Now that Nigeria is on recess
Last Tuesday, the Federal Government after months of hesitation managed to officially accept that the national economy has entered into recession. I do not know what percentage of the 170 million Nigerians understands economic recession the way Finance Minister, Mrs Kemi Adeosun and other experts have explained it.
Not too many people understand when an economy goes into recession, but a lot more people will understand when a process or person goes on recess, which is to sign off completely to resume at a later time. In my days in primary school, we used to go on recess. It meant having nothing to do with the teacher, his cane and the classroom for the period of the recess. We could even drift home to soak garri with palm kernel before returning to class to finish the day’s schedule.
And so, I want to put the matter differently from how Adeosun presented it: Nigeria’s economy has gone on recess! It means, for now, there is no economy in Nigeria till further notice. And if there is no economy, there will be no jobs too, because production of goods and services shall freeze at zero degree, while existing jobs will come under tremendous threat. Money will vanish too, even as inflation remains high as a result of scarcity of goods and services.
If the economy refuses to return from its recess after a reasonable time and goes ahead to observe depression, people will be forced to live without it. Part of that is the reordering of their expenditures to accommodate only top priorities. Then, Dangote and other cement manufacturers, for instance, who increased cement price from N1600 to N2, 300, will be forced to use their products themselves as no Nigerian in the face of more pressing needs like food and paying of school fees, will be buoyant enough to buy cement to build houses.
Although Mrs Adeosun and other experts have not hinted on the disturbing prospect of the economy dipping beyond recession into a depression, let me quickly explain that a depression is when a simple recess of say 45 minutes extends into a long holiday. And it is better contemplated than witnessed. But whether as recess, recession or even depression, none of these unwanted visitors comes without giving advance notice for the host to make adequate preparations or do things to abort the visit altogether.
The visit to Nigeria wasn’t different. This was the point Mrs Adeosun tried to explain when she said that the recession whose arrival in Nigeria was officially announced only last Tuesday began its journey to the country six years ago. She said this apparently to mitigate the culpability of President Buhari and the APC government in the trouble at hand. She made it look and sound as if Buhari, who came to power one and half years ago, did not have any responsibility to stop recession in its track, even if the monster had begun its march against the economy four and half years earlier.
But Buhari is culpable; very culpable, that is. He and the APC never listen to understand other stakeholders in the Nigeria project. They often listen to reply or touch off a debate on culpability, which is why they so easily trace every bad thing happening today to the missteps of the past, especially the Goodluck Jonathan’s administration. For instance, when it was observed that the administration’s monetary and fiscal policies were anti production and growth, Lai Mohammed, like Squealer in George Orwell’s Animal Farm, came to announce that Comrade Buhari who has good intention for the Republic is always right and can’t be wrong.
Good intention is okay but no economy in the world runs on good intention alone. What drives thriving economies is deep knowledge that is underscored by sound policy and regulatory frameworks. For instance, the good intention (curbing of corruption) behind the operation of a sweeping Treasury Single Account (TSA) appears misplaced under strict economic analysis.
I had said on this page before that government is not an osusu club (thrift cooperative) where the emphasis is on savings. Government is created to spend big and very big, especially in a developing economy as ours where government remains the biggest patron. The point about corruption can be isolated and treated but draining the financial system of public sector funds to limit their capacity to extend credit to fund the economy is ill-advised, to say the least.
In all, official control of the economic levers should aim at only one thing; to stimulate domestic production and ultimately growth. Anything less is punishment. And in exercising whatever control, balancing and engagement should remain the guiding principles. Wild cat commands that offset the performing equilibrium at any point in time can only complicate matters.
It is precisely why decreeing a value for the Naira has not yielded desired results. No matter the urge to be popular, it is totally unwise, amid dwindling national income, to strengthen the Naira with savings instead of production. But the administration instructed the Central Bank of Nigeria (CBN) to rally the already degraded external reserves to defend the value of the domestic currency at all costs.
Part of that battle plan was the ban on so-called 41 items from forex allocation with far-reaching consequences on capacity utilization of the real sector. This was like cutting one’s nose to spite one’s face. Healing is usually gradual. Even if the aim is to free forex from the importation of things that can be produced or sourced locally, it does not have to be that drastic as to cause instant death and then wait on some benevolent spirit to pull through the miracle of resurrection.
Meanwhile, areas government could have launched attacks at the beginning without too much collateral damage, were ignored on the platter of populism. For instance, when it was most auspicious to do away with the phantom subsidy payment on imported fuel and stem dwindling reserves, government still held on to underscore its pro-people outlook until it became extremely dangerous to continue. Now, after failing to make hay when there was sun, there appears to be some urgency in official circles as Buhari seeks emergency powers to spend big as if he had been genuinely constrained by existing laws all along.
What is more, in the face of low production, government at all levels is raising taxes to make for the shortfall in oil revenues. Businesses are suffocating. When an economy is on a downturn, government does not seek to earn money at the expense of business the way the Nigerian government is doing currently. It is worse if government looks for money to sustain life styles as it is in Nigeria, where the recurrent component of the national budget is almost always 300 per cent larger than the capital component.
All said: Recession or depression is not a strange concept. In fact, there is something in history called the Great Depression. It was a period of abysmally low economic activities in America and most of Europe and it spanned the decade of the 1930. The challenges of the era threw up great thinkers notable among whom was Lord John Maynard Keynes, a British born economist whose proposal of Big Government in time of depression resonated with President Franklin D. Roosevelt as the latter went about with the New Deal (a series of government interventions) to re-inflate the American economy.
Again, there was something close to the Great Depression in the 2000 decade and when Barack Obama came on board in 2008, he reached for the Keynesian recipe, injecting close to one trillion dollars to save big corporations like General Motors and AIG from going under. Essentially, John Keynes posits that when the interplay of demand and supply fails to answer the great questions of the day, it is the state and not market that economies look up to for salvation.
We shall not reinvent the wheel in Nigeria. Buhari and the APC should listen to understand and argue less. The options are even not too many. Actually, the only option is for government to spend its way out of the quagmire. Any other way will be voodoo economics and route to hell.