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Coronanomics (29) - The New Normal

Nigeria Economy	2190 VIEWS
Nigeria Economy
2190 VIEWS

Sunday, July 05, 2020 06:30 AM / by Proshare Content/ Header Image Credit: EcoGraphics

As lockdowns are lifted and loosened, policymakers and experts are debating how to avoid a spike in new cases. World leaders and scientists are also placing much hope on quickly finding a vaccine for COVID-19. Despite some reason for optimism, a viable treatment is still unlikely until well into 2021, which means many of us may have to get used to a very different lifestyle, even if some restrictions are eased.

Therefore, it is vital to narrate what the new normal will most likely look like for customers, businesses and the government.

Illustration 30: Customers Digital Transition

Illustration 31: Nigeria's New Normal-Risks and Opportunities

Back of The Envelope

Hard Policy Choices -A Policy Shot To The Arm and A Mild Spell of Illness

The government's priority policies for 2020 need to be focused on healthcare reforms and expenditure. The government needs to approve and implement a much larger healthcare budget targeted at preventive community-based healthcare services that would deliver the infrastructure and personnel needed to address communicable diseases at local government and local community development area levels. Registration and data collection at these levels would make epidemic or pandemic containment significantly easier in the future. In other words, community-based healthcare data collation and informatics would take the thunder out of any future healthcare storm in the form of a pandemic virus. Part of the healthcare budget should go into medical research that would provide the indigenous capacity to treat surprise viral infections using the locally produced medication as is the case in Madagascar where, as at May 5, 2020, the country had 158 reported cases of COVID-19 with no deaths, ostensibly the country has been able to treat COVID-19 cases by using a local herb combination. The African Union has hopped onto the potential of the Madagascan solution to explore a continent-wide application of the herbal remedy.

Government spending should be increased to, at least, as large as the prospective domestic economic costs of the COVID-19 pandemic, focusing primarily on direct cash disbursements to firms and households. The fiscal spending stimulus would translate to effective private and business spending which would in turn restore domestic supply chain linkages and stave-off unemployment in both the formal and informal sectors of the economy. However, a caveat may be necessary. While a CBN monetary splurge may improve domestic liquidity and increase potential demand, it would not restore or repair broken supply chains if the global economic output is not restored. The meaning of this is that domestic monetary expansion is a feeble weapon in the face of difficult global production situations. The expansion of output in the domestic economy is outside the ability of the CBN to engineer to the extent that production inputs must be imported. The lesson here is that Nigeria must build a backwardly integrated industrial substructure to support an economic superstructure supportive of CBN monetary stimulus.

The CBN may need to provide financial support for the government, not just through reserves but also by printing money, if necessary. Of course, this comes with inflationary consequences but in the short-term, the country may have to live with this as a lesser of two evils of a recession/depression and a rising average annual price level. To counter the inflationary impact would be in-built stabilizers such as additional tax revenues (VAT, CIT and PIT) and faster economic growth accompanied by higher corporate revenues and individual incomes and incrementally lower budget deficits.

Tax reliefs, tax cuts, tax holidays, and tax incentives. Take reliefs and tax cuts would be difficult to initiate at the moment as an expansion of money supply would lead to rising price levels and strains on the country's foreign currency value. To reduce the severity of the effect of upward price adjustments on fiscal stability, tax rates would have to remain where they are presently and tax reliefs may need to be deferred. Tax holidays may also need to be considered at a more auspicious time, while tax incentives may be allowed for greenfield and brownfield projects that bring in sizable foreign investment and create a large number of new jobs. The recent increase in value-added tax (VAT) from 5% to 7.5% would have to stay to improve the countries revenue to debt ratio and to reduce its debt servicing gap.

Tax rebates and temporary universal income to households; cash grants to firms.

Cut interest rates, launch QE programmes and lending schemes.

Coronanomics: A Million Voices And A Few Good Economists

A few local economists and public policy analysts have expressed varied but interesting opinions about different aspects of the policy implications and potential outcomes of the COVID-19 pandemic in Nigeria, a few of the perspectives are represented below:

"The long and short of it is that the economics of Coronavirus or Coronanomics, shows the interconnectedness of everything, that is the value chain of human existence from biology to economics, politics, technology, trade, investment, race, culture, identity and everything else. In the face of such infinitude, what is most required is leadership to help the people regain a sense of balance and restore all things that may have gone awry" - Dr. Reuben Abati

"It is important to strengthen Nigeria's healthcare infrastructure and delivery systems, because good health leads to economic wealth. There is need for effective governance measures through institutions and pragmatism from policy makers, to navigate the challenges arising from the coronavirus disease. Sustainable economic development depends on productivity and productivity depends on incentives, robust institutions and innovations" - Dr. Temitope Oshikoya

"Nigeria can do well in the midst of much lower oil revenues, but we need to make tough choices, enforce tax compliance, invest in securing life and property, subsidize only the poor and weak not everyone in town, subsidize in ways that do not blow big holes in the budget of Government, partner with the private sector in the key areas that will grow output, re-train and certify our work force, manage our population, account for taxes collected in a transparent manner" - Bode Agusto

"The government should engage in the following seven steps/roadmaps in rebooting Nigeriaâ€™s economy from COVID-19. The seven steps are:

1. Policy coherence and leadership which is sadly lacking at the moment.

2. Ensuring an orientation of stimulating the financial sector with any spending done in this period.

3. Establishing a fresh N5trn COVID-19 recovery fund.

4. Allowing Professionals meeting standards of governance and internal controls standards and the group of MSMEs they are incubating to apply for productivity loans under this arrangement.

5. Giving priority to professionals partnering with youth or women run enterprises to ensure the effectiveness of spending, especially where larger companies are ready to incorporate them into their supply chains.

6. Pay some debt owed to infrastructure contractors and large employers of labour to safeguard jobs and stimulate infrastructural renewal where possible and issue new contracts to urgently refurbish critical infrastructure.

7. Registering all Nigerians over the next 100 days by deploying agents full kitted in Personal Protective Equipment." - Soji Apampa

"For the countries that see the shocks as signalling structural shifts (which it largely is), the focus should be on exploiting the opportunities offered by the crises to press the re-set button. It requires a realistic diagnosis and admission that the existing business model has been rendered obsolete. Crafting a new business model that encompasses the whole range of institutional, technological, structural, macroeconomic, and even politico-governance arrangements takes time and demands for disruptive thinking. It would require mainstreaming creative non-debt-creating financing options and new forms of economic partnerships." - Professor Charles Soludo

"The imminent decline of oil revenue in the wake of the pandemic should be a call to action for policy makers. Diversification of the Nigerian economy needs to be taken up on a war footing to create momentum in the next 1 to 3 years. There is the need to identify the "quick wins" and assiduously create an enabling environment for the private sector to realise them. This is the right time to bring up the NEPC's "Zero Oil Policy" for serious consideration and implementation. The impetus given to the cotton-textile sector needs to be sustained. Enough of rhetoric. The time to act is now."- Ade Adefeko and JP Olanrewaju

"Five top areas that need attention at the present time:

Nigeria needs a clear and cohesive national strategy to integrate our factor endowment to become globally competitive
Nigeria needs a carefully crafted Industrialisation Policy
Nigeria needs to identify value chains with clear timelines and goals to achieve stated objectives
Nigeria needs to create a new financial system different from the current banking system or perhaps create a new commercial development bank.
Nigeria needs entrepreneurial financing; banks need to be developmental in orientation to support the growth of the economy" - Prof. Pat Utomi

"Nigeria has limited monetary policy leeway as a result of low external reserves and low international oil price. Therefore, policy orientation should tilt towards fiscal policy. The main problem to solve now is to raise external liquidity to where we can regain monetary policy control." - Dr. Ayo Teriba

"Nigeria government should focus on the following:

We need to manage our debt very carefully over the medium term.
we need to mobilise more revenue by improving efficiency in the collection of taxes and reduce corruption.
In terms of public expenditure, we need to focus on more things that government would imply a greater impact of fiscal spending per capita and improved growth of the productive real sector of the economy." - Dr. Temitope Oshikoya

"Post COVID-19 blues will have a significant impact on the Nigerian economy as the country still displays a large and fragile informal sector. To sterilize the impact of global economic changes on the domestic economy, the size of the informal sector needs to be shrunk; hoping this would occur in the short term is like hoping that Nigeria's debt-burden suddenly vanishes. The dream is likely but reality is less kind". Boason Omofaye - Boason Omafaye