Nigeria’s coming economic meltdown (I)

God knows I tried. For years I wrote and laboured, even got into politics to see how I could directly help, since joining the big 2 was an impossible or untenable option. I put out all my ideas on our economic situation, from how I believe we could attain growth, to how to manage inflation, […]

God knows I tried. For years I wrote and laboured, even got into politics to see how I could directly help, since joining the big 2 was an impossible or untenable option. I put out all my ideas on our economic situation, from how I believe we could attain growth, to how to manage inflation, and how to urgently manage the naira value. I’m afraid the situation is no longer redeemable. And Nigeria hangs at the edge of a fiscal cliff, which may likely lead to a massive economic decline: a meltdown. 

I worry at how no rigorous economic discussion had gone on in this country in the past 13 odd years, with the last seven being the worst of times. What we passed off as economic discourse is full of deception. Socalled ‘respected economists’ and the impostors, who often occupied their positions, came to the table bearing biases and agenda. Some came to work for the banks, and some for even larger, more sinister principals. 

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Now, we face the likelihood of a meltdown. Inflation promises to run away. I don’t see what anyone is doing to prevent this, or any discussion as to what people should do if this happens. Should we just live through it, as our people become food hungry by the millions? Is there anyone thinking about food sufficiency if the entire world goes into a crisis and everyone clams up and fends for their own people? I had been an advocate of double-digit growth. I still am. But we didn’t seize our chances when we could. Today, it is about sheer survival. Why do we roil around in perennial regret? 

Fiscal cliff

This means that soon enough, the Nigerian government will be unable to fulfill obligations. I fear for those who are attempting to go into government today, whether in elective or appointive posts. Nigeria’s statistical figures recently showed that we now spend over 100 per cent of our revenue to service debts. So, where will we find money to fulfill other obligations? And crude oil has fully become a liability, as our proceeds from crude get canceled out by our import of petrol the federal government is stuck for ways to fund itself.

The national oil company, NNPC Limited, recently attained a limited liability status, saying that it shall no longer contribute to federal allocations on a monthly basis. The point is really that there is nothing to contribute. But will the company be run as a proper limited liability, or will it continue along its wasteful ways? Where is the necessary staff rationalization and salary cuts that will be the next action of a limited liability company? Are states and other stakeholder still spellbound? Or will they wake up sometime in the near future, and discover they’ve been shortchanged?

The federal government under Buhari has also shown no capacity, and the fiscal side, led by the Ministry of Finance in particular, has been shy from taking the needed firm action that may save us from this fiscal cliff hanger. They have been timid in pushing through luxury taxes, excise duties, capital gains taxes, road taxes and other forms of revenue that are progressive and could generate the needed funds. They like to speak about how we have a revenue problem – and yes, we do – but are short on moving on it because of political reasons. Now, the chicken has come home to roost.

 

 Naira gap

On the monetary side, the naira value is becoming uncontrollable. The Central Bank of Nigeria (CBN) is left to carry the can. A gap of at least N230 has emerged between the official rate and the more-accessible ‘parallel market’ rate. This is one of our worst nightmares – perhaps simply the worst – because the exchange rate is tied to inflation and perception. It is a phenomenon that feeds on itself and leads to a spiral for the following reasons:

1.     Nigeria is still largely an import economy. We produce nothing apart from agricultural items which we sell raw. Even serious farming now depends on imported technology. So, we also import inflation from abroad as inflation is currently a global phenomenon as nations struggle with the fallouts of COVID-19 intervention spending.
2.     The perception of a weaker currency only leads to weaker currency. A country’s currency is her representation. I keep quoting Margaret Thatcher and Josef Stalin: “To destroy a country, first debauch its currency”. This could lead to a spiraling down that cannot be explained by actions and inactions of government, just the people losing confidence in their currency and indeed, in themselves.
3.   There has to be a backstop somewhere; Nigerians are not known to be particularly patriotic, and we are stuck with an uninspiring government. Some ‘enlightened’ folks will tell us – like Osinbajo – to float our currency. We know that we produce nothing, so on what basis will be Naira be floated? If we do, we will lose the currency. If, like Alhaji Atiku says, he wants the naira’s official rate to be equated with the parallel market rate, be assured that the moment official rate becomes N650, the parallel market will shift to N850. In time, N850 becomes the reference rate and then the parallel rate moves to N1,000, with the official trying to catch up. In time we will be at N5,000 or N50,000, not only because we produce nothing, but because of speculation and our innate wiring of not having confidence in our country or currency
4.   Nigeria is that country where everyone plays smart. Almost everyone with N1 million saving have been converting to dollar because it is easy to do. This is one peculiarity that sets us apart. Either that we do not believe we need a country, or we don’t know what we are doing to our country and don’t care. I have laboured in the past to educate Nigerians and even her monetary authority of the power of perception in monetary management. For as long as we take a negative position about our money (law of self-fulfilling prophecy), for that long will our currency continue to be debauched.  I think we have crossed the Rubicon and wasted the window whereby we could apply available strategies to stave a run on our currency. We are now on the superhighway, from what we’ve seen in the last few days. And for me, it is very painful.
5. Those who are stashing away their savings in dollars have a point. But a policy may come one day in the future, which forces them to convert to naira or else. This will make the government unpopular, but a smart government could pitch such bourgeoisie against the hoi polloi. For sure, we may not continue with this sickening dollarization of the economy ad infinitum. Nigeria is one of the most dollarized nations in the world. There must be a way out. When your dollar savings get significant, it attracts attention and gets reported to regulators. And it is increasingly more difficult for Nigerians to open accounts anywhere in the world or successfully launder money across the world the way they used to. COVID-19 came with some groundbreaking changes in human interaction. One of it is the ‘war against cash’. Go to United Kingdom today and you stand out with your cash. No one uses it anymore. So, try pay in 5,000 pounds cash across the counter and be sure that Scotland Yard is seeing your every move. And where you keep only Naira, you are cooked as inflation and devaluation erodes your worth. These are serious times.