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Monday, October 14, 2019 /12:47 AM / By Ayo Teriba of Economic Associates / Date Written: September 16, 2019
/ Header Image Credit: PRESSREADER
It is surprising how Nigeria's impressively positive economic narrative
from 1999 to 2014 has given way to an unflattering post-2014 narrative in which
the economic terrain is about recession, inflation, unemployment, poverty,
restiveness, and insecurity; the financial terrain is about foreign exchange
rationing, devaluation, multiple exchange rates, low loan-deposit ratio, and
high interest rates; while the fiscal terrain is about low revenue, low capital
spending, large deficits, high debt service, rising debt, and growing concerns
about solvency/bankruptcy.
This paper sets out what Nigeria should do to get the economic,
financial and fiscal narratives back to positive.
With huge windfalls from the commodity price surge from 1999 to 2014, Nigeria
enjoyed economic expansion- growth accelerated and commercial services, led by
telecommunications and information services, outgrew agriculture and oil- that
saw Nigeria's rank rise phenomenally from the 52nd to 22nd economy in the
world; financial expansion- deepening of banks, bonds and equity markets, as
well as government revenue and spending; and stability- single digit inflation
and interest rates, and a strong exchange rate; and, a marked reduction in
misery- falling unemployment and poverty rates.
With shortfalls replacing windfalls since the crash of commodity prices in July
2014, Nigeria's economy has endured economic contraction- growth reversal,
recession, and a sluggish recovery to now rank as the 30th economy in the
world; financial contraction- especially bank deposits, equity market
capitalization, and foreign exchange supply, as well as government revenue and
spending, and instability- the Naira lost about two thirds of its value against
the US dollar, while inflation and interest rates jumped into double digits;
with the growing misery reflected in growing number of the unemployed, the
poor, and the disenchanted.
This paper presents data that reveals that the common thread between the two
eras is the quantum of external liquidity at the country's disposal. External
liquidity surge from windfalls fuelled the era of expansion and stability, just
as external liquidity shortages from shortfalls inflicted contraction and
instability. We show that unfolding global realities now mean that Nigeria
could easily adopt policies that will raise our external liquidity thresholds
enough to switch from contraction to expansion. We show how global liquidity
glut has seen a doubling of long-term capital inflows to developing countries
in the last decade and how Nigeria is very well-placed to get a fair share of
that.
Despite the negative external income shock, the domestic reality is that
Nigeria remains prodigiously asset rich. However, while Nigeria's economic and
financial struggles resulting from the decline in income have been conspicuously
prominent in economic news headlines, the value of assets owned by Nigeria and
the solutions the assets could unleash have been less so. This paper draws
attention to the hidden value in vast assets owned by Nigeria, makes a case for
unlocking massive domestic and external liquidity required to arrest the
economic and financial crisis from the assets, and articulates four alternative
ways of doing this.
We show that Nigeria could adopt the following options to raise domestic and
external liquidity thresholds:
Doing these will change Nigeria's economic, fiscal and financial narratives by
unlocking vast amounts of liquidity for Nigeria to strengthen the Naira,
rejuvenate fiscal, financial and foreign exchange streams, accelerate growth,
eradicate poverty and unemployment, rebuild infrastructure, diversify growth,
and lay the foundations for shared prosperity.
Leading developing countries, China, India inclusive, adopt different
combinations of the four options to fuel their development. Nigeria's high
population, scattered in hundreds of densely populated cities, and the recent
oil boom, combine to bequeath Nigeria with valuable but idle public assets that
the country can unlock required liquidity from.
Download Paper from SSRN Here
Related Articles & News by Ayo TERIBA
1.
Unlocking Liquidity Will Restore Growth and Stability
for Nigeria - Ayo Teriba - Jul 19, 2019
2.
Africa Economic Outlook - Ayo Teriba - May 31, 2019
3.
Nigeria Is Lagging Behind In The Race For Global
Liquidity - Ayo Teriba - Oct 19, 2018
4.
Nigeria Must Give Top Priority to Managing its
Liquidity-Ayo Teriba - Jun 21, 2018
5.
Nigeria needs robust reserve buffers to manage
cyclical shocks - Ayo Teriba - Dec 15, 2017
6.
One-Day Conference on Nigeria's Economic Outlook by
Ayo Teriba holds June 15 - May 16, 2017
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