The consensus is that the economy must be diversified from oil to manufacturing and agriculture, which experts believe make up the real sector. They are the economy’s growth engine because of their linkages to other sectors. Assistant Editor CHIKODI OKEREOCHA reports that efforts at leveraging a vibrant real sector to reboot the economy bruised by recession have continued to be undermined by faulty fiscal and monetary policies and dearth of infrastructure.
With a compelling and deep insight into the economy, particularly the real sector, Mazi Sam Ohuabunwa is arguably, one of the respected voices in the private sector. The former Neimeth International Pharmaceuticals Plc President/Chief Executive Officer (CEO) and Starteam Consult Managing Consultant recently drew manufacturers’ attention to what he called “frightening trends” in the economy. He left no one in doubt that the nation’s economic woes are far from being over and that the country may not exit recession soon as expected.
Ohuabunwa’s ‘frank talk’ was in his presentation a fortnight ago at the 49th Annual General Meeting (AGM) of the local chapter of Manufacturers’ Association of Nigeria (MAN) in Ikeja, Lagos.
In the paper titled: “Vibrant, diversified economy: Panacea to economic recovery”, Ohuabunwa raised the alarm that all the indices and parameters that measure the health of the economy look bleak.
According to him, the unfriendly exchange and interest rates, inflation and unemployment rates, erratic power supply among others, were indicative of more turbulence ahead for real sector operators.
Ohuabunwa, who was a one-time Chairman of the Nigeria Economic Summit Group (NESG), pointed out that inflation and interest rates have risen to as high as 18.3 per cent and 14.00 per cent. The exchange rate of the naira to the dollar stood at N310/$1 at the official market and N475/$1 at the parallel market.
Besides, the unemployment rate rose from 12.1 per cent in the first quarter of the year to 13.3 per cent by the end of the second quarter, according to National Bureau of Statistics (NBS). These negative indices, Ohuabunwa noted, have resulted to increased poverty and misery, with the nation’s Misery Index standing at 49.5 per cent.
Misery Index, according to development experts, is a measure of the economic well-being of citizens in a specified economy. It is computed by taking the unemployment rate and the inflation rate for a given period.
An increasing index means a worsening economic climate for the economy in question, and vice versa. Nigeria’s Misery Index stood at 47.7 per cent as at August, the NBS stated.
Ohuabunwa said that with the current 49.5 per cent, Nigeria ranks fourth on the world’s most miserable country scale.
The disturbing trends, according to experts, were preceded by market contraction due to decline in consumer purchasing power; declining corporate sales and profitability; increasing delinquency in meeting obligations, otherwise called credit defaults.
Also, corporate atrophy, morbidity and mortality were high, just as Nigeria lost her global competitiveness, occupying 169th position out of 189 countries captured on the Ease of Doing Business Index.
Ohuabunwa brought these realities nearer home when he said: “The economy remains in dire straits. If you are not losing your job, your salary is late in coming (some many months); if you are not closing your factory or business, your sales and profitability have dropped significantly.
“If you are a house wife, your feeding allowance can no longer allow you any allowance to manoeuvre. Nobody is exempted from the effects of the recession.”
Blaming the present disturbing trends on the crash in oil prices, he said passing through this turbulent path cannot be the best of times of a country that is dependent on mono economy.
“But, we have never come this low in about 27 years” , Ohuabunwa added.
He warned that Nigeria we may recede further into depression if the authorities failed to initiate serious to curtail the trend.
The former NESG chief urged those in charge of fiscal and monetary policies to come up with sensible policies to return the nation to a state of macro-economic stability, arguing that a regime of macro-economic stability and supportive infrastructure would be viable options to galvanise the real sector, which comprises manufacturing and agriculture.
Experts argued that since Nigeria anchored her hope of driving economic growth and development through diversification on the real sector, a stable macro-economic stability would give impetus to the sector. They, however, noted that this could only be possible through a robust monetary policy.
The thinking is that the prevailing harsh macro-economic environment was caused by the nation’s wrong monetary policy framework; that an economy cannot stand without the right monetary policy framework.
How faulty monetary policy hurt operators
For long, real sector operators have been screaming blue murder over the monetary authorities’ failure to initiate a robust monetary policy regime. Some of them argued that the situation hurt them by eroding their competitiveness.
Putting the situation in perspective, an analyst, Mr. Henry Boyo, said: “The pillar of any economy is monetary policy and the pillar of monetary policy is interest, inflation and exchange rates. When you get those ones right like in countries, you will fix the economy.”
Boyo, like a lone voice in the wilderness, had been crusading that high interest rate was making it impossible for the real sector to grow and high inflation rate was the main driver of poverty.
According to him, in most advanced economies in the world, the interest rate is below two per cent. The exchange rate remains stable for many years and the cost of funds below two per cent.
“Diversification does not rain from heaven; it’s created by a structure and the structure that drives diversification whether it is agriculture, manufacturing or transport is stable monetary policy,” Boyo told The Nation, insisting that interest rate must be at a level that will make it possible for manufacturers and commercial farmers to borrow money at one or two per cent.
He also said that exchange rate must be such that industrialists, who import raw materials from abroad do not wake up to find out that their costs are increasing on a daily basis, making them uncompetitive.
Describing diversification as not a new concept and reminding that Nigeria tried to diversify during the military era, Boyo warned that the efforts being directed at diversification would not work because “you cannot expect the real sector, which is normally the driver of the economy, to be vibrant if there is no demand. Industrialists will not do anything when cost of funds is as high as over 20 per cent.”
He said that fixing the economy is not rocket science; that a robust monetary policy to address the challenge of excess liquidity in the system would put the economy on the right track.
Boyo blamed unacceptably high inflation rate, high cost of funds and high interest rates on excess money supply into the system.
Boyo got a backer in Ohuabunwa, who said: “Exchange rate, interest rate and inflation rate can all be moderated by sensible and coordinated policies. Investment flows preferentially to macro-economic stable environment that actually seek, welcome and reward investors.”
Although, it is not in doubt that crashing oil prices was the main cause of the present disturbing trends as earlier pointed out, Boyo blamed the Central Bank of Nigeria (CBN). He accused the apex bank of being responsible for the nation’s excess liquidity crisis.
He said CBN’s conscious, deliberate and misguided payment arrangement that unilaterally substitutes naira allocations for dollar-derived revenue result in market imbalance, which ultimately weakens the naira exchange rate.
Boyo said that CBN’s monetary policies aggravate the level of inflation in the country. According to him, by substituting naira allocations for dollar-derived revenues, the bank unleashes hundreds of billions of fresh naira inflow into the coffers of commercial banks.
Insisting that the excess cash in the system has less goods and services to contend with, the expert explained that the resultant market imbalance drives higher prices and fuel inflation.
Boyo noted that with rising inflation, incomes buy less goods and services. Even higher incomes buy less because of the rising general price level.
He suggested that the CBN must stop the obnoxious payment policy and in its place, adopt the use of dollar certificates or coupons (strictly not cash) for payment of monthly allocations to the three tiers of government.
Boyo said that instead of getting dollar from the government and substituting it with naira, the CBN should give the certificates to beneficiaries, who would go to banks to change the certificate into naira.
According to him, using the dollar certificate will bring down interest, inflation and exchange rates.
“It (the use of dollar certificates) has so many ramifications, and the earlier it is adopted, the better”, Boyo said, adding that many of the nation’s economic challenges were self-inflicted and can therefore, be solved with the application of standard and established models.
Agric sector also hit
The disequilibrium in the macro-economy caused by the nation’s unstable policy environment is also hurting the agric sector, identified as the other component of the real sector and which is believed to hold promises of turning economic fortunes around.
Like manufacturers, prospective investors in commercial agriculture lack access to capital. Where they do, the high interest rate remains a discouraging factor.
“It has never been easy to borrow money in Nigeria from the banks”, Ohuabunwa lamented, recalling that in the past, several funding initiatives were opened by the Ministry of Agriculture & Rural Development and the CBN at single digit interest rate.
He, however, regretted that the ease with which the facilities were accessed by the applicants became an issue and that those who benefit more from the initiatives are usually emergency farmers and fly-by-night businessmen.
The Nation learnt that lack of access to capital that is friendly to agriculture has been a pain in the neck of farmers wishing to invest in equipment to process their harvest through value addition to ensure preservation and higher returns.
“Most of our agriculture exports are mere commodities with little value addition, which makes them easily susceptible to global market price volatility”, Ohuabunwa confirmed.
According to him, many agriculture enthusiasts have had their fingers burnt by watching their harvest spoil and lose value before they could not get off-takers. He recommended single-minded focus on manufacturing-production through value addition as the best way of out of recession.
But Nigeria’s quest to leverage agriculture to grow and diversify the economy has never been this tough and lack-luster. Experts recalled that Nigeria made significant progress in positioning agriculture to galvanise the economy during the stewardship of former for African Development Bank (AfDB) President Akinwunmi Adesina held the forte as Agriculture & Rural Development Minister.
They recalled that apart from pursuing several initiatives captured under the Agricultural Transformation Agenda (ATA), it was during his time that agriculture was being projected as a serious business, not a vocation.
“Visible efforts were made to show that agriculture is not a business for the old, women and the uneducated, but for young people as well. A crop of young people called Nagropreneurs were born and showcased,” an expert who preferred anonymity said.
ATA may have lost steam under the current administration due partly to the recession, Adesina’s successor, Chief Audu Obge spoke passionately about repositioning the sector. The consensus of operators has been that the new attempt to turn around the fortunes of agriculture must be built on the platforms and successes already achieved if it must yield the desired result.
They expressed the belief that given the urgent need to ride on the back of agriculture to diversify and steer the economy out of recession, Nigeria does not have the luxury to reinvent the wheel.
Insufficient resources
The new thinking struck the right chord in the ears of Lagos State Governor Akinwunmi Ambode. He recently took the campaign to revolutionalise agriculture to the doorstep of corporate organisations.
Ambode, who was on a courtesy visit to Nigerian Breweries (NB) Plc, advocated agriculture and backward integration by corporate entities as a way of revitalising the local economy.
He said agriculture, which was once the mainstay of the economy, would only thrive with the encouragement of backward integration by not just the government, but by corporate bodies, such as Nigerian Breweries has been doing through its sorghum and cassava value chains.
The governor said: “With the thousands of jobs you have created through your sorghum and cassava value chains, it is clear that we can use agriculture and backward integration to revive and reflate this economy. We would like to partner with you in this regard to increase employment in Nigeria.”
But, will Ambode’s colleagues join the push to reposition agriculture? Will the corporate bodies heed the clarion call? What about the Federal Government through Ogbe, on whose table the buck stops? Will the government demonstrate the political will to give the minister’s “Green Alternative Agriculture Promotion Policy” the necessary push?
With answers to the above questions remaining in the realm of conjecture, the consensus of experts is that government, for a start, the government must address the land tenure system and the ease of getting land for commercial agriculture.
Besides, the dearth of extension services, appropriate technology and expertise, which are in short supply, must be resolved and the availability of seed stock, fast-maturing species and access to affordable fertilizer, among others, must be accorded attention.
An accountant, Mr. Omooba Olumuyiwa Sosanya, added: “Nigeria must start having farm settlements in the local government areas and we can specialise on crops each of the states has comparative advantage in.”
He told The Nation that with the introduction of agricultural marketing board that will buy the goods from the farm settlements and sell at subsidised prices to the market, “you are not only creating employments, but creating wealth, because most of our graduates will be employed.”
