Can Nigeria get the Economic, Fiscal and Financial Narratives back to Positive?

Monday, February 12, 2020 / 04:00PM / Economic Associates / Header Image Credit: Economic Associates

It is indeed very 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 concerns about solvency/bankruptcy.

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 52^nd to 22^nd 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 30^th 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 US dollar, while inflation and interest rates jumped into double digits; with the growing misery reflected in growing number of unemployed, poor, and disenchanted.

We present 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 also show that unfolding global realities now mean that Nigeria could easily adopt policies to raise external liquidity thresholds enough to switch from contraction to expansion. Global liquidity glut has seen a doubling of long-term capital inflows to developing countries in the last decade and Nigeria is very well-placed to strategically reposition itself to get a fair share of that.

Despite negative external income shock, domestically, Nigeria remains prodigiously asset rich. Nigeria's large population spread in scores of urban centres and past oil booms combine to bequeath her with valuable public assets. However, while Nigeria's economic, fiscal and financial struggles resulting from the decline in income have been conspicuous in news headlines, the solutions that the value of assets owned by Nigeria could unleash have been less so. We draw attention to the hidden value in vast assets owned by Nigeria, make a case for unlocking massive domestic and external liquidity required to arrest the economic, fiscal and financial crisis from them, and articulate four ways of doing so.

We show that Nigeria could adopt the following options to raise domestic and external liquidity thresholds:

(i.)     Securitize equity holdings in NLNG and other oil and gas Joint Ventures to shore up foreign reserve threshold, while giving Nigerians at home and in diaspora opportunities to invest in the assets and earn some of the dividends.

(ii.)    Privatize to attract brownfield FDI by converting all wholly owned corporate assets to securitizable Joint Ventures stakes in which government owns up to 49 percent and foreign investors own up to 51 percent.

(iii.)    Liberalize to attract greenfield FDI by breaking government monopoly in all infrastructure sectors to encourage entry of foreign investors who could operate in parallel to the Joint Ventures.

(iv.)    Commercialize idle or under-utilized state-owned lands and built structures by relocating uneconomic activities from prime locations and repurposing them for leasing to open new streams of non-tax revenue.

Doing these will change Nigeria's economic, fiscal and financial narratives by unlocking the liquidity Nigeria needs to strengthen the Naira, rejuvenate fiscal, financial and foreign exchange streams, rebuild infrastructure, diversify and accelerate growth, eradicate poverty and unemployment, and lay the foundations for shared prosperity. Leading developing countries adopt different combinations of these four options to fuel their transformation.

Evolution of Developing Countries' and Nigeria's Shares of Exports, FDI, and Remittances