OKOLI: CBN’s Warning On Recession Is A Bit Late
For decades, our beloved country has been running import- oriented economy powered mainly by revenues generated from crude oil sales. In one of my books “Crude World of Oil” published in 2012, I opined that crude oil price can go down to $25 per barrel or jump to $250 per barrel. I listed the possible factors that would cause either price level. At the end of my analysis of all the factors, I concluded that $25 per barrel was the best possible level.
Here are some of the factors that are responsible for declining crude oil price today: Global warming, Solar Energy growing demand, engineering efficiency in modern machines, Chinese slowing economy, King Dollar, and natural gas.
The huge destruction in crude oil demand has created over supplied inventory that would take time to clear out. Until then, no economist is willing to call a bottom price on crude oil price.
All I can say for now is that the impending rebuilding of the systematic failure in the country will definitely help to reduce the fast dwindling revenue from crude oil. The country will go through some traumatic financial pains, but at the end of the tunnel the nation would emerge a true giant and economic power house. The economic outlook really depends on how the expected fiscal and monetary policies would look once presented for analysis. Monetising the over one trillion dollars of hidden and non-performing assets in the country would be a plus, but the policy makers must have to search deep to see those assets.
The CBN has warned that Nigeria’s economy may slip into recession next year if proactive steps are not taken to revive growth in key sectors. What is your take on this?
The CBN governor made a desperate attempt to warn the political class of the unintended consequences of not coming up with sound and objective – oriented fiscal policy. Nonetheless, the call might have came a little too late, because I cannot see any fiscal or monetary policy that can quickly navigate the economy away from the already recession bound trajectory. There are three CCCs (China, Commodity and Currency) that are likely to plunge the global economy into a deep recession again. Unfortunately, the country is already behind in the fight to prevent the negative effects of such recession.
You remember that the country had a general election this year and lots of money was spent in preparation of the election. Ever since that election, it looks as if the country has been on complete standstill because history was made when Goodluck Jonathan handed over the leadership of the country to Muhammadu Buhari. Maybe, the winning party never expected or imagined the outcome of that election.
Apart from Saudi Arabia, that has enormous foreign reserves, many OPEC nations would definitely gravitate towards chronic economic traumatic periods because of the three CCCs earlier mentioned. Expect other economic power houses to join them later. I am calling for global recession by fourth quarter of 2016.
There has been so much talk about diversification of the economy without much action. How do you think the incumbent administration can proceed in this regard?
Like I said earlier, the systematic failure in the country made the diversification efforts very difficult. Just like so many other noble projects that would have economically empowered the country to a greater height, the diversification project might have been compromised by the rot in a system that pays less attention on checks and balances. Any other project of national interest might likely fail unless the systematic failure is restored to accommodate such efforts.
The President garnered international and national supports because he presented himself as an individual that is capable of eradicating chronic corruption in the country.
There is corruptions all over the world, but when a country lacks adequate mechanism of checking corruption, it can quickly degenerate into chronic corruption, and this is the unfortunate condition that the country finds herself in. If Nigerians are not willing to change the trajectory path of the country from degenerating to point zero to greater height, there is not much Mr. President can do to better the lives of over 75 per cent of the citizens that are wallowing in abject poverty.
Rebuilding the country will definitely not be a quick fix. Nonetheless, Nigerians must be well informed to prepare their minds for the long painful process of restoring all the many decades of destroyed democratic institutions in the country. Nigerians can elect to kick the bucket down the line again, or tenaciously, fearlessly, and painfully confront this monster of corruption that has held the country hostage for long. I sincerely believe that a country that fearlessly confronts her immediate challenges would definitely enjoy a better future. Let Nigerians make wise decision this time around as history is definitely not on their side.
What kind of policies do you think the government can put in place to attract Foreign Direct Investments (FDI) into the country?
Bringing back sanity in the country, improving security through good governance and relegating Boko Haram attacks from global headline news would definitely start to attract direct foreign investment into the country. Make no mistake, there are huge investment opportunities in this country, but many Nigerians in the Diaspora and other foreign investors are waiting to see if it will be business as usual, or if the new administration can restore sanity in the country. Remember that the political altitude of any country would definitely determine the economic height of that country. Let Nigerians collectively address the systematic failure in the country and everything will definitely fall into place.
JP Morgan recently said it would delist Nigeria’s economy from its influential emerging markets bond index by the end of this month, citing lack of liquidity and CBN’s currency restrictions. What is your take on that; besides, would you support further devaluation of the Naira?
Morgan Stanley delisting of Nigerian bonds from emerging markets bond index funds would have both short and long term financial consequences. But with commendable fiscal and monetary policies, the country would bounce back to a greater height once the broken system is restored. If such delisting takes place, institutional investors might technically be forced into selling Nigerian bonds, which would push bond yields up, resulting in higher borrowing costs to a country that would be needing lots of borrowing.
I would rather not make public my prediction on Naira exchange rate against dollar in the long run, but the best exchange rate value will eventually be determined by the powerful forces of demand and supply. Bear in mind that Naira has been devalued over 30,000 per cent from 1973 date. So, if the country fails to get it right this time around, massive devaluation will follow again.
The CBN governor has been using enormous resources to manage and save Naira from free fall against other major currencies, but can you imagine what would happen when he would also be trying to combine that task with saving the commercial banks?
What the country is going through today were orchestrated by many decades of failed fiscal and monetary policies and until those failed policies are merged with realities on ground, the current fiscal policies might present long term financial challenges. Nigeria is still a potential engine of global growth, but the immediate consuming challenges of corruption must be boldly and fearlessly addressed before the country can meaningfully move forward.
The non-performing and hidden assets of Nigeria can greatly be enhanced to financially engineer the country away from the crude reality of the impending global recession. If Nigerians are willing to endure and make some short-term painful sacrifices, there would definitely be a blossoming light at the end of the decaying tunnel that would make the country the darling investment hub of the world.
I love the country; I can also tell you that Nigerians in the Diaspora and many foreign investors also love the country because of the enormous investment opportunities that are hidden in the shores of this great sleeping giant. China slept for decades and when the country woke up in the early 1990s, it became economic power house for our fragile world. Nigeria has the population, the mineral resources and the country is geographically located to attract investors from all corners of the World.