NESG on a struggling economy
Ideas, especially the deeper ones, make the world a better place. On this point, the Nigerian Economic Summit Group has once again presented salient ideas to the regime of Muhammadu Buhari as it tries to resuscitate a struggling economy. Following its annual summit, the NESG dissected the shaky economy and came up with a few ideas, including liberalizing the stifling regulatory environment. The NESG is on the cusp, but having received similar advice before, Buhari’s usually lethargic diet could sabotage the recommendations.
The NESG’s invitation to its 26th summit graphically depicts the dismal state of the Nigerian economy. He advised “governments at all levels to further free up private sector participation by removing sector rigidities that prevent companies from stimulating economic growth.” Splendid, but nothing new here. First, the current structure in which the sharing of oil revenues, rather than productive activity is anchored, is the antithesis of economic progress. Short-sighted, the government runs a state-dominated economy. Instead, it should spur an economy led by the private sector.
As a result, the economy has suffered two recessions in five years. The World Bank forecasts GDP growth of 1.1 percent in 2021 and 1.8 percent in 2022. While this reverses the negative growth of -4.8 percent in 2020, this is futile since the population increases. This disarticulation manifests itself in the borrowing structure and dependence on imports, especially for refined petroleum products, food, equipment and raw materials. From 2020, Nigeria’s debt-to-GDP ratio climbed to 34.98% from 29.14% in 2019.
In terms of regulation, the economy is doing poorly. In the World Bank’s Ease of Doing Business 2020 ranking, Nigeria ranked 131st out of 190 countries. As such, multinationals are avoiding the country, dropping FDI to $ 2.6 billion from $ 3.3 billion in 2019, according to UNCTAD. At 18.17% in March, inflation accelerates sharply. The unemployment rate is 33.3 percent, one of the highest in the world. Combined with growing insecurity, the Nigerian economy is now a ghost of itself. A new World Bank report, which the federal government has lambasted, says 78% of Nigerian consumers do not have access to electricity for 12 hours or more a day. According to the World Bank, this brings the economy down to $ 29 billion a year. The NESG rightly notes that there is “excessive regulation of the economy”.
In line with the position of the NESG, the federal government should significantly improve the business environment, harnessing the fruits at hand. Privatization and liberalization can reverse the grim situation. The moribund state-owned refineries of the Nigerian National Petroleum Corporation lost 154 billion naira in 2018. Known for its opacity, the NNPC has just signed another rehabilitation contract worth $ 1.5 billion for refineries. Another loan makes no economic sense. The urgency of the moment calls for a complete privatization of the downstream oil sector, with the NNPC a holding company, a policy Buhari pledged to implement during his campaign for the first term.
By the way, the National Assembly has treated the reform of the petroleum sector lightly. The Oil Industry Bill has gathered dust in the federal parliament since its introduction in 2008. Nothing has been won due to the dereliction of lawmakers. The Nigerian Extractive Industries Transparency Initiative and other studies show that in 2016 the country was losing about $ 20 billion a year due to non-shifting GDP. Nigeria should find the political will to update the GDP. The current NASS should adopt it to stop the decline in investment by international oil companies.
Likewise, the general system of state control prevents the railroad and steel industry from taking off. Borrowing from China to repair the rail sector has only caused delays and debt. In contrast, South Africa, despite having the largest network in Africa at 22,000 kilometers, has attracted railways from northern and southern China, Bombardier Transport (Canada) and General Electric (United States). United) as key private investors for its $ 33.8 billion improvement initiative.
Buhari should act fast, focusing on quick wins in the short term. The regime is expected to review the decrees it signed in 2017. Their implementation will boost the economy of seaports, airports and land borders.
After years of shutdown and start-up in the steel industry, Nigeria should forget about its inoperable state system. He should quickly privatize the Ajaokuta Steel Company. This is the way to revive productive manufacturing and economic activities and to create jobs.
The federal government should stop granting foreign exchange concessions for religious pilgrimages but unify the exchange counters. It is an additional attraction for investors. Besides domestic investors, the international business community can channel huge funds to revamp the Nigerian economy, as it has around $ 17 trillion to invest. For this to happen, Nigeria needs a stable socio-economic regime and a restructured foreign exchange market. The government should collect its taxes, both from individuals and multinationals. According to one account, 200,000 people can pay up to 14 trillion naira of the arrears they owe. This is more than the 2021 budget of 13.6 trillion naira or $ 35.66 billion.
Leveraging technological solutions can pay rich dividends. By selling spectrum to telecommunications service providers, it can generate billions of dollars. UK telecommunications regulator Ofcom raised £ 1.4bn from the auction of 5G spectrum in 2018. In the ensuing auction in March, it generated £ 1.4bn additional. Therefore, the government should accelerate progress in the deployment of the 5G network. In seaports, technology is expected to replace manual operations.
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