustainable.

For proof of government’s prioritization of agriculture, look no further than the Anchor Borrowers’ Programme (ABP). Launched in the aftermath of President Buhari’s inauguration, the ABP has been a spectacular success with N43.92 billion released to date, through the central bank and 13 participating financial institutions. The statistics are as illuminating as they are encouraging.

• 200,000 small-holder farmers from 29 states are beneficiaries of the scheme.
• 233,000 hectares of farmland are seriously cultivating eight commodities, namely rice, maize, cotton, soya-beans, cassava and groundnuts. In addition, numerous poultry and fish farmers are doing business like never before.

The scheme has also enabled cooperation between state governments interested in improving the agricultural sector in their domains. Lagos and Kebbi states, for instance, have made success of a joint rice-production venture that yields the popular fair-prized Lake (Acronym from the two first letters of the states’ names) brand of rice. Ebonyi and Jigawa states are also doing brisk business investing in rice and fertilizer production. Nine other states report increased yields in the production of palm oil, rubber, cashew and potatoes.

Interestingly, the increase in local fertilizer production surprised even the worst skeptics. 11 blending plants with a capacity of 2.1 million metric tonnes have been reactivated, thus helping to save $150 million in foreign exchange as well as N60 billion in subsidies. In the market, the prize of the standard 60kg bag of fertilizer has dropped from a forbidding N13,000 to N5,500. Buoyed up by this result, government is already working on another agriculture-boosting initiative — the Commercial Agriculture Plan for Youths — with the aim of providing jobs for a minimum of 100,000 young persons. All these are running simultaneously with other programmes championed by the central bank and various states with comparative advantage in agriculture.

Power to the people
Despite the enormous resources, estimated to be close to $20 billion, thrown at the problem of power generation and supply to the economy, electricity shortage has persisted. Successive administrations have come and gone after mouthing their resolve to solve the power problem without success. Two years into the life of President Buhari-led government, power generation via official government approved and monitored agencies managed to touch 7,001 megawatts in September. That is just scratching the surface for an economy some consider Africa’s largest and most resource–endowed.

Government is embarrassed and the President himself says so. It is an inherited problem which until recently was squarely in government’s hands. The previous administration’s privatization effort seems to have been bungled, leading to a new resolve to find a permanent solution.

For now, the goal is 10,000 megawatts by 2020. But the problem surely transcends the attainment of that goal, since estimates say Nigeria needs more than triple that figure to drive its industrialization vision. Besides, the entire configuration of the power sector is still shaky with transmission still largely left in government’s unsure hands. Surely, government has more critical thinking to do on the way forward for the power sector.

In the interim, President Buhari has approved the re-starting of abandoned hydro-electric projects including the Mambilla Power Project which can greatly increase generation in conformity with today’s green energy sentiments. Considering the place of power in the economy of any nation, the power conundrum remains an open seminar with discussants in both the public and private sectors locked in an unending debate on the way forward.

Keeping the nation moving
The current road transportation crises in the commercial city of Lagos over truck drivers’ harrowing experience on the main roads leading into Apapa and Tin Can Ports says a lot about the terrible shape of transport infrastructure in Nigeria.

Since the Nigerian military government in the 1970s sinisterly neglected to expand or improve the railway system put in place by colonial Britain, Nigerian roads have borne the brunt of heavy cargo movements across the country.

To make matters worse, successive administrations have paid lip service to the entire transportation sector, leading to the collapse not only of the roads but also the aviation and waterways subsectors, all which flourished under the colonial administration.

President Buhari’s administration has been bold enough to identify unbridled corruption as the main reason for Nigeria’s infrastructure decay. Analysts reckon that the country requires investment of $70 billion per year in the next decade or so to fix the infrastructure deficit. Obviously, there’s no hope of getting anything close to that amount without the involvement of the private sector.

Lagos State government, arguably the leading light in governance and forward-looking initiatives, has proved that government can employ new initiatives with private-sector involvement in infrastructure development. The Lekki Express toll road, a success story, is an example of such thinking.

The Federal Government, thinking along the same lines, recently approved the concessioning of four major airports in the country after years of unsuccessfully relying on clueless public servants for service delivery.

For the rail sector, work has commenced on one of the two major trans-Nigeria projects, to be financed by China’s Eximbank. The goal is to move heavy goods off the roads to prolong the life of the main trunk roads that link the states in the country.

The projects will drop the high cost of movement of goods and produce which has been identified as a big hindrance to industrial growth. Transportation cost is known to drive prices of goods up at least 20 percent in Nigeria.

There cannot be industrialization without sustained efforts at diversifying the economy. Even when Nigeria survived mainly on oil receipts, government policy for benefitting from the value-chain in the sector was mere bluster. The economy’s managers were satisfied with income from crude sales alone. All refineries built and run on the citizens behalf were simply sink holes for government funds and feeding troughs for corrupt officials. Little or no attempts were made to add value to extracted crude.

Today, diversification from oil is the catch phrase of the ruling elite, yet many do not realize the magnitude of structural change in governance that would be required to achieve that objective.

Since manufacturing has been identified as the base of any industrial society, government is focusing on small and medium-scale enterprises (SMEs) producing light manufactures and basic services as the key to building a productive, job-creating economy.

The Central Bank of Nigeria has made the support of SMEs a priority in its intervention programmes in the economy. It reasons that if many local entrepreneurs have access to finance, the large number of businesses that would dot the landscape would be beneficial to the nation.

To create demand in the economy, the government’s fiscal stimulus packages have started yielding results. The N500 billion Special Intervention Programme, for example, funds the N-Power Job Creation Scheme (without prejudice to CBN’s other initiatives) and provides soft loans to small-scale traders and artisans. Government is also providing conditional cash transfers to the most vulnerable in society; as well as free feeding schemes for school children.

The upshot is that more money gets into the hands of more people in the populace; businesses that once complained of dampened demand are beginning to see a pick-up and can ramp up production to meet growth targets.

Wither Nigeria?
The last word on the Nigerian economy and where it is headed surely belongs to President Buhari who has hinged his administration’s fate on the success of the Economic Recovery and Growth Plan. Nothing can articulate this better than his own words.

“The (ERGP) builds on Strategic Implementation Plan and sets out an ambitious roadmap”, he says, referring, obviously, to the 7 percent growth rate target by 2020. A tall order, no doubt.

Even so, the Nigerian leader is optimistic and he has the words to match his bullishness: “We seek not just to take the Nigerian economy out of recession, but to place it on a path of sustained, inclusive and diversified growth”.

The feasibility of the plan and the probability of its success will become cleaner as the administration approaches its destination in 2019.

By Amaka Enyi


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October 2017