The Central Bank of Nigeria, CBN, has prognosticated a possible economic
recession in 2016. This possible worst outcome of the present slump is
something I am sure President Muhammadu Buhari would do everything to prevent.
No president wants to be known in history as a ‘Recession President.’ However,
this undesirable economic situation can sometimes become a reality, even in
spite of the best efforts of a well-meaning leadership.
Exploring the worst case scenario, the following are the factors that,
if they conspire together, a recession might become a reality.
The most crucial factor is oil price. If the price of oil falls below
$40 a barrel for a stretch of time in the coming months, we would have a very
serious economic crisis. Some might say why should this be the case, if the
economy is as diversified as the rebased Gross Domestic Product, GDP, showed in
2013; and if oil constitutes just about 15% of the GDP? Therein lies the
unfinished work of the diversification of the Nigerian economy. The
diversification we have achieved so far is from the standpoint of a wider base
of production, with some new sectors admitted into the GDP calculus for the
first time in 2013. From the standpoint of government revenue, however, oil
still accounts for 70 per cent of total receipts and over 90 per cent of
external earnings.
As a result, the price of oil still wields an outsized influence on
overall economic fortunes of the country. At this stage of Nigeria’s economic
development, low oil price will definitely depress asset values, non-oil
sectors’ performance and overall production. A sharp decline in oil price will
generally sap business confidence in Nigeria. The subsisting dependency, under
our worst case scenario, would also erode liquidity and consumption.
The second determining factor is located in the fact that the current
weak price outlook of oil is in a loop involving weaker growth in China and
weaknesses in economic data from the matured markets. Given that before the
current slowdown, the global economy was only at a slow pace of recovery from
the last financial crisis, a sharp upward inflection in the global economy is very
unlikely in the next two years. Thus, the protraction of a slowdown would have
adverse effects in developing economies, including Nigeria.
The third factor is that President Buhari is fighting an insurgency. The
insurgency may have all along been underrated because of its unconventional
tactics and the need to project national security.
Therefore, the value in the resolve of Mr. President to end this ugly,
growth-sapping insurgency as quickly as possible is well-considered. So,
defence will continue to receive a sizeable chunk of the budget until Boko
Haram is thoroughly degraded. For Nigeria, defence spending will cease to
be zero-sum for growth only as victory is attained against Boko Haram and
post-insurgency reconstruction kicks in, or if the budget is spent on military
hardware manufactured in the country.
The sum of these is that, with ill-luck, Nigeria can indeed slip into a
recession, even if briefly. While leadership may not be able to prevent it,
leadership can definitely inspire an economic turnaround that will lift growth
above the pre-recession level.
So where should we start and what is the latitude we have in reversing
the current negative trend of economic fortunes?
Where we have to start is where President Buhari has started and
maintained focus. We have to raise the level of efficiency in the system. We
have to plug revenue leakages. And, of course, we have to rein in corruption.
President Buhari’s holy indignation against corruption cannot but be applauded,
and it has been widely acknowledged. These are critical measures that will help
economic performance, especially if we assimilate the culture of high
efficiency and integrity. But these measures require complementary strategies.
One of the strategic accompaniments is provision of depth for the
nascent sectors of Nigeria’s economic diversification. For Nigerian Export –
Import Bank, NEXIM Bank, these sectors are manufacturing, agro-processing,
solid minerals and services. If we disaggregate what NEXIM Bank has in the past
five years promoted as the MASS Agenda, we see the strengthening of both manufacturing
and agro-processing. The services sector, has literally exploded, while the
solid minerals sector is the weakest of these four sectors that can help create
jobs and non-oil export revenue.
The multi-billion dollar question is: where are we to source the
financing for the various programmes? But equally important is how to channel
the financing. I believe development finance institutions, DFIs, have the aces
in providing workable answers to both the “where” and “how” questions.
Over the next 15 years, global resources would be mobilised in funding
the Sustainable Development Goals, SDGs. The SDGs will provide the focal points
of global financial interventions. A total $500 billion of innovative financing
will be needed every year to finance the SDGs between now and 2030. This
effectively means we now have a new paradigm for development cooperation.
Under SDGs framework, we will see more emphasis on governments’
collaboration with global and regional DFIs on one hand. On the other hand,
DFIs are expected to ramp up cooperation with the private sector. This would be
the pattern for mobilising resources to finance projects whose value would
increasingly be seen in terms of poverty eradication, promoting inequality,
mitigating environmental risks and supporting inclusive societies. This places
DFIs at the forefront of finance in the years to come.
Nigeria is in a unique position to tap into the emerging global finance
that would increasingly promote sustainable development. Nigerians now lead the
two frontline Pan African Development Finance Institutions. Erstwhile Nigerian
Minister of Agriculture and Rural Development, Dr. AkinwumiAdesina, assumed the
leadership of African Development Bank, AfDB, on September 1. Later that month,
another Nigerian, Dr. Benedict Oramah, became President of Africa Export –
Import Bank, Afreximbank.
These Nigerians were appointed to work for the entire continent. But
their nationality provides Nigeria an opportunity for closer affinity with
these institutions beyond being the biggest financial contributor to them.
There are important values these institutions offer. The AfDB and Afreximbank –
compared to their global or foreign cousins – are better placed to understand
the local context to our development and support country-owned initiatives.
This point is validated by Adesina’s pledge to focus the interventions
of the AfDB on supporting power reform, agriculture, SMEs and youth empowerment
in Africa. This is missile-accurate. Adesina, like his predecessor, Donald
Kaberuka, is poised to making the AfDB catalytic for African growth and for
solving Africa’s development challenges, based on deep knowledge of the local
context. His work in reforming Nigeria’s agriculture tells how much help he can
lend from his new vantage position.
Another area of benefit is expansion of Nigeria’s network within the
global community of Development Finance Institutions. I have seen first-hand
the importance of this point since my ascension to the presidency of the Global
Network of Exim Banks and Development Finance Institutions, G-NEXID, earlier
this year. Nigeria needs to network better with the global development
community.
The AfDB and Afreximbank are important institutions in expanding
capacity for the country’s national DFIs. This would naturally cover sharing
project knowledge, joint project development and transfer of funding capacities
by the regional DFIs to the national DFIs through establishment of lines of
credit. This will help in channelling interventions more sharply to the areas
of need and impact, as national DFIs even understand the local needs better.
Afreximbank has a suite of products and services to help Nigeria
facilitate international trade. Nigerian banks and corporates can benefit from
the trade support facilities of the Bank. NEXIM Bank has been in collaboration
with Afreximbank to unlock more resources in the critical area of growing
Nigeria’s non-oil exports. A number of Nigerian export manufacturers have
benefitted from this cooperation.
In concluding, one of the greatest economic challenges Nigeria faces is
how to economically empower the youth. The answer to this is support for
entrepreneurship. Nigerian youths have been actively engaged in business
creation. They control the entertainment industry and are expressing themselves
in the technology sector. If we managed to unlock funding for these and other
sectors, the doldrums that a recession symbolises would become a possibility
farfetched for Nigeria. The good news is that the DFIs are well-focused and
increasingly resourced to support the commercially viable enterprises of our
vibrant youths to complement national efforts.
Both the AfDB and Afreximbank are banks of not only the present but also
of the future. Afreximbank grew its total assets by 25% in 2014 to $5.45 billion.
A much-bigger bank, the AfDB has $100 billion capitalisation. Both institutions
are able to leverage their balance sheets to evolve into much bigger
institutions. The AfDB just raised nearly $1 billion in additional resources
through its new Africa50 Fund, which has been set up to mobilise long-term
savings within and outside Africa to finance infrastructure projects across the
continent.
In concluding, one of the greatest economic challenges Nigeria faces is
how to economically empower the youth. The answer to this is support for
entrepreneurship. Nigerian youths have been actively engaged in business
creation. They control the entertainment industry and are expressing themselves
in the technology sector. If we managed to unlock funding for these and other
sectors, the doldrums that a recession symbolises would become a possibility
farfetched for Nigeria. The good news is that the DFIs are well-focused and
increasingly resourced to support the commercially viable enterprises of our
vibrant youths to complement national efforts.
Roberts Orya is Managing Director / Chief Executive Officer, Nigerian
Export – Import Bank.
Source: Vanguard Business
