One is reassured about recent attempts to revisit the economic REFORMS. That was exactly my take as I was sorely pained when the news that Guinness Nigeria Limited was putting plans in place to terminate operations.
A relief of a disclaimer followed that news by the company which duly admitted that, though the operating environment was challenging particularly from the perspectives of losses occasioned due to rapidly falling exchange rates, it was not going anywhere but rather there is the resolve to brace up to the daunting challenge. And this closely following on the steps of another rather disconcerting announcements that GlaxoSmithKline (GSK) was terminating its operations in Nigeria after 51 years.
I resolved immediately to do a position paper to recommend that as a nation, it was time to wake up to reality; to wake up and smell the coffee – until the President took up the gauntlet with the announcements that there will be no more hike in pump price of fuel and I suppose we should expect that there must be a benchmark target for the rate of exchange of the Naira. It does not matter for now whether we are going to be able to sustain these developments. That is an issue we would have to address as matters unfold. It is saying the obvious that if we don’t secure today, there will be no tomorrow to worry about.
At this point in this conversation I feel righteous to gloat over our recent experience, if not that it is tantamount to a tragedy foretold. I am not grand standing here. All that any one needed to do was to access my recent interventions on this matter. I had cautioned several times that there is no market for dollars in Nigeria. What sort of market is that with only one major source of dollar inflow into the economy? And even this source, it will appear, has had its days under the sun.
As of today, we are not able to meet our OPEC quota of about 1.6 million barrels a day (mbd) but are rather struggling to produce just over one million barrels a day due to rapid and rampant theft and other leakages due to operational issues. Meanwhile, the demand for dollars in the economy is insatiable. If you float the currency, there is only one predictable outcome just as we are now witnessing as it has always been safe to take a bet on the movement of rates in the country.
You don’t also remove subsidy as we just did, because it will impact the inflationary spiral. There is nothing that has such a devastating potential as an increase in the pump price of fuel. The velocity at which such increases transmit through the economy is it impacts price levels in unbelievable terms. What we needed to do was to tackle the root causes of our dilemma which essentially is lack of productivity. If we stopped fuel importation today, we would be reducing demand pressure on the dollar to the extent of at least 30%.
What we have just experienced explains why no one had the political will to take these steps in the past. Even the immediate past slow-coach President is on record to have observed that he did nor remove the subsidy because it was going to affect the prospects of the party during the elections. I hope we have learnt our lessons as this is a path well-trodden!
It is also necessary to call out those dye-in-wool economists who were posturing and there are many in that camp; to ask them – what happened to their free market posturing with all the expectations? We were regaled about how, once we float the Naira, investors will come rushing in. Really? To cut a long story short, that will never happen in an economy thoroughly mismanaged such as the Nigerian economy. We have all lived here for a long time and there is nothing we have experienced now that was not so before. The only difference is that the matter even got more compounded this time because of the double whammy of the add-on negative effect due to the removal of petroleum subsidy. As in the past, we just experienced a reversal no matter how we attempt to cloak it. There is no country in the world I know of where such matters are left entirely to the market – never mind the Nigerian economy.
As at last count, the following companies experienced downturn in their operations due to the recent policy measures: Nestle Nigeria, Guinness, Nigerian Breweries and an estimate indicated that about 50 companies shut down in the last five years which included Shoprite, Surest Foam Ltd, MZM Continental, Napol Industries, Moak industries, Stone Industries and Procter & Gamble. 20 shipping companies left Nigeria on account of low business and these included Mitsu O.S.K Lines, Nipping Yusen Kasha. NACCIMA reckons that about 800 companies have shut down in the last three years. And obviously we must do everything to stop the rut; otherwise we risk reaping a ghost land!
An inflationary spiral at over 24% is unprecedented. We have not had inflation at such high rate in Nigeria for the past 22 years. The fact is that for a long time we targeted single digit inflation and specifically aimed for an inflation rate within the range of 6-9%. But at the current rate we are experiencing, prices now change frequently and if we are not careful we might have the Venezuela scenario on our shores where the value of the currency is so devastated that it is almost worthless. Already, we are beginning to experience unusual scarcity in our shops and this is only the tip of the iceberg. It is morning yet, if we are not careful.
We have recently obtained a life line of 3 billion dollars from Afrexim Bank to be disbursed in tranches and to be repaid with oil proceeds. There are some usual developments with this loan. In the first place, it is strange that it is NNPCL that negotiated the loan. Ordinarily, that should be the purview of the Central Bank that has the responsibility for keeping foreign reserves and maintenance of price and exchange rate stability.
It has also just been announced that all the states will receive conditional cash transfer of 5 billion Naira to be spent on the provision of food palliatives. This is thoughtful as I watched a video showing Hausa-speaking people lamenting their lot and complaining that they have never seen things this bad, with a report about a family of four that literally committed suicide because they had gone four days without food. They simply boiled water and added salt to it which they all drank to end it all. Now this is a scary scenario which we pray must not be allowed to repeat itself. Therefore there is the urgent need to track the expenditure of 5 billion Naira transfers to states to ensure that they are judiciously utilized. We must intentionally work to avoid an implosion which might not be as farfetched as we might wish to think.
There is the need for urgent steps to be taken to stem the hemorrhage in the economy. In the interim, there is the necessity to mobilize all forces to hasten the commencement of operations by Dangote Refinery. That represents low hanging fruits which we must not allow to go begging for a prolonged duration. We must either get the local refineries operational in the shortest possible time or quickly privatize them. We must brace up to mobilize alternative sources of energy in place of petrol such as Condensed Natural Gas and Electric Cars which we have been informed Lagos State is already experimenting with.
What about other sources of foreign exchange inflow such as solid minerals? It is about time steps are taken to officially step into such areas instead of leaving them to be exploited by unauthorized non-state actors. Nigeria has a large population of over 200 million people to say the obvious and there is therefore the need for studied caution. Already the rate at which citizens are seeking for greener pastures overseas is alarming and must not be allowed to continue. Dare we add that President Tinubu must be mindful and equally concerned about the judgement of history. Shalom.
Dr. Boniface Chizea, a retired banker, top Economics & Business Development Consultant, is the CEO, BIC Consultancy Services, Lagos
