What About The Economy?

Nigeria has been distracted since November last year by the ill-health of our elected President; his trip to Saudi-Arabia for medical treatment without transmitting a letter to the Parliament; the claim by his then Attorney-General that the president could rule from any where(!); uncertainty over his actual condition, including speculation at one point by one newspaper that he was “brain dead”; confusion over his interview on BBC; debates over whether the Executive Council of the Federation should declare him permanently incapacitated, or the National Assembly should impeach him, or perhaps he should be encouraged to resign from office; arguments over the constitutionality of the declaration of Goodluck Jonathan as Acting President by the National Assembly; outrage at Yar’adua’s pre-emptive return to Nigeria in the dead of night; the deployment of soldiers to receive him without the knowledge or authorisation of the acting President; worries over the country’s democracy, political stability and even national integrity; the “summary judgment” announced by our “Governors’ Forum” that “Yar’adua remains President; and Goodluck remains Acting President”; two religious/ethnic riots in Jos and one in Bauchi before then; etc.
While we focus on all these self-inflicted problems, is anyone thinking about economic development, employment, output, macroeconomic stability (e.g. inflation), private sector growth, financial sector conditions and other such “irrelevances”? The only economic “activities” (at least at the Federal Government level) going on since November 2009 have been award of mega contracts by the Federal Executive Council, the still mysterious signing of Supplementary Appropriation Bill purportedly by the sick President and releases of a total of $3billion from the “Excess Crude Oil Reserves” Account! No wonder inflation has now climbed to 12.3%!
At the same time, the financial sector appears to be grinding to a halt. Any doubts that we were in the midst of a severe monetary and credit contraction have been laid to rest by figures released by the Central Bank of Nigeria (CBN) itself at the end of it’s recent (March 1-2, 2010) Monetary Policy Committee meeting. According to the CBN, money supply (M2-Broad Money) declined by 3.11% as against a benchmark growth of 29.26%; aggregate domestic credit contracted by 22.44% instead of a projected benchmark expansion by 82.8%; and credit to the private sector fell by 16.2% as against a benchmark growth of 31.54%. These figures are alarming, and confirm that we are now in the middle of a full scale credit crunch!
Anyone in government interested in the economy will also be worried that inflation which in September 2009 appeared headed for single digits has turned in the other direction. My firm, Resources and Trust Company Ltd is now projecting that inflation may reach 15% in 2010 except the projected level of fiscal expansion is curtailed. So far, there are no indications that anyone worries about that! This is an election year, and the wheels of politics must be oiled! And political uncertainty also has its direct impact on value-for-money on government procurement contracts, as office holders prepare for premature retirement, Nigerian style!!! Meanwhile interest rates are rising as Average Maximum Lending Rate (MLR) and Prime Lending Rate reached 23.18% and 18.38% respectively in January 2010. The nation’s foreign reserves have now fallen to $41.54billion in spite of oil prices averaging between $70 and $80 per barrel. At current run rates, our reserves by year end may be below $35billion!
Critical economic initiatives are stalled. The proposed deregulation of the downstream petroleum sector remains a proposal. With an Acting President finally in power, he seems to want to resolve the issue one way or another, but the risky and uncertain political environment makes such a decision less, not more likely. The upstream petroleum sector is also suffering as the proposed Petroleum Industry Bill (PIB) remains at the National Assembly. The energy majors have reportedly suspended further investment as the investment environment in Nigerian Energy is completely shrouded in confusion. The Asset Management Company Bill which is critical to restoring liquidity and capital to the beleaguered banking sector also remains at the National Assembly. The solid minerals sector has not received an apparent attention since this administration came into office in 2007 rendering the Mines and Minerals Act passed just before the Yar’adua regime’s now ill-fated entry into power. The Electric Power Sector Reform Act (EPSRA) of 2005 has also been basically ignored by the regime, as the government insists in throwing money, rather than correct strategy after our power problem. The tragedy is that the same government appointed a Minister for Power who was a central part of defining a correct strategy encapsulated in EPSRA, but who lacks the courage to push that law into regime policy. So power generation remains below 3,000 MW and Nigeria remains economically uncompetitive.
Meanwhile global economic conditions are improving. The IMF in January revised its global economic growth projection from 3% in its October 2009 World Economic Outlook (WEO) to 4% in the WEO January 2010 Update. Even though risks remain and global growth is projected to remain uneven, the portents are that global capital and investment flows will slowly resume. The shame is that Nigeria is not positioned to benefit!