Nigeria’s tottering economic recovery roadmap

In the height of the Coronavirus lockdown, an austerity fetish Germany announced a €130 billion ($154 billion) stimulus, about four per cent of its gross domestic product (GDP), to turbocharge its economy out of the associated risks of the outbreak.

The package, which is 4.5 times bigger than Nigeria’s 2021 proposed “budget of economic recovery and resilience”, includes expanded access to short-term work, subsidy to preserve jobs and workers’ incomes, childcare benefits for low-income parents, and basic income support for the self-employed.

There is also an equity acquisition arrangement that enables the German government to strengthen big companies that are severely affected by the pandemic just as a fresh report said the country expects to pay out €22 billion ($26 billion) in COVID-19 relief aid to companies and self-employed individuals in the firsts half of 2021.

The hitherto loan-shy European giant is funding the radical COVID-19 stimulus with debt exceeding €200 billion ($236 billion). But Germany is not the only company with such a radical approach to tacking COVID-19 economic impacts.

South Africa, Nigeria’s strong regional rival, plugged into recession before COVID-19 struck. It merely sank deeper, recording over 50 per cent contraction in Q2 2020 as the pandemic squeezed economies globally.

But last week, it jumped out of the longest recession in about decades with an annualised growth of 66.1 per cent. The former apartheid nation did not beat the projections by economies by random economic policies and actions. It has been methodological and audacious, Godwin Owoh, a professor of economics, observed.

Its monetary policy approach has been one of the most ambitious in Africa. As of January, the country’s monetary policy rate (MPR), the benchmark against which other lending rates in the economy are pegged, was 6.25 per cent as against Nigeria’s 13.5 per cent. The South African Reserve Bank has reduced the rate consistently in the past one year, pegging it at 3.25 per cent in July.

There have been other monetary options such as debt reliefs to borrowers, reliefs on banks’ capital requirements and aggressive increase in money supply via open market operation. This is iced by the R500 billion ($31 billion), which translates to nine per cent of its GDP, fiscal intervention. President Cyril Ramaphosa said R200 billion (40 per cent of the package) was aimed at securing the aggressive low-interest loan programme of the central bank “to protect jobs and save companies from bankruptcy”.

Egypt, another Africa’s leading economies with a substantial slice of the continent’s investment inflow, is also a rare example of how to respond to an economic shock of the magnitude of COVID-19. Pre-empting the systemic impact, its central bank held an unscheduled session on March 16 during which it slashed the lending rate by 300 basis points (from 13.25 per cent to 10.25 per cent). It has remained on the decline since then.

The case-by-case fiscal interventions in the economy and social welfare are as radical as the monetary policies. Pensions have been increased by 14 per cent while $0.6 billion was freed to boost consumer spending, the most important components of GDP. Parts of the country’s efforts to boost consumer consumption include discounted prices, low-interest consumer loans and ration card subsidies.

A thrifty Germany is competing with a profligate United States and other big economies to spend its way out of the economic impacts of COVID-19. Even countries with already-unbearable debt to GDP ratios – including Japan, Greece, Italy, Portugal, Singapore and France – are also spending though creatively to bail out their economies.

A few ones that are extremely constrained are leaning on ingenious expansionary monetary policies to drag their economies out of the systemic risks that have sent economies spiraling in the past one year. From south to north, west to east, African countries are not mere observers. Angola, Egypt, Ethiopia, Ghana, Kenya, Morocco, Senegal, South Africa, Sudan, Uganda and every other African country have rolled up their sleeves to do the hard work that will stimulate growth.

Nigeria, too, has been in the trenches. In response to the crisis, the Central Bank of Nigeria (CBN) has reduced the MPR from 13.5 percent to 11.5 (200 basis points). It has also introduced additional measures, reducing interest rates on all applicable interventions from nine per cent to five per cent with a one-year moratorium on the facilities, creating a N50 billion targeted facility.

N500 billion ($1.3 billion), representing about 0.3 per cent of the GDP, was included in the revised 2020 budget as COVID-19 intervention fund to be channeled into health-related and other capital expenditures (CaPex). The social register was increased by one million households to 3.6 million to help cushion the effect of the lockdown. A broader economic stimulus plan, including the N500 billion COVID-19 intervention funds, was introduced to support the real sector.

The government has also scaled up its National Social Investment Programme through which it gives cash to “vulnerable households” to reduce the financial burden and boost spending power. Central to the programme is N20, 000 ($53) condition cash transfer. This is augmented with others such as the N50, 000-payroll support scheme, which targets 500,000 beneficiaries and 30,000 one-off MSMEs Survival Funds. The artisanal scheme is expected to reach 333,000 individuals across the country.

But how fit for purpose are the interventions? Before the outbreak of Coronavirus, the official exchange rate was N305/$ compared to the current N380/$, indicating the naira has been devalued by about 25 per cent as the economy wallowed in uncertainty. The local currency has lost a similar percentage at the parallel market, which Dr. Ayo Teriba, an economist, said is responsible for the escalating inflation rate. Last month the inflation hi 14.23 per cent, putting more pressure on households.

Whatever leverage that may have been created by the monetary intervention and fiscal policies, the economist noted, has been wiped by the negative impacts of the weakened naira and rising inflation, which has also increased the cost of funds notwithstanding the cut in the policy rate.

Though the oil prices on the upswing, Bala Zakka, an energy analyst, said 1.86 million barrels per day at $40 remain the Achilles heel of the budget of “economic recovery and resilience”. The economist described the budget as a joke. A shortfall in either the production target, which is about half a million barrels higher than Nigeria’s OPEC quota, or the price target will mean a hole in the budget whose deficit is already 40 per cent.

Bismarck Rewane, a member of the Presidential Economic Advisory Council (PEAC), had dismissed the 2021 budget as unambitious during an appearance on Channels TV. He noted that a country that is grappling with distortions Nigeria currently faced ought to spend more to fast-track growth.