Sunday, 06 September 2015 2.29 PM / News & Investigations
The narrative around the 100-days review would appear to some persons as no more than a “fancy buzzword” or “boutique appraisal” that is only fulfilled based on convenience. For others, it represents a minimum requirement from political leaders to describe what they met, what they have done so far, what they intend to do; and what is expected of the citizens.
We align with the latter group and believe that when politicians campaign for a mandate and eventually win one, the voting public (the electorate) must in part-fulfilment of its own responsibility in this social contract, demand at all times an explanation or/and clarification of direction - holding elected officials to account at all times.
This would appear consistent with the natural intendment of our democratic ethos and remains a critical component of good sovereign governance.
It is thus fair to have expectations of a periodic feedback from our elected officials on the state of the republic i.e. what is going on in the country and where are we headed – in terms of security, economy, education, infrastructure, public services, jobs, competitiveness, opportunities and resolution of issues that can help us perfect our union as a people.
Yet it must be said, that underneath the chatter lays an unspoken truth – the people are impatient for change that would impact their lives. Change is neither a currency they can spend nor a luxury item they can afford to be waiting for. Change to the average Nigerian is not a love affair or an obsession with anniversaries but an open cry for help – for a better society, a chance to work, earn and afford a decent life with rights to efficient power supply, energy, quality and affordable schools for their children, well equipped hospitals, an efficient police and armed forces that protects them, good public infrastructure, the right to practice their faith without hindrance, and an opportunity to flourish and release their entrepreneurial talents.
Change for the Nigerian people is something personal and in this quest, the sheer magnitude of the demand for answers, amplified by the increased access provided by social media makes it a compelling engagement for this current crop of leaders than previous office holders.
This would appear to be what Nigerians are demanding as we hit the 100-days mark of the PMB/Osinbajo administration. We see it as setting the tone and template for future administrations in a new age.
To aid this exercise, we have therefore collated information, data and reports covering the 100-days to guide the process of appraisal; hoping to encourage a discourse premised on facts.
In the course of the exercise, we observed events, policies and procedures that would effect a significant shift in the current way of doing or thinking about governance in Nigeria.
The seven (7) key game changers identified from the actions gleaned so far in the last 100-days based on publicly available information; which the economic, business, and financial markets must reflect upon:
1. Integrity and Accountability Backed Leadership: This has been one of the missing link in our governance architecture and should hopefully increase the possibility of a level playing field, public trust and a more purposeful public service. We note as a matter of emphasis the shift towards a more responsible and compliant posture to the constitution/rule of law with the commitment to addressing past failures as exemplified with the Ogoniland clean-up directive. If this is sustained, entities involved in environmental degradation will not find it business as usual.
The shift towards accountability, if sustained across board should see a renewed relevance for the Code of Conduct Bureau/ICPC which we hope will be enhanced in years to come with a requirement for a tax compliance declaration by political office holders. This should provide the much needed validation of assets and complement the work of the Internal Revenue Service which now can be expected to increase federal tax revenues from about N4trillion to N10trillion. Individuals and business entities are well advised to ensure that their tax situation are in order and hopefully, the FBIR would be conscious of possible dislocations that may arise in managing this change imperative.
2. Rebased GDP Slows Sharply: Nigeria recorded a 2.35%, GDP growth for Q2’2015. This is 3.65% lower than the 5-year average thus confirming that Nigeria is officially in an economic slowdown, a cycle before a recession as oil prices tumbled to a six-and-a-half year low of $42pb.
According to a September 02, 2015 report by FDC, Nigeria is grappling with lower oil production with the oil-Sector down by 6.79%. Oil is now 9.8% of GDP; manufacturing is down 0.07%, just as the services sector growth declined by 2.39% to 4.67%. Check the economic data summary in section 3 of the report for more insight into how stagflation is becoming manifest.
Suffice to say, the annual growth estimate for 2015 is now as low as 2% even as it must be said that Q2 2015 growth figures as released by the credible NBS was impacted by the election cycle and consequential stagnation that occurred leading to a shrinking purchasing power as FBNCapital reported in its PMI report for August 2015 which saw the index shrink in August 2015 to 49.2 from an earlier low of 50.6; showing a reduction in output across most sectors, especially manufacturing who will find consolation however in the related news that power output from the national grid in August spiked to 4,396MW just as the price of diesel is now down to N120 from N165 per liter in June 2015.
In the short-term, the Nigerian standard of living index - determined by terms of trade, labour productivity, and government policies is according to Nextnomics has seen trade decline by over 50%; labour productivity is low at $3.16 and declining; and government policies remains uncertain. All this must have impacted the “Misery Index” which increased by 9.5% to 35.7 for the period ended August 2105.
3. A CBN at crossroads over Monetary Trilemma: A trilemma is either a choice among three unfavourable options, one of which must be chosen, or as a choice among three favourable options, of which only two are possible at the same time. A situation where the inflation rate continues to rise month-on-month, the economic growth rate slows down, and unemployment continues to rise steadily (Q2 unemployed Nigerians increased by 0.7% to 8.2% while underemployed Nigerians increased also by 1.7% to 18.3%) – would suggest an economy in stagflation heading fast towards a recession (if we are not there already).
This raises a dilemma for economic, financial and monetary policy, since actions designed to lower inflation may exacerbate unemployment, and vice versa. The CBN is between the hard rock and the deep blue sea currently. The capital dollar inflow in Q2, according to CBN is down to $2.67bn; 50% down from $5.8bn in Q2’2014 with external reserves slightly down in August by 0.2% to $31.4bn. The divergence between the IFEM rate and the BDC rate shrank to N8.37 before slipping again to N20.03 – all this is happening as SME’s and FCY e-commerce trades continue to struggle with the CBN policy on FX.
According to Nextonomics “Stagflation, using the Taylor Rule shows that monetary policy is very tight with CRR @ 31% and MPR @13%, while GDP and job creation has slowed down or disappearing. Inflation (9.2%), foreign exchange (10% gap), liquidity (30%), external reserves ($31.4b), & capital importation down by 54% coupled with a slowing GDP requires lowering MPR, LR, & CRR to help provide credit to the private sector (the engine of the economy) but could end up stoking inflation, banking liquidity, and capital flight. The chief headache for the CBN is what it does about depreciating the Naira which experts are agreed will encourage capital inflows but stoke inflation. At the same time, a relaxation of capital controls by the CBN would encourage capital inflows, but make exchange rates become more volatile.” Tough choices are required.
With M2 down to N18.43trn in July, 2.05% lower than in June 2015, as against a CBN growth benchmark of 15.24% for 2015. Year-on-year inflation in July 2015 returned flat at 9.2% .2% due to favorable harvest and an abundance of rainfall which dampened food prices ; just as core inflation rose to 8.8% driven by exchange rate restrictions which has led to a decrease in imported goods, reduced economic activity and lower inventory levels by firms – all indicating that August 2015 inflation figures are expected to increase to approx. 9.4% .
Debt repayment will become difficult with a slide in oil prices despite the fact that some states have restructured previous debt obligations. How and what the CBN does hereon will have a significant bearing on the economy. The sense of urgency is not yet discernable, but perhaps muted.
4. Implementation of the Treasury Single Account (TSA) policy: This policy (a core reform requirement in the concluding observations of Nigeria’s 2013 and 2014 IMF’s Article IV Consultations) was officially introduced last year by former President Goodluck Jonathan to block revenue generation leakages in phases, with about 42 MDAs in the first phase but was not fully effected even after a deadline was set for MDAs for February this year; perhaps due to election issues which affected many aspects of governance. Compliance is now taking place without another circular from government.
The position, consistently advocated by Economic Associates has the singular capacity to allow for a proper capturing of government revenues, eliminate or reduce leakages and allow for a proper appraisal of the capital-recurrent mix of the Nigerian state.
The impact of this singular policy should be seen in an increased revenue generation by FGN as MDA’s move their several revenue accounts (estimated in the thousands) from banks to the Central Bank of Nigeria (CBN), including offshore accounts maintained by them. Other consequential impacts will be the enhanced leverage this provides for the CBN to manage interest rates and announce a significant reduction in its Cash Reserve Ratio (CRR) requirement on private deposits; as well as enhance the fortunes of good and well-managed banks not built around public sector funds who would not suffer immediate liquidity challenges.
5. Revamped Security Architecture: Dealing with internal and external threats decisively should enhance trade, commerce and communal living. This cannot be over-emphasized as the risk element which had continually risen should now be expected to witness a significant reduction.
6. Public Sector Shift towards Reform and Data-backed Administration: The decision to address the issues of “ghost workers” hitherto resisted by some MDA’s through the implementation of the Integrated Personnel and Payroll Information System in the public (IPPIS) gives an impetus to the possibility of a more structured, efficient and accountable public service. This shift towards the increasing deployment of data as an enabler in governance got a further boost with the harmonisation of the country’s various data banks hosted by different government agencies such as the Central Bank of Nigeria, the Nigerian Police, the National Population Commission, INEC, Customs, Immigration Service and others. The recalibration of the Oil Sector/NNPC will appear consistent with this new paradigm.
We anticipate that the government will take this a step further with a move towards a re-institution of the role, place and responsibility of the Nigerian civil service as the foundation for building institutions of governance which will most likely impact the roles, responsibilities and relationships of Ministers and Permanent Secretaries in governance; through a deliberate revert to a tried and tested administrative style that on paper, should reduce political interference and deliver efficiency. How this eventually shapes up and is executed may yet be discerned. What is however clear is the new emphasis on due process which should see changes occurring in the planning, budgeting, procurement and financial architecture of governance in Nigeria.
7. Global Economic Risks and the Nigerian Economy: With oil prices reaching a 7-year low and future oil price path remains uncertain, the risks associated with volatility in financial markets and a possible hike in interest rates from the US coupled with China’s slowing economic growth and 2% devaluation (lower GDP growth in two major economic blocs--Euro-area and Japan) the implications for Nigerian economy would appear clear-cut according to Nextonomics.
Nigeria must now prepare for a slower global output growth constraining recovery of the oil price, with negative impacts on the country’s fiscal finances. Also, capital inflows famine in emerging markets including Nigeria as interest rates and yields rise in the US which creates a further pressure on Nigeria to devalue the Naira – a sentiment gaining ground and advocacy from foreign investors. The trillema the CBN is confronted with is a significant problem that should concern us all - a difficult choice from three options, each of which is (or appears) unacceptable or unfavourable.
The report hopefully has highlighted the trend, thinking and summation of expectations of a Nigerian economy and society that has some tough decision and choices before it.
Not lost on us is what appears to be the deliberate and systematic move(s) by the presidency which was made rather obvious when PMB formally announced his front office team of trusted and reliable aides on the anniversary of his being toppled by a previously trusted but treacherous team in August 1985.
It will thus appear that a lot is being kept close to chest by the administration and Nigerians may well have to prepare for a change in approach to governance than previously experienced.
It is our expectation that in line with sovereign change management ethos, issues around managing a structural change is fraught with many pitfalls and setbacks and it is in managing these challenges that Nigerians must direct their attention and judge the administration.
Hopefully, this modest effort of ours should help trigger a more extensive interaction amongst stakeholders on the need to set up bridges and firewalls to address the problems that brought us to this state; and the solutions to take us to the promised land.
The task of nation building has started and we will continue to retain a keen interest in developments. Do feel free to share with us your own views on the state of the union.