2019: Year of wobbly policies, weak regulators

Nigeria’s economy went into recession in 2016 and came out of it after five quarters. However, growth since then has been sluggish and this has limited the capacity of the economy to improve the lives of the burgeoning population. According to data supplied by the National Bureau of Statistics (NBS), economic growth declined from 2.1 per cent in the first quarter of 2019 to 1.94 per cent in the second quarter to surge to 2.28 per cent in the third quarter, its second highest quarterly growth since 2016.

While growth was low throughout the year, inflation was high. Headline inflation averaged 11.25 per cent between January and September, rose to 11.61 per cent in October to plateau at 11.85 per cent in November, its highest level since April 2018.

The sluggish growth, which is lower than the population’s growth rate, coupled with rising inflation, precipitated hardship and poverty in the country. Reporting on this, the World Bank said, “Growth is too low to lift the bottom half of the population out of poverty. The weakness of the agriculture sector weakens prospects for the rural poor, while high food inflation adversely impacts the livelihoods of the urban poor. Despite expansion in some sectors, employment creation remains weak and insufficient to absorb the fast-growing labor force, resulting in high rate of unemployment (23 per cent in 2018), with another 20 per cent of the labor force underemployed.  Furthermore, the instability in the North and the resulting displacement of people contribute to the high incidence of poverty in the North East.”

In June 2018, the World Poverty Clock showed that Nigeria, with 87 million of the population living in extreme poverty, had displaced India as the poverty capital of the world. According to the World Poverty Clock, a digital tool that shows the number of people living in extreme poverty worldwide, six Nigerians slide into extreme poverty every minute. This probably prompted President Muhammadu Buhari, at the inauguration for his second term in office, to assure the nation of his determination to set the process in motion for lifting 10million Nigerians out of poverty every year over the next 10 years.

Although the government had mouthed its intention to stimulate economic growth, its actions made mincemeat of the expressed intention. Four factors are critical to ensuring economic growth in any country. These are sound economic policies, solid infrastructure, strong institutions and good processes. Except in the area of processes where the government facilitated some reforms that improved the ease of doing business, its performance on other counts was woeful in 2019.

 

Discordant economic policies

The government’s economic policy regime is a study in contradictions. The government seeks to grow its revenue base yet pays a huge sum on subsidizing fuel importation and defending the naira only to end up borrowing to fund its budget. According to the Petroleum Product Pricing Regulatory Agency (PPPRA), an average of N39.59 in subsidy was spent on every litre of petrol imported into the country in November. Thus, the country expended over N60billion on fuel subsidy in that month alone. In the same vein, the Central Bank of Nigeria (CBN) has been defending the naira with mindboggling amount. Between January and June 2019, the CBN injected $8.28 billion to sustain the stability of the Foreign Exchange (FX) market.

According to Mr. Godwin Emefiele, CBN governor, defending the naira forms a major part of the functions of the apex bank.

Speaking at a forum in Lagos during the year, the CBN boss said, “In setting out the five principal mandates of the CBN, Section 2, Subsection C of the CBN Act 2007 reads ‘…maintain external reserves to safeguard the international value of the legal tender currency.’

“The CBN would be disobeying the law establishing it, if it sits idly by and allows the naira to be determined wholly by the so-called market forces.

“Second, those who call for floating of the currency betray their willful ignorance of the effects of significant depreciation, however short-lived, on inflation.

“Several empirical analyses have shown that the pass-through of changes in the exchange rate on consumer prices is almost one-to-one. This implies that for every percentage point depreciation in the naira, there is almost the same rise in inflation.”

However, Nigeria has been borrowing to finance its budgets. In November 2019, President Muhammadu Buhari represented a loan request for $29.96billion (about N10.8trillion) to finance infrastructure, agriculture, health, education, water supply, growth and employment generation, poverty reduction through social safety net programmes, governance and financial management reforms, among others.

If the request is granted it will take the nation’s debt to N36.4trillion.

The nation’s debt profile, which stood at N25.7 trillion as of June 2019, was as low as $3.51 billion (N527 billion) in 2006 after the debt cancellation championed by the administration of Chief Olusegun Obasanjo, which saw the nation’s debt cascade from $40 billion. The incumbent administration seems to prefer the easy way of obtaining loans to meet needs to the highway of creative management of the economy, blocking wastages and increasing productive capacity of various sectors of the economy to increase earnings. This has raised the debt profile to unprecedented heights. Many Nigerians of note have raised concerns over the country’s high debt profile saying the development bodes danger for its liquidity. Former President Obasanjo warned last week that unless the government applied the brakes on its penchant for stacking up debts, the country might go into bankruptcy.

The government recently closed its borders to forestall smuggling of commodities, especially rice, into the country from the neighbouring West African countries, yet it allows importation of cheap items whose landing costs are sometimes 50 per cent of the cost of their locally produced counterparts.

The government is financing, promoting and encouraging farmers of certain food items through the CBN’s Anchor Borrowers Programme, yet subsistent farmers, especially those in rural areas, are left to their own devices. While this policy has helped and prospered Anchor Borrower farmers, not only has it pauperized rural farmers, it has also vitiated government’s plan to leverage agriculture to address rural poverty and create employment opportunities.

 

Debilitating infrastructure

While the government has scaled up its investment in infrastructure, the yields of the efforts are not significant enough to engender economic growth. The reconstruction of Lagos-Ibadan highway has been on since 2014, yet there is no sign that it will be ready at the end of the new year. The completion date of the Lagos-Abeokuta-Ibadan rail project has been shifting consistently due to a number of factors. The road network in the country is in a poor state, inhibiting movement of goods and resulting in a gross waste of productive man hours in commuting.

Perhaps the area where the government had performed extremely abysmally is in electricity supply. Although the government has privatized the generation and distribution ends of the sector, poor regulation and weak enforcement have combined to put the sector at a level that is probably worse than it was in 2013 when the sector was partially privatized.

The country suffered a number of service breakdowns in 2019 which sometimes resulted in total blackout in the country. While these usually left both agencies of government and electricity generation/distribution companies pointing fingers, the economy was left comatose.

Commenting on the electricity situation in the country, the Lagos Chamber of Commerce and Industry (LCCI), in a statement signed by its Director General, Muda Yusuf, said, “The power situation remains a major burden on business. It is one area in which the trend since independence has been that of progressive decline. Power supply has consistently lagged behind the pace of the economic activities and population growth. This development impacted negatively on investment over the past few decades with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness.”

To boost the nation’s electricity supply, the Federal Government signed an implementation agreement with the Siemens AG, for the Nigeria Electrification Roadmap, which was conceived after President Muhammadu Buhari met with Chancellor Angela Merkel of Germany in August 2018.

The objective of the roadmap is to increase power generation to 25,000megawatts (MW) by 2025. The six-year project has three phases. The first phase will focus on essential and quick-win measures to increase the system’s end-to-end operational capacity to 7,000 MW. The second phase will focus on resolving network bottlenecks to enable full use of existing generation and distribution capacities with a view to increasing operational capacity to 11,000 MW, while the last phase will increase the system up to 25,000 MW.

In October, during the annual meetings of the World Bank/IMF in Washington, the Federal Government got an approval for a $3billion from World Bank to improve the transmission and distribution facilities of the power sector. According to the Finance, Budget and National Planning minister, Zainab Ahmed, the first tranche of $750million is due for disbursement in April this year.

It is left to see the difference these interventions will make in the sector where the government has partially privatized and lacks absolute control.

 

Weak institutions

The basic responsibility of any regulatory agency is two-fold; the first is to guard against consumers being preyed upon by service providers and to ensure the implementation and enforcement of regulation with a view to facilitating economic growth.

Many of Nigeria’s regulatory agencies failed in these respects in 2019 as they neither protected the interest of the consumers nor the interest of the state.

The Nigerian Electricity Regulatory Commission (NERC) was set up in 2005 to undertake technical and economic regulation of the Nigerian Electricity Supply Industry (NESI) and to, among others, license operators, determine operating codes and standards, establish customer rights and obligations and set cost reflective industry tariffs. But the commission’s failure to deliver on its mandate in 2019 hampered businesses and made it difficult for the economy to grow.

According to the Nigeria Consumer Protection Network, NERC’s monitoring of major players in the electricity sector was weak in 2019. Kunle Kola Olubiyo, President of the network, said NERC’s inactions led to the abysmal performance of the Meter Assets Provider (MAP).

Olubiyo said, “We have the issues of abysmal performances and non or zero implementation of a well-conceived NERC-initiated Meter Asset Providers (MAP) framework, which if implemented, promises to be a game changer but for weak regulatory monitoring/ dearth of M & E Framework seven months after the supposed take off of MAP.”

Similarly, members of the Organised Private Sector (OPS) lamented the poor state of electricity supply in the country and several times called on the NERC to effect a change.

The Nigerian Civil Aviation Authority (NCAA) has the mandate of the Nigerian government to regulate the aviation industry to benefit the people and profit the state. But neither has been achieved. In 2019, airlines canceled or delayed flights without any sanction by the regulatory body. This contributed in no mean measure to the sluggish economic growth of the year under review.

In the same vein, the National Association of Nigerian Travel Agency (NANTA) blamed the NCAA was responsible for government loss of revenue in the industry in 2019. The association hinged this on the failure of the regulatory body to effectively monitor activities in the downstream sector of the country’s air travel industry.

NANTA claimed that the inability of NCAA to come up with appropriate laws to regulate the sector emboldened the International Air Transport Association (IATA) to emplace unfavourable rules, which constricted the growth and profitability of the sub-sector.

President of NANTA, Bernard Bankole, who stated this while speaking at the Aviation Safety Round Table Initiative (ASRTI) in Lagos, said the New Generation of IATA Settlement System (New Gen ISS) introduced by the body allowed anyone in and out of Nigeria to issue tickets, thereby depriving the government its five per cent remittances, and revenues meant for local travel agencies, noting that these challenges had continued to drive genuine travel agencies out of the market.

Men of the Nigeria Customs Service man the nation’s borders to ensure that prohibited items and contrabands are not smuggled into the country, yet smuggled items litter the Nigerian space. No less a person than the Comptroller General of the NCS, Colonel Hameed Ali (retired), admitted that about 90 per cent of the vehicles in the country were smuggled in. The Federal Government closed the borders to stem the tide of smuggling of various items into the country but in spite of this, smuggling is still rife at the nation’s land borders. The dereliction of duty by the Customs cost the government a lot of revenue in 2019 and contributed to the lackluster growth of the economy.

The National Agency for Food and Drug Administration and Control (NAFDAC) was established by the government to regulate and control the manufacture, importation, exportation, advertisement, distribution, sale and use of food, drugs, cosmetics, medical devices, chemicals and packaged water. The agency has the responsibility to guard against the production of fake drugs and food items but there are so many fake drugs in circulation in the country. The manufacturers of the fake products do not pay any tax neither do they create employment opportunities in the country. Due to NAFDAC’s weak regulatory structure, the government lost huge revenue to fake food and drug manufacturers, one of the factors responsible for the wobbly economic growth recorded in 2019.

 

Ease of Doing Business

In its 2020 Doing Business Report released in 2019, the World Bank ranked Nigeria 131 out of 190 countries on the World Bank Doing Business Index, moving up 15 places from 146th position in the 2019 Report. World Bank named Nigeria, for the second time, as one of the top 10 countries with the most notable improvements during the review period. Of the 12 indicators given, Nigeria improved significantly in “starting a business, dealing with construction permits, getting electricity, registering property, trading across borders and enforcing contracts” indices.

The stride recorded by the country in the ease of doing business is consequent on the step taken by President Muhammadu Buhari in 2016 to establish the Presidential Enabling Business Environment Council (PEBEC) to minimize the constraints that come with running businesses in the country.

 

Conclusion

The nation’s weak economic policies coupled with poor regulatory framework resulted in a fragile economy which escalated poverty and hardship in the country in 2019. For the country to have a better experience in the new year and reduce hardship in the land, the government has to review its policies and set machinery in motion to enforce its laws.