Today's Leaders Forum Praise 2019: SOLUTIONS TO THE UNSTABLE ECONOMY OF NIGERIA - Monjolaoluwa Emmanuel Adesanya

It's no longer news that the Nigeria we are right now is not the Nigeria of our dreams... in a presentation to mark the anniversary of Today's Leaders Forum on Monday, 9th December, 2019 delivered by Monjolaoluwa Emmanuel Adesanya, VAM News reports. 

Monjolaoluwa Emmanuel Adesanya

The giant of Africa that cannot take care of it's citizens effectively. World Bank wrote a publication concerning Nigeria which it titled poverty in the midst of plenty. 

The main message this publication was passing Is Nigeria has a wide array of potential which are mostly untapped thus making it a country with rich potentials but inhabited by the poor. I'm sure to some of us, you would say but Nigeria has a high GDP  which is infact the highest in Africa, thus we can conclude that Nigeria is rich. Well true, but the gdp per capita figure says otherwise.

After the rebasing of the economy in 2014, Nigeria overtook South Africa has the largest economy in Africa with an estimated GDP of 510 million dollars. 

However I personally believe that this statistics is underestimated not because of calculation error but due to the relatively strength of informal sectors of the economy which is not always included when calculating a nations GDP. 

Economic instability is an indication that a nations economy isn't healthy. An unstable economy is that which is characterised with frequent boom and burst. It's worthy to note that it's not the boom that makes a nations economy unstable, it's the bust. An unstable economy is one which is very fragile and volatile. Such an economy is not a safe haven for potential investors. 

Economic instability arises majorly from shocks especially negative shocks to the economy, however there are other sources of economic instability independent of shocks to the economy. These shocks can be divided into negative demand and negative supply shock. Negative demand and supply shocks refers to activities that lead to a reduction in aggregate demand and supply, thus creating a disequilibrium in the economy. Increase in the frequency of thses shocks translates to an higher degree of economic instability. 

A stable economy on the other hand is that which is not characterised with frequent shocks either positive or negative. In a stable economy, there exist sustained economic growth. A positive shock is beneficial to the economy whereas a negative shock isn't. 

Identifying a problem means you are one step closer to finding the solution. Without an wholistic assessment of the problems confronting the Nigerian national economy, I'm afriad no solution can be made. 

The purpose of this webinar is to look into these problems and profer pragmatic solutions. Identifying the causes of an unstable economy is synonymous to identifying the obstacles to prosperous economy. 

The major macro economic goals are: economic growth- increase in GDP or percapita income, reduction in unemployment, reduction in inflation and balance of payment equilibrium. Analysing the causes of an unstable economy, involves an investigation into the sources of reduction in aggregate demand and supply. 

Providing a solution to these negative shocks will translate to economic stability and prosperity.

Economic problems caused by instability in the economy revolves around this four goals. The solutions we will be providing is aimed at ensuring a prosperous economy thus paving the way for a stable economy and ensuring the actualisation of these four goals. It's important to state that I can't list all the problems here.

Problems and Solutions

Problems below:

1.Exchange rate volatility: Nigeria is more or less an import driven economy. Majority of the goods we consume are imported and this robs our domestic economy of revenue. The case of  Nigeria is so peculiar that we import essential consumption goods such as garri, tooth pick etc.  I won't be surprised if we start importing children. 

For an economy which is import dependent, exchange rate is a strong factor in the determination of economy stability. These past decades, the Nigerian economy has recorded different values of naira to a dollar. Our national budgets are drawn with the exchange rate pegged at a particular figure. 

The 2019 budget was drawn with the assumption that the exchange rate will average at #305/$. In the event of a change in exchange rate (which is frequent In Nigeria) proposed spending plans of individuals and government are distorted- which is always the case. The recent inflation and recession to a degree can be said to be Imported. The recession was induced by the high value of the dollar to the naira, which made it Impossible to import and consumption. Between 2015 and 2017, the exchange value of the dollar increased from 192.4 to 305.8. In 2016, which was the year Nigeria entered a technical recession, the exchange value of dollars was 253.5. 

Importation is one of the major cause of high exchange value. 

Data compiled by Trading Economics, a data analytical firm, showed that imports in Nigeria averaged N227.10 billion from 1981 until 2019, reaching an all-time high of N2.21 trillion in August of 2018 and a record low of N167.88 Millions in May of 1984.

In the first quarter of 2019, the NBS reported that the value of imported manufactured goods increased by 25.81 per cent against the value recorded in the last quarter of 2018 and rose by 130.7% against its value in first quarter of 2018. In March 2019 alone, Nigeria’s manufactured goods imports, mostly food, soared by 101.3 per cent while agricultural goods import also skyrocketed by 61.3 per cent. Within markets in Nigeria, food inflation remained higher than the headline inflation, an indication that demand remained higher than supply.

2. Dependence on oil: The Nigeria economy is a monocultural economy which is oil dependent.

 Ever since it's discovery, oil has risen to become the highest contributor to the nations GDP.  Crude oil sales account for 70% of government income.

 

As at the end of  the third quarter of 2018, federal government total revenue stood at #2.84 trillion. The oil sector contributed #1.51 trillion out of the total sum.

The nation's national budget and development plans are also financed majorly with oil earnings.

 

Revenue generated from oil sales has also been used to finance growth in other sectors and also contributed to the level of industrialisation in the nation. It should be noted that oil revenue shielded the nation from the adverse effect of the 2009 global financial repression. The  above shows that the discovery of oil has served the national economy well, however it's starting to over stay its welcome.

 

Over dependence of oil over the past decades has robbed the nation of other income generating opportunities and it made the nation's economy susceptible to shocks and instability. 

Although oil is a good revenue source, it is not reliable for stability because oil proceeds depends on the value of dollars and thus the exchange rate which we know is volatile. The volatility of the exchange rate in 2016, led to a recession via a drastic fall in oil proceeds.

 

Because of over dependence on oil, the slump in global oil prices hit Nigeria hard, thus plunging the nation into a recession.

Moreso, flunctuation in oil prices has also contributed to economic instability in Nigeria.

 

Currently, a barrel of oil sells at $63.92. It sold for $69.78 in 2018, $52 . 51 in 2017,  $40 . 76 in 2016,  $49 . 49 in 2015 and   $96 .29 in 2014. These constant flunctuation in oil prices translates to flunctuations in revenue and distortion in governmental and developmental plans. When the price of oil drops, aggregate demand drops, which translates to lower GDP and GDP per capita. 

It's important to highlight that for a nation's whose main source of revenue is oil sales, we are not even maximizing the revenue from oil sales.

 How? 

We sell crude oil at #305 and buy at #360.

 Who does that?

Another problem with over dependence on oil is that it led to the neglect of other sectors in policy making and implementation. A sector which has suffered most from over concentration of oil is the agricultural sector. Ever since the discovery of oil, Nigeria has forgotten its first love- agriculture. In the mid 90s when agriculture was the mainstay in the economy, unemployment was low, the nation recorded a favourable balance of payment and there was stability in the value of the naira against the dollar. In fact, the naira was more expensive relative to the dollar. In 1960, the exchange rate was #0.7 to a dollar, #0.50 to a dollar in 1980, #9.0. to dollar. 

However starting from 2000 which we can term the oil generation, the value of the dollar began to rise against the naira, and for the past few years, we can see how favorable the exchange rate is. Now a dollar exchanges for #360.5 ( you get my point bah). 

Let's digress a bit. No nation can develop without a vibrant agricultural sector. Put differently, economic development is highly impossible in a nation until its food needs are met. Agriculture is vital to economic development because it's the sector with the greatest backward and forward linkage to other sectors in the economy. The mistake we make in Nigeria is to believe that business and oil will put food on the table. My leaders, they don't, agriculture does. 

For a nation with fertile soil and favourable weather condition, it's disheartening that food isn't available, accessible and affordable. Data have shown that Nigeria spent over N40 trillion on food imports in 21 years to meet domestic consumption. Data from the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN) show that this translates to food imports of an average of N1.92 trillion per year and N1 billion every day from 1990 to 2011. NBS data analysed by Daily Trust showed that from 2016 to the first half of 2019, Nigeria spent N54.51 trillion importing manufactured goods, mostly food, and agricultural goods. Within the period, agricultural goods import gulped N38.24 billion while manufactured goods import gulped 19.51bn. These statistics show how much we lose to food imports annually. These amounts will go a long way to increase the standard of living if it didn't flow out of the economy.

3. High debt:  Nigeria ’ s total debt now stands at N 22. 43tn , data obtained from the Debt Management Office have shown.  As of June 30, 2015 , the country’ s total debt stood at N 12 .12tn. Data from the debt management office show that as of December 2019, Nigeria's total public debt stands at 79,436.72 million USD and 83,882.66 million USD as at June, 2019.

As of June 30 , 2015, the external debt component of the country’ s total debt stood at $ 10 . 32 bn. This means that the external debt component rose by $ 11. 27 bn or 109 . 21 per cent . On the other hand , the domestic debt of both the Federal Government and the subnational governments stood at N 15. 81tn.

Analysing the debt statistics further showed that the domestic debt of the Federal Government alone stood at N 12. 29tn as of September 30, 2018 . The domestic debt of the Federal Government as of June 30 , 2015 , stood at N8.4bn while that of the states and FCT stood at N1.69tn. Data from the debt management office shows that as of June 30, 2019, Nigeria's external debt stock stands at 27,162.64 millions USD.

I have two issues with debts; one they are non functioning - the amount borrowed is not used for it's intended purposes- and two the debt servicing ratio is too high. Between April and june 2019, Nigeria spent a total of #189,831,956,580.68 to service domestic debt. A provision of 2.7 trillion is made for debt servicing in the 2020 budget. This makes up 25.4% of the total national budget. 2.7 trillion is too much for unproductive expenditure cause an investment of the this amount would go a long way in revitalising the national economy. Nigeria has a record for unproductive debt, as large amount of money is borrowed to meet recurrent expenditure and not capital expenditure. In the 2019 budget, #4.04 trillion was budgeted for recurrent expenditure and #2.03 trillion for capital expenditures.  In the 2020 budget, #4.88 trillion is set aside for recurrent expenditure and #2.14 for capital expenditures. Capital expenditures theoretically have a multiplier effect- a capital expenditure of 10,000 will increase national income by more than 10,000- whereas recurrent expenditures have no such effect. Asides high debt figures, Nigeria spends a lot more than the initial borrowed amount on servicing this debts i.e interests accruing when the borrowed amount is not repayed as and when due. This high sum of money rubs the economy of potential demand and supply. It's important to state that no government has enough resources to finance it's development plans and policies and hence borrows. Nigeria is not the highest borrower in the world. However what differentiates America- one of the highest borrowers- and Nigeria, is that America spends borrowed funds for development purposes and not to meet useless government expenditures. It's important to highlight that our president has just made a fresh request for $29.96 billion (I comment my reserve).

4. European good good, local good bad syndrome ( a prophet has no honor in his own country): one's choices can be said to be a reflection of how we see ourselves. Inferiority complex is a defining feature of Nigerians when it comes to our consumption choices.

 

It's important to make it clear that Iocal doesn't mean inferior or lesser quality. Opting out for European made goods under the guise of better quality means lower aggregate demand and income for local producers who are our parents, husbands, wives and most time children. With Lower income, a vicious cycle of poverty enstrues. That is, Lower income leads to lower demand, lower sales, profit, investment, economic growth. 

In the event of a vicious cycle of poverty, economic prosperity is hindered and instability and other problems evident in  the economy. Now I know some of us are already saying in our minds that " Nigerian produced goods are relatively substandard, so why should I buy them". While that might be relatively true, it's not without remedy. 

No business got it right at it's first attempt and do we say because our mother food was salty at her first attempt, we would no longer eat her food? 

I guess our answer is no. Now small business firm became an empire via reviews and feedbacks from consumers. So let's patronise and give back our constructive reviews so that we can boost our economy. If we don't value our own, we will soon have no legacy to speak of.

5. Political instability and governmental failure: Research has shown that economic growth is higher in countries where true democracy is practised and where there's little or no political instability not governmental failure. Economic development and stability is not independent political stability. In a state where there's political instability and governmental failure, the propensity to invest is low and this translates to lower investment. Investment demand is a component of aggregate demand. Investment is a strong driver of economic development.

 

Also in the event of political instability and governmental failure, appropriate policy making, implementation and synergy amongst policies are absent.  Synergy of policies by different government is found lacking in Nigeria and strains the economy.

 How so? 

Over the past decade, four different national economic development policies have been formulated and implemented by three different government at the federal level. 

First we had the 7point agenda of late President Musa Yar'adua, then we had the vision 2010 of President Goodluck Jonathan, Economic recovery and growth plan of President Muhammed Buhari and then the recent vision 2020. The inconsistencies and lack of synergy of these policies has strained the economy and created an economy with no sense of direction and focus.

 

6. Fraud: fraud in this instance is not only governmental fraud, it also covers corporate and individual. An economy where fraud is alive in every sector is prone to instability and collapse. Going rampant amongst fraudulent activities is the cybercrime, which has robbed the country and economy of funds for investment.

According to chartered institute of forensic and investigative profession of Nigeria, Nigeria has lost over 25billion to cyber crime in five years. Now the truth is that the  consumption spendings of the perpetrators of these activities somehow promote sales for firms and businesses but the funds will better promote economic prosperity if used for investment. Now I say that yahoo-yahoo is to an extent promoting economic activities, as most business only sell as much and make high profit due to the patronage of Yahoo boys.( Im not encouraging it, I'm just stating an economic reality). 

7. Bank failures: The financial sector is the life force of every economy. A minor disruption can lead to sectoral wide economy collapse. For example the 2009 global economic meltdown was caused by the failure of one bank. Banks which are the major institutions in the financial sector by the discharge of their functions have a role in economic prosperity and stabilisation. 

However the banking industry in Nigeria via constant cases of corruption and bad management have contributed to economic instability. The most recent example is that of the collapse of Diamond Bank due to managerial incompetency and bad debt. The intervention of the federal government helped curtail panic and bank ruin which could have led to the collapse of the banking sector thus leading to economic collapse.

8. Financial illiteracy: While this might not be a cause of economic stability, it is unmistakably a cause of the low level of Economic prosperity and the corresponding low standard of living. Financial illiteracy is a major factor militating against economic prosperity in Nigeria. The bulk of the populace, I inclusive know very little about money, the art of making money, investment and the difference between assets and liabilities. Most of us invest in liabilities rather than assets. The 90/10 percent rule is so prevalent in Nigeria due to financial illiteracy. The 10% of the population who are financially literate enjoy 90% of the nation's wealth, while the remaining 90% of the population share 10% of the nation's wealth. 

I fault our educational system for the high level of financial illiteracy. 

This is so because our educational system is preparing us for a future that no longer exists. Gone are the days when you finish university, get a well paying job, maintain a relatively high standard of living and save enough for retirement. Our educational system, should not only teach us how to be a professional in our chosen field, it should teach us how about entrepreneurship and how to make money out of our professions.

 

The naked truth is that we chose our different discplines because we want to make a living and earn sustainable income. More importantly, our educational system is only preparing us to be good employees, and not good employers, whereas what our nation needs is increasingly good employers. 

Why is that a problem? 

An employees financial independence is to a large extent limited by his or her employer and how much he or she is paid. Employees work for money, while employers make money work for them, this amassing great wealth.

 Our educational system is not structured to help us build our financial IQ. I'm not saying education in various discplines is not good, it's just that education is more valuable than money only in the long run, but in the short run, they work hand in hand to ensure a successful and financially independent future. When we cant make money from our careers, our careers becomes a liability.

9. High unemployment: This robs the national economy of intellectual and physical resources. Labor force statistics show that as at Q3  in 2018, 69.54 millions Nigerians are with job.

 

According to national statistics, 24% of the labour force is unemployed. This translates to an increase in the dependency ratio i.e high number of people depend on the working class and the government. This puts a strain on available resources and lost of potential income. As at 2018, youth unemployment rate stood at 19.68%, 19.96% in 2017 and reach it's record high in 2016 where it stood at 20.67%.  Youth Unemployment Rate in Nigeria averaged 23.63 percent from 2014 until 2018, reaching an all time high of 38 percent in the second quarter of 2018 and a record low of 11.70 percent in the fourth quarter of 2014. 

High unemployment leads to a reduction in aggregate demand as the unemployed are without income to demand for goods and services. Also high unemployment leads to a reduction in aggregate supply because the unemployed are unutilised factors of production. High unemployment is one of the major cause of the high prevalance of poverty in Nigeria. In 2018, Nigeria overtook India as having the largest number of people living in extreme poverty — 87 million — according to the Washington-based Brookings Institution. Nigeria needs to create four million new jobs per year to reverse the negative trends in unemployment.

10. Entitlement mentality: This point is a build up on the previous point. Due to financial illteracy and inability to make money ourselves, we depend on the government. This is what I call entitlement mentality. The truth is that the government does not owe us and cannot take care of every of our needs. The highest the government can do is provide a favourable environment for us to thrive. Even the government we are relying on self cannot take care of itself. We are responsible for ourselves and we should take up that responsibility.

11. Spiritual attack: I know this sounds funny but the greatest  harm one can do to his or herself is ignoring the fact that the spiritual is as real as the physical.

 

The world we live in is a configuration of both the physical and the Spiritual. Something is definitely wrong with Nigeria's economy cause no principle which have worked in the past for developed countries seems to work in Nigeria.

 

Just as Prof. OBC Nwolise of the department of Political Science, University of Ibadan has been clamouring for spiritual security in Nigeria since 2001, I am also clamouring that Nigeria's economy needs Spiritual deliverance.

Solutions below:

1. Government should rely less on the oil sector by focusing on other sectors in the area of policy making and implementation. One of such sector is the small and medium business sub sector. Bulk of GDP generation in Thailand and Singapore come from small and medium scale enterprises and given the fact that majority of Nigerians are players in this sector, prioritisation of the sector will go a long way to ensure inclusive growth, economic prosperity and stability. Other sectors incude agriculture, tourism and sport.

2. To major solution to the problem of exchange rate volatility is for us- Nigerians- to start producing to ensure self sufficiency and the excess be exported. Exchange rate will not favour us unless importation is reduced.  A Public Private Partnership should exist to ensure the implementation of import substitution stragies. If possible, imports be limited to raw materials imports only. These raw materials should inturn be used for the purposes of productions. I propose the Private Public Partnership begin with the agriculture sector. Every home, religious body, educational institution, private enterprise be mandated by law to be actively involved with the revitalisation of the agricultural sector.

3. Domestic and external debts be reduced to the bearest minimum. Unnecessary governmental expenditures be scrapped and in situations where debt is inevitable, they be used for developmental purposes. Our government needs to learn  how to cut their clothes  accordion to the  size of their  materials. To reduce debts government should focus on other revenue sources such as tourism, taxation - especially on private universities - and so on.

4. We need to start patronising our local producers. This will ensure that income generated  stays  in the economy. Goverment through legislation should ensure an increase in demand for domestically produced good. China didn't develop until  it closed it's economy. There's something i say a lot, which is "I don't know why we don't wear aso-oke, Kampala, Ankara has school uniform in Nigeria". There's no law preventing such. The truth is that there are goods produced in Nigeria that are standard in nature, for example, Innoson Motors.

5. Economic development is not independent of political stability and govermental accountability. Our leaders should adhere to the principle of constitutionalism. The word minister is spelt ministre in Greek and it means to serve. Instead of been served, our political leaders should serve and thus provide a favourable environment for a vibrant economy to thrive.

6. Financial institutions should discharged their responsibilities as entrenched in the act that established them. Priority sectors be given foremost consideration in the area of loans disbursement. The NDIC should ensure managerial efficiency in all financial institutions.

6. Individual and government should work at becoming financial literate. Building your financial IQ involves gaining knowledge in four broad areas: accounting( the ability to read and understand financial statements), investing( it's the science of making money and includes strategies and formulas), understanding market, and lastly, the law. Our educational system should include entrepreneurial studies into her syllabus and teach us on the subject of money. Financial literacy will endue with skills in the art of making money and thus reduce the entitlement mentality and unemployment.

7. The three religions in Nigeria should work towards spiritual restoration of Nigeria. 

God bless me(Amen).