Economists seek policy overhaul to aid growth

Emerging from a tortuous year, concerned citizens and other interested parties have called for radical overhaul of policy frameworks. The calls came as authorities weigh options to stimulate local production and take the economy out of the woods.

Amidst growing concerns on capacity to weather the storm, the World Bank has projected that Nigeria’s economy could grow by 1.1 per cent this year. The forecast is a far cry from the global average growth projection of four per cent and Africa’s 2.7 per cent, as contained in the Bank’s January 2021 Global Economic Prospects released on Monday.

On January 1, the long-awaited African Continental Free Trade Area (AfCFTA) agreement kicked off, marking the implementation of Africa’s envisaged single market.

But there is fear among industrialists that the free trade deal could dim any hope left with struggling businesses whose costs of production are becoming increasingly uncompetitive.

Nigeria, the supposed biggest participating country in the deal continues to experience infrastructural failure, unfriendly policies and other headwinds, which the Lagos Chamber of Commerce and Industry (LCCI) fear could make the country a net loser in the agreement expected to remove trade barriers.

The economy slid into recession last year, as the impact of the Coronavirus 2019 pandemic heightened structural challenges that have held the economy ‘hostage’ for decades.

While there were projections that the economy could exit recession before the end of this quarter, there have been fresh concerns that new restrictions aimed at containing the resurgent COVID-19 could wipe away the gains of recent increase in activities and rally in oil prices.

NIGERIA is in the second recession in four years. The Federal Government promised to look beyond oil when the country exited the previous recession but no modest improvement has been recorded in non-oil production and exports as crude’s contribution to foreign earnings has remained over 90 per cent. Besides, the paltry non-oil export is dominated by extractive commodities, which experts say ultilise insignificant labour.

The unbearable cost of local production also leaves the country relying disproportionately on importation for much of its basic consumption, including foods. Prices of staple foods rose by as much as 100 per cent recently following the land border closure that shut out supply from neighbouring countries, including the Republic of Benin and Ghana.

As AfCFTA gets underway, trade experts are worried the Nigerian market could be completely dominated by foreign goods manufactured by other West African countries except the government takes deliberate actions to rejig local production. They have also demanded clinical reassessment of the existing fiscal and monetary frameworks with a view to aligning strategies and injecting fresh breath into the ailing domestic economy.

An economist and Chief Consultant, B. Adedipe Associates Limited, Dr. Biodun Adedipe, advocated a Nigeria-first trade approach as a necessary option to “develop the local industries and create the needed jobs. Nigeria’s unemployment plus underemployment rate was estimated at 55 per cent as of last September. Any policy that discountenances the interest of Nigeria’s domestic industries, Adedipe said, would amount to exporting jobs.

“For decades, I have been saying this. We must deliberately consider the interest and survival of local industries in our relationship with the outside world. That is what other countries do, and we cannot be an exemption. Otherwise, we will continue to lose jobs to other economies…

“We must support the real sector. If we must promote manufacturing, we must use tariff structure to discourage the importation of items that have local substitutes. We should ensure it is difficult for the items to be imported. Every country has used a tariff structure to promote their industries. Whose interest are we protecting: Nigeria or other countries’ interests? Everyone talks about what will benefit his or her interest. Yes, we have signed those agreements, including AfCFTA, but we must ask if they are in our interest.” Adedipe stated.

Speaking on his expectation as the economy enters another year of uncertainty, Dr. Chuwuike Uba, a consultant to the World Bank, said “bold and key policy decisions must be made” to leverage the potential of the youth population to build a resilient economy and globally-competitive skills.

Uba, a development economist, advised: “Nigeria’s very large youth population is available to provide cheap labour to prospective investors/multinationals that may want to invest in Africa if they are properly skilled and the right investments in human capital development are made to scale quality humans.

“In addition to funding to subsidise digital skills acquisition, by organically creating value and wealth in all sectors, a substantial increase in education funding; especially, the digitalisation of the learning/education system and the development of industrial clusters are needed. Nigeria needs to provide seed funding to digital and web companies, agro-allied and textile industry value chain (cotton farmers to boost production). A minimum of $1 billion venture capital without collateral should be made available for these purposes.”

Uba’s thoughts are in line with recent Nigerian youths’ exploits in the evolving digital economy predicted to drive the next industrial revolution.

LAST year, young Nigerians sold a start-up, Paystack, to an American e-payment company, Stripe, for N76 billion. The transaction was sealed in October when many liquidity-striped brick-and-mortar giants who were emerging from the trauma of lockdown could not as much as get the attention of foreign investors.

“To mitigate risks associated with lending without collateral, the government should take equity in such companies on behalf of the Nigerian people. A focus shift to all possible products and services that could be produced at scale for in-country consumption and exports should be the way to go. To ensure there is a market for the industry, a policy promoting made-in-Nigeria should be developed. The policy may make it compulsory for all the school uniforms in Nigeria to be produced by local textile industries.

“Nigeria’s textile industry used to be Africa’s largest textile industry with more than 180 textile mills. The industry was also the largest employer of labour with over 450,000 people, comprising over 25 per cent of the manufacturing workforce. It also created jobs for over 600,000 cotton farmers across the country. Currently, Nigeria imports over $4 billion worth of ready-made clothing and textiles,” Uba lamented.

The economist also called for a reduction in the policy rate, the benchmark that determines commercial lending cost, to as low as four per cent. “This would ultimately reduce the current lending rate drastically, thereby, providing additional access to credit for SMEs,” he said.

Sheriffdeen Tella, a professor of economics at Olabisi Onabanjo University, said the policies required should address the needs of the next 10 years as 2021 marks the beginning of a decade. He called for aggressive, timely and robust intervention in the industrial sector, which he described as the backbone of the economy.

“The government should borrow less from the commercial banks to free money for the private sector,” he advised, arguing that the unrestrained appetite for bank loans by the public sector is starving private businesses to death.

To forestall the abuse of government’s intervention in agriculture, he advised against financial grants. “Most times, when providing money for farmers, it is stolen by those who should disburse it or diverted to other engagements by the recipients. Agriculture intervention should be in the form of equipment, inputs and machinery,” he suggested.

IN its annual review and business outlook, the Lagos Chamber of Commerce and Industry (LCCI) said manufacturing has continued to face the historical “structural challenges” that would continue to affect its performance if unaddressed. It concluded that the growth of the sector could be “subdued in the near to medium-term.”

“The reopening of the land borders should provide succour to the manufacturing sector even as the kick-off of AfCFTA serves as an avenue for manufacturers to penetrate new African markets. However, critical challenges such as FX scarcity, inconsistent FX policies, inefficient transport infrastructure, high production cost, weak consumer demand and the new competitiveness pressure foisted by the AfCFTA may dampen the recovery prospects of the sector in 2021.

“We expect the CBN to sustain its intervention efforts in the manufacturing sector as part of measures to boost economic recovery. We see the CBN maintaining policies that support credit exten sion to the real economy. The low-interest environment in the money market favours big manufacturing players in terms of raising cheap capital but the business environment will remain challenging for manufacturing SMEs. In our view, credit flows to the manufacturing sector will fail to achieve desired outcomes without putting in place measures to address structural bottlenecks in the ports and customs processes and other policy challenges to productivity,” it noted.

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