Nigerian government finally admitted the obvious fact that the country is in recession. I think Nigeria has been in recession for more than a year. Nigerians are suffering greatly. The cost of basic necessities has tripled due to lack of foreign currency needed for imports. It is unfortunate that Nigerians import most basic necessities. Business people have no choice but to pass on the extra expenses incurred in the acquisition of the goods and services they are providing to the customers. The hard cold fact is that business is not charity.
The major reason for the dire economic situation Nigerians are facing today are due to sharp drop in oil prices, militant activities in the Niger-delta region, corruption and mismanagement of the available resources. OPEC quota allocation to Nigeria is 2.2 million barrels of oil per day but Nigeria cannot even fill their daily quota because criminal elements called Niger-Delta Avengers and other groups are blowing up the oil pipelines in their region. The result of this self- defeating activities of the militant groups is more suffering for Nigerians because the economic situation will get worse not better if they do not stop their nefarious activities. The militant groups do not seem to understand or make the connection between their destructive activities and the dire economic situation facing the country today. The unthinkable (diseases, hunger and malnutrition) is already happening in some Nigerian households across the nation.
Despite the dire economic stress Nigerians find themselves in, the most important thing is to make sure that positive, fundamental and long term economic foundation is being put in place by the current federal, state and local governments. it appears that the federal government is taking courageous steps that will position Nigeria in the right direction when the smoke clears.
One of the courageous steps the federal government have taken is the removal of fuel subsidy. Fuel subsidy turned into corruption cesspool. Well connected Nigerians who call themselves petroleum importer made away like bandits by falsely inflating the actual number of refined barrels of oil they are importing into the country and the federal government ends up paying them. Some of the so called importers are front for public officials who use them as conduit to siphon stolen money from the government treasury out of the country. The money from the subsidy can now be used for capital and recurrent expenditures. As of today and when Nigeria finally emerge from the recession, subsidy removal proceeds will help ordinary Nigerians provided corrupt individual is not elected as the next president. If corrupt individual is elected, the savings from the subsidy will be stolen as usual and Nigerians will not see any difference in their life.
Foreign exchange liberalization is another policy the federal government is getting right provided Nigerian commercial banks are not micromanaged to death by the Central Bank of Nigeria. Any country that has no foreign currency to defend their currency have no choice but to let the market forces of supply and demand to determine the true value of their currency. Letting Naira Float is the right policy for Nigeria even if the government has enough foreign currency to defend it’s local currency. Foreign investors cannot come if they cannot repatriate their profit.
The worst part is that some well- connected Nigerians use to buy dollar at the pegged Central bank rate of 197 naira to a dollar and sell it at over 350 naira at the parallel market without adding any value to the economy. Even worse is that some manufacturers who got dollars from the Central Bank at the pegged rate saw no incentive to waste their time and energy in buying raw material for production when they can just sell the dollar in the parallel market (black) and make more money in the process, instead of going through the production process and the profit that may or may not come. More Nigerians in diaspora are now sending more dollars and other foreign currencies to their relatives for expenses and investments.
Floating exchange rate is a good policy that must be left alone by the Central Bank of Nigeria to work. Banning banks from participation in foreign exchange market is a big mistake. Banning banks from selling foreign currency for importation of the products the federal government deemed as not beneficial to the economy is a mistake. Nigerian government should impose high tariff on goods they do not want people to import just like they are doing with car import. It is a better way to control such goods from being imported. Micromanagement of foreign exchange transaction is going to backfire and make Nigerian and foreign investors lose confidence in Nigeria economy. Central Bank just have to make sure that commercial banks are not used by corrupt Nigerians and government officials to siphon stolen money out of the country. Parallel market rate, bank exchange rate and Bureau de Change rate will eventually merge if floating exchange policy is allowed by the Central bank to work based on the market forces of demand and supply.
Single Treasury Account(TSA) is another good policy that this administration decided to implement even though it was formulated under former president Jonathan who lacked the political will to implement it. It is a policy that must be sustained. In United States, federal receipts, remittances and deposits goes into the U.S. Treasury which is a Single Treasury Account (TSA).
Federal government needs to rename TSA to “Nigeria Treasury Account” so all payments due to the federal government will be made payable to the Nigeria Treasury Account and all authorized disbursements should be made from same account. TSA will then become actual account that will not be undone by successor government instead of a concept which is what Single Treasury Account is now. You cannot have ministries, departments and agencies put government money in different banks with some deposits into private bank accounts which ends up disappearing. However, this does not mean that that all the money must be deposited at the central bank. The federal government can have accounts in different commercial banks under Nigeria Treasury Account provided that only authorized federal officials can disburse the money for specific purposes. The most important thing is for the federal government to know where the money is provided that all receipts and disbursements must be made by the person designated by the federal government to make such transactions. Hopefully, states and local governments will someday implement Single Treasury Account.
What Nigeria need more than anything is assurance to both internal and foreign investors that their investment will be safe irrespective of the government that comes to power in the future. This can be achieved by the use of contracts between investors and government at all levels where terms of the contract cannot be reopened by the current and successive government and the courts. Nigerian courts and government are meddling in private company affairs thereby making potential investors nervous. How can anybody expect foreign investors or local investors to source fund from foreign banks and other investors to invest in a country where government can impose penalty that could put them out of business for any mistake such as the fine imposed by the Nigeria government on MTN. Many parts of the world went out of their way to create favorable business environment for foreign investors. So potential investors will rather go to those countries and invest in favorable business environment. Private businesses should also be encouraged to use contracts for hiring and business transactions so the courts can depend on the contracts when any issue comes before them. Implementation of fundamental economic principles is the only way for any country to grow.