Thinking About the Nigerian ERGP (2017 – 2020)
The economy just like a business is covered in a plenitude of risks. These risks arise from varieties of sources such as the overall demand pattern; the changes in the level of prices of various goods sold and bought; the rates at which monies are borrowed; the rates at which our currencies exchange with those of other countries; the cost of money and so on. But these risks are all in operation and are accentuated by corresponding uncertainties around their magnitudes and growth directions. Since the start of this administration, one thing that seemed to have defined its life is self-inflicted uncertainty. For instance, although the trend of the recession has long been in operation before its commencement, it appeared to have tipped at their instance. The approach to exchange rate management; the approach to addressing the issue of corruption were all contributory inflammatory. Like seamen battling a ravaging ocean wind, the policy managers came up at various times with arguably knee-jerk plans to deal with these situations. These efforts seem to have plateaued with the release of the economic recovery and growth plan (2017 – 2020) document.
But one great take away from this plan are the inclusiveness, continuity and consistency mindset in its design. A recurring concern in policy design and implementation in this country has been the discontinuation or dumping of previously constructed ideas for a supposedly new variant sometimes for no obvious reasons. Again, even when such policies are designed, they are obviously biased in favour of some sectors or socio-economic groups. But the ERGP appears to signal a departure from such reprehensible norms and has promised inclusiveness as well as being constructed and predicated on the achievement of the strategic implementation plan (SIP). SIP is a short-term strategy for the 2016 budget of change. The plan also seems to have been designed to be consistent with the aspirations of the Sustainable Development Goals (SDGs).
That noted, we know that we most badly need economic recovery. Not only that, we also need sustainable growth and development too. This makes the choice of the title for this document very apt. At least this administration now has a plan document regardless of how good or bad it is. Generally, such plans give room for better co-ordination of ideas and objectives, control and greater innovation. As many analysts, would opine, much of the depreciation in the value of the naira at the start of this administration’s life was due to massive withdrawals of funds by foreign investors who felt that there was no plan to address the recession challenge.
There is one thing however that seems to stand out in the document. It is what looks like a inadequate handle on the short-term recovery side of the strategic plan. Structural transformation, the superstructure upon which this plan appears to have been built is not necessarily new. Even SAP was a different brand of same kind of product. But the truth remains that altering and diversifying the composition of our output structure in such a way that enhances output/supply capacities will invariably create more jobs and income with minimal economic risks and uncertainties. This is no doubt a long-desired solution to the challenge facing Nigeria. The challenge is usually with the design of the transformation/adjustment policies and programmes as well as the spirit behind their implementation. So if the ERG plan and the implementation approach is appropriate, I do not think that it sufficiently eager to save us now until it is 2018.
Unless I am operating in a limbo, it seems correct to allude that the average Nigerian would want the top execution priorities to first and foremost be unapologetically short-term. And even in the short-term efforts should be on addressing the current aggregate demand slide and foreign exchange challenge. The short-term component should tie seamlessly into the medium term ERGP. Without doubt, the structural economic transformation programme can no doubt do a great job it promised if well-articulated and implemented, but that can only be in the medium-term. Waiting for a resolution of the current recession till about 2018 is a huge burden for an average Nigerian. For me that is one of the critical omissions in this plan. It would have been good to see a clean clear plan to exit recession which starts NOW and seamlessly connected to the medium-long-term transformation programme.
One thing that we had expected from those designing the recession-exit programme for Nigeria was a package of very short-term economic stimulation that truly works. Dumping monies on some sectors with slow and small multiplier impacts would never have been the option. A study of exit strategies adopted by seven countries – Brazil, China, Ethiopia, India, Malaysia, Mexico, Philippines, Poland, Turkey, Vietnam – in recession between 2008 and 2009 showed that consciously developing a package of economic stimulation incentives that are effective is the way to go. For instance, Brazil put in place, reversible countercyclical stimulus package (including automatic stabilizers). This amounted to 1% of their GDP in 2009. China also put in place totally discretionary multiyear stimulus package amounting to a whopping12.5% of their GDP. India also had about three stimulus packages amounting to 3.5% of their GDP. Philippines also announced discretionary measures amounting to about 4.1% of their GDP while in the same period, Vietnam had multiyear discretionary stimulus package amounting to about 10% of their GDP. For most of these countries, the accompanying monetary policies indicated easing of the interest rates.
Let us for simplicity sake assume that part of a very short-term ‘discretionary stimulus package’ for Nigeria targets the revamp of the textile sector. The federal government can lead an economic patriotism campaign in which it shows an example by ordering a change of uniforms for all government agencies and the military that typically wear uniforms based on locally available capacity and quality and instructing that all such new uniforms shall be made locally. One can only imagine the amount of employment that shall be instantly created. Imagine also that the federal government approves the surfacing of a minimum of 15-kilometre feeder roads in each local government area and insists that the construction must be done using local direct labour. What a huge short-term impact to expect. Again, imagine that civil servants and salaried persons at a level who are interested in farming are given no-interest loan repayable over a five-year period. Indeed many “imagines” that should ultimately create a short-term relief and lay the foundations for the medium term structural transformation programme.
Imagine that maximum efforts are put in place to encourage the remittances of Nigerians in diaspora. A system of incentives that encourages and protects investments by Nigerians in diaspora who chooses to invest in Nigeria can do a whole lot to bring down the naira exchange rate. Let us assume that the governments of the federation and the States agree that diasporas that are ready to set up a business in Nigeria within the next twelve months of up to a particular minimum dollar threshold (say three million dollars), will be given free land in some designated areas suitable for such enterprise, given tax holidays for up to a minimum period (say three years) and some level of protection. In my opinion, such incentives which can be modified in various forms can enable Nigerians in diaspora to either merge, team up with some foreign investors and or borrow out rightly to invest in Nigeria. Of course, success in this regards will also require all-out communication and persuasion. In the end, the net effect on the confidence of foreign investors will be higher; the employment prospects and outcomes will also be positively good. Ultimately the naira exchange rate should show better positive response.
The projections that accompany this plan also appear too optimistic in the light of the prevailing circumstances and outlook. Perhaps if the basis of the projected growth rates is made known, it would have been easier to decide how and whether to accept or reject them. For instance, the 2.19% projected by the ERGP as the GDP growth in 2017 is more than twice the 1% real output growth forecast by the World Bank and 0.8% growth forecast by the IMF for same year. Even the 2.3% growth forecast by the IMF for 2018 is less than half of the real output projection for same year by the ERGP. Albeit that all forecasts are wrong, the forecasts by the IMF and the World Bank appear more consistent with minimal disparity between them. More so, the implementation of the ERGP is not taking root in 2017 which invariably means that the variables in operation at this point might have been used in building the forecast models. How the Nigerian model probably delivered more optimistic results gives room for a lot of concern.
Before I end this essay, I will like to comment on the cost of delays by this administration. I believe that many of the good programmes and initiatives that this administration has put forward came late. And the fact that they came late greatly affected their effectiveness. It all started with the appointment of the ministers. If it would take minsters six months to settle down, then we practically lost one full year before putting together a team that should have started much earlier to address the challenges facing the country. Much of the exacerbation of the recession challenge attributable in part to the exchange rate spike was largely due to the fact of delays by the government in taking the right action. The tug-of-war and go-come-go approaches were innately delay measures because most of the policy positions on the exchange rate management at the time were obvious even to those executing them that it would not work. This ERG plan coming out at this time is also a case of unexplainable delays. Why would it take this long for a plan that would address the Nigerian crisis to be out when the crises were always known? Like I wrote earlier, perhaps we should take solace in the fact that we have a plan at last. Whether the plan is to take us out of the present state of things as it promised is a different thing altogether.
Professor Martin Ike-Muonso
Country Director (Ag) at Baywood Foundation.