Dr. Obadiah Mailafia, a former Deputy Governor (Economic Policy) of the Central Bank of Nigeria, is a career economist, banker and international development specialist who is currently Chief of Staff of the 80-member African Caribbean and Pacific (ACP) Group of States based in Brussels, Belgium. He is also an Associate Fellow of the United Nations University Institute for Regional Studies in Bruges as well as Visiting Scholar/Professor at the Faculty of Applied Economics of the Frije University, Brussels. He is also Founder/Chairman of Centre for Policy and Economic Research (CEPER), an independent macroeconomic policy think tank. In this encounter with SANYA ADEJOKUN, he speaks on the current economic situation in Nigeria and proffers solutions.
What does economic recession mean to the ordinary citizen?
As you know, the IMF recently came out with a dire forecast that the Nigerian economy will go down by -1.8 per cent during this year, revising an earlier April forecast of 2.4 per cent. This is worrisome for an economy that has grown by an average of 7 per cent for the better part of a decade. When economists talk about a recession, they are referring to a phenomenon characterised by a significant decline in GDP, in the level of economic activity. Recessions are also marked by rising unemployment, decline in real incomes and reduction in wholesale and retail trade. Economic recessions affect everyone. But they affect the poor far more than the rich. The rich have better mechanisms for cushioning the baneful effects of recessions while the poor find themselves in situations of deepening poverty, stagnant wages and even joblessness.
How did we find ourselves in this situation?
Well, for a long time, there was not much focus in terms of macroeconomic policy in this country. There was more rhetoric than implementation of concrete policy deliverables that would change the livelihoods of the millions and millions of the people in this country.
In the last two quarters through the last electoral cycle, and I am talking about last quarter of 2014 and first quarter of 2015 when electioneering took place, there was massive spending by politicians and they were spending in dollars, they were no longer spending in naira; naira was too cumbersome to carry all over the place. In short, they were sending a message that naira was a useless currency, that they don’t trust the naira. Now, if our leaders don’t trust our currency, why should foreigners respect it? In all of that, there was massive corruption, there was massive bleeding of economy of this country and for three years consistently, according to a study by Chatham House- and I met some of the people who did that study- they actually calculated that Nigeria was losing $1 billion every month to crude oil bunkering. That simply translates to $36 billion that we lost within three years preceding this current administration. So bad planning, corruption, fiscal irresponsibility and lack of proper economic focus are all factors that led to the current economic situation.
So it took a while to lead ourselves to the current economic situation where officially we are in a recession as a nation because once you have at least a downturn, a contraction for more than two quarters consecutively then officially, you are in a recession when that is combined with growing unemployment, stagnation and massive layoffs of workers from the organised sector, then you are officially talking about recession.
So, the IMF is not far flung in its forecast. You will recall that in April, they had given a downward forecast at 2.3 per cent and now it is -1.8 per cent. The only time the economy had contracted to this level was 1968 in the height of the tragic civil war that we fought. So you can imagine it is as bad as if Nigeria were in a civil war which was the only time the economy had contracted to this level. People are suffering. People are very disturbed that there is rising crime, there is rising anxiety, massive layoffs, industries are suffering, the private sector is suffering, many states can no longer pay their civil servants’ salaries; the situation is very worrying.
What should government do in the present circumstance?
The picture is gloomy indeed but I am an eternal optimist and I believe that a good economist, or a good central banker, no matter the situation even if the ceiling is threatening to fall on their heads, they must keep a very cool head. So, my advice to Nigerians is to keep a cool head. We should not be too anxious; we are in this world to solve problems. There will always be challenges but what matters is our ability to face our challenges. We must have courage and vision and this is really what we need at this time.
There are immediate and long term solutions that are necessary because some of the problems we have are structural in nature. We really have a budget but it is slow in being implemented. You can imagine the budget was only finally approved barely over a month ago and this is not good enough. Even as we speak, many ministries, departments and agencies of government are complaining that they are yet to see the release of the funds. There is no sense of urgency in the release of these funds. We urge government to act with more urgency, but, of course, within the framework of fiscal responsibility. We hope that these funds will go to address the projects that they have been allocated to.
At this point in time, I feel that it is imperative to have a stimulus package. A stimulus package in terms of a pool of substantial funds; extra-budgetary funds that will address quick-win projects that would help to get the economy back on its feet, to get our people back to work and to restore confidence.
Now that inflation is at an all-time high, will it be wise for the government to still pump massive funds into the economy as a stimulant? Will it not further aggravate the situation?
According to recent reports, inflation is now heading beyond the 14 per cent mark. This is obviously a setback from the monetary achievements of the recent past. Not too long ago the CBN was able to wrestle down the monster of inflation into single digit. We all celebrated that achievement. Unfortunately, we are losing ground again. Two factors have been at play here. First, the falling naira has compounded the high costs of imported goods. Second, rampaging herdsmen in the Middle Belt – the bread basket of Nigeria – has had a massive negative impact on agricultural productivity. We have received reports that there has been an outbreak of famine in the north east. Food constitutes 62 per cent of the determinants of inflation in this country. It therefore goes without saying that if there is a worsening of food security linked to higher import bills due to the falling exchange rate, it is bound to put increasing pressure on prices.
Should we therefore avoid a stimulus package for fear of its inflationary consequences? Methinks not. What we have to do is properly planning and phasing of public expenditure in such a manner as to not to put undue pressure on prices. The CBN can also take bolder measures to reduce liquidity and dampen any inflationary spirals. There are clearly huge deficits in this economy. Wisdom and prudence provide a guide to successful spending without compounding the pressure on prices.
Can you give examples of such quick win projects please?
For example, getting some of our people to work through direct labour to fix the potholes on our roads, even putting more electric poles through direct labour and generally getting people involved in this kind of projects. You imagine a situation whereby instead of being around 7,000 megawatts now, we are actually under 3,000 megawatts in terms of power supply? We have lost massively. Which means even from the 5,000 we have reached, we have lost 2,000 and that is not good enough. That is actually very depressing. Now we need quick-win solution that will get power back on its feet. At least, let’s not lose the much that we have gained already.
So, a stimulus package is a package of funds which I cannot begin to detail right now. But a stimulus package is needed so that the government can identify projects that can be completed within the next six months or eight months to rejuvenate the economy and get Nigerians back to work. From the lessons of the Great Recession in America, Europe and emerging economies, it is evident that stimulus packages can go a long way to help countries overcome economic recessions.
I read a report recently that government was about to commission the Abuja-Kaduna railway. When I see that railway, it depresses me. It is a pity that we are still using two hundred years’ archaic technology. The standard gauge rail lines that we are trying to rejuvenate were brought in to this country around 1906 after the British had used them for 100 years from around 1806 or so. They got tired of them and they brought them to Nigeria. Now calculate, 1906 to 2014 will give you over 100 years. So we are using backward archaic 200-year-old useless technology, wasting a lot of money! We should get rid of that old gauge and build a new gauge system that is modern; because once you are hooked with that, you can’t really change it. A railway system is not something you can change after five years. Once you have made your technology choices, you must be prepared to stick with it for the long haul — century old technologies that will have to endure for a very long time. I would like to see about one million Nigerian unemployed youths being deployed to build the new railways. We can get the Chinese to work with us as technical advisers/partners. Get one million youths to build railways through direct labour all over this country. It would open up the countryside, it would boost agriculture, it would boost trade, it would boost local industries and it would work great magic for our economic rebirth.
The railways have the potential to link up every corner of Nigeria. It is also good for nation building. Lest we forget, Nnamdi Azikiwe and Odumegu Ojukwu, both of blessed memory, were born in Zungeru in the North. Their first language as children was Hausa. So, railways have a way of enhancing nation building apart from being a positive boon on local and national economies.
Could you also suggest ways whereby government should leverage economic diversification efforts to achieve economic vibrancy?
In this country we have talked so much about diversification but it seems it’s been more of rhetoric than action on the policy side. Clearly, we need diversification urgently. The reason is that you cannot have an oil commodity dependent economy for almost 200 million people. Once something goes wrong, for instance, if there is a glitch in oil prices, the economy will go into the doldrums and we will feel it as badly as we are feeling it now. So, we must diversify the economy of this country as a matter of great urgency. The key foundation for economic diversification, as far as I am concerned, is agriculture — not because we just love farming for the sake of it — but precisely because it is the occupation of most of the people of Nigeria. We are still an agrarian society and the people in our country are mostly involved in agriculture as their main source of livelihood. So, we need to boost agricultural productivity. But not agriculture alone. It must be linked to industry- food processing and allied industries.
I will then call for an agriculture-based mass industrialisation as the key driver of economic diversification. And of course we should look into non oil mining, which is also vital. We should build these sectors while integrating them in a very holistic way. But clearly, a lot of that cannot happen without addressing the infrastructure deficit. No one needs to be reminded that there is massive infrastructure deficit in this country. If we produce a lot of food, we will need to transport it. We need good rail networks, we need roads — you cannot build a vibrant industrial sector without those. It would be a nonstarter. When I move around and I get to one of these plazas in Abuja and I hear huge generator noise, smoke and dust filling the atmosphere with pollution, I always feel like weeping. I ask myself, ‘what have Nigerians done to deserve this, O God?’ You don’t go anywhere in the world and hear noise of generators with smoke, stench of petrol and such pollution filling the air all over the place. It only happens in this country. Our people are working their best in a very difficult situation at very high cost.
If you have electricity, and electricity is not that difficult to get- it is an old technology that is about 200 years old – a lot of things will fall in place. It is not such a difficult technology to master. We need electricity for all because we can never compete in the world with just generators. With the high cost of having to provide basic infrastructure for yourself – in particular, boreholes and generators — you simply can’t produce anything that will be competitive in the global marketplace. It won’t work. The good Nigerian people have borne these burdens for ages. It’s about time we put a stop to this madness. It is not helping anyone.
If I have my way, I will nationalize generator importation. Only government should import generators. That way, those cartels — and there are cartels that don’t want electricity to work – will be checkmated. They send people to the rural areas to destroy electricity installations so that they can continue to import generators — generators that are killing the Nigerian economy and destroying the eco-system. We need electricity for all. Let us declare a national emergency on power and electricity.
Was the CBN correct to have excluded some 41 items from the foreign exchange market?
To be honest, I supported that policy. A lot of them are non-essential goods. So, I supported CBN’s decision to put a blanket ban on those items. They are not saying you cannot import those items, but that if you want to import them, you have to source the requisite foreign exchange yourself and not through central bank. Take tomato puree for instance. The Nigerian soil is rich and fertile. We can grow all the tomato and other vegetables that we need. We don’t need to import tomato puree, not to talk of toothpicks. Of course, our international partners were very unhappy, very upset. Some people would say that it led to temporary shocks because it led to scarcity of certain products. But so what, if toothpicks are scarce?
And to be honest with you, something happened in tomato sector which led to the commodity suddenly disappearing. We were told that there was a tomato Ebola that affected our tomato crop. Now, nobody — our agronomists, our agriculturists — nobody came out to explain things properly to the people of this country. I felt worried about that. Tomato is a daily staple. Most households consume it in one form or the other every day. But when a basic staple like that suddenly disappears from the market and to the extent that it becomes very expensive and ordinary people could no longer afford it, that could mean that there is more to it than meets the eye.
I don’t want to believe that there were people that deliberately attacked the tomato crop in Nigeria, but I smelled a rat. Don’t forget also that over the last two years, Nigeria’s non-oil commodities have not been welcome in Europe. There has been a blanket ban but people didn’t realise that. We are no longer exporting anything either yam or beans or such commodities to the European market. They say that our products have not met international standards.