Nigeria’s economic policy and need to avert impending recession

I applaud the Governor of the Central Bank of Nigeria concerning the potentially transformational statement on the Foreign Exchange Policy. The impact of a single foreign exchange market will have the best possible outcome for the Nigerian economy.

I am confident that well managed, Nigeria will be out of depression by the first quarter of 2017. Nigeria has been in recession from the last quarter of 2014 up to last quarter of 2016. A recession is characterized as a period of negative economic growth for two successive quarters as in our case. We have suffered five consecutive negative growths between December 2014 to December 2015.
   
Our situation got worse in the first quarter of 2016 when for the first time in about thirty years, the economy did not grow at all and actually contracted.

The Report of the National Bureau of Statistics is likely to show a further contraction of the economy in the second quarter of 2016. So we are in depression but the good news is the new foreign exchange single market and the opening up of the petroleum industry to competition.

Even though the Government is still not showing us a direction in relation to its economic philosophy and agenda, the petroleum and foreign exchange pronouncements are clear indications that we are now moving towards a market driven, liberalized deregulated economy.
   
It is too early to say that we are out of the woods. There are several important critical nuggets of economic and other policy that must be made or taken by the Government of Nigeria, very quickly. The first is peace and stability.

Nigeria is at low grade civil war caused by structural defects in our Federal system. The President must address this as a matter of urgency by announcing a new balanced Federation. The process is very simple. All the president has to do is to present a bill to the National Assembly for the devolution of certain powers from the centre to the state and local governments.
   
Related to the problem of a fractured structure of Nigeria is the issue of insecurity. While government has done well on Boko Haram issue, many other issues create instability and impede economic
investments.

The President must deal with the Biafra agitations, which in my view are genuine grievances; The President must deal also with exclusion felt by the people of Niger Delta, who in my view have genuine reasons to feel aggrieved; The President must deal with mass poverty in the North, because it allows the festering of fundamentalism in the North. Boko haram in the North is caused in part by underlying issues of hunger and poverty.
   
The President must have a strong public infrastructure policy to deal with our broken bridges, broken roads, no power etc. Mr. Fashola has shown himself more than capable to lead an infrastructure transformation agenda that can clean out the infrastructure mess in Nigeria.

The President will need to empower Mr. Fashola. While applauding the CBN on the new foreign exchange rules, it bears noting that import substitution is a policy waiting to be implemented by Nigeria’s fiscal and monetary regulators.

The CBN should take steps to force down bank lending rates into single digits, that is below 10%.This will encourage local manufacturing and the outputs will substitute for imports. A vital matter is whether the CBN is overstretched. The CBN is watchdog of monetary policy as well as prudential and ethical guidelines.
   
I recommend we adopt the procedure in the United Kingdom, with the Bank of England supervising monetary policy, and Prudential Regulatory Authority, looks after banking supervision, while the Financial Conduct Authority, imposes ethical standards. The Nigerian economy is constrained by capacity to regulate banks and I suggest that CBN will need support.

The CBN also supports the economy by intervention Funds.This is yet additional work. International best practice is to create a Development Bank to support and guarantee economic activity.Corruption is endemic in Nigeria and to reverse it requires strong new institutions. There has to be roots and branch reform of the anti-corruption agencies if we must succeed in slowing down corruption and growing the economy.

The economy will clearly benefit from a framework in relation to the ease of doing business. The economy is constrained by tedious bureaucratic rules and corruption. Government must deal with this decisively.

The standard operating model around the world is the creation of a benefits agency as it is called in England, and a social security agency as it is known in the US, to support those who are unable to look afterthemselves. It is vital to deal with this issue.

Happily Chapter 2 of the 1999 Constitution provides a framework with which a proposed Social Security Administration can be charged.
Dr. Agbakoba, a senior advocate of Nigeria, is the managing partner,
Olisa Agbakoba Legal (OAL), Lagos.