- Subsidy, debt, power hindering growth – Fitch, Forbes, others declare
By UCHE CHRIS
Again, Nigeria seems to be attracting global attention for the wrong reasons as several international agencies and experts are warning that the economy faces real danger unless government takes concrete measures to reverse the present course of policies predicated on fuel subsidy, massive borrowing and harsh and unfriendly business environment in the country.
These reports come in the heel of an earlier one by the Economist Magazine shortly after the 2019 general election which predicted that the country would be worse off under this administration going forward. Last week Emir Mohammed Sanusi II joined this crusade to end subsidy in the country insisting that the nation is already broke and risks bankruptcy if it continues with the regime of subsidy.
Sanusi, who is a former governor of the Central Bank of Nigeria, said this while delivering his address at the ongoing third National Treasury Workshop, organised by the office of the Accountant-General of the Federation in Kano. He advised President Muhammadu Buhari’s administration to scrap fuel and electricity tariff subsidies in order to stabilise the economy.
He said, “In 2011, when I was CBN governor, Nigeria made $16bn from petroleum sales, and we spent $8bn importing petroleum and spent another $8.2bn subsidising the product…and I asked. ‘Is this sustainable? If truly President Buhari is fighting poverty, he should remove the risk on the national financial sector and stop the subsidy regime, which is fraudulent.”
“In 2016, we were told that we are consuming 28 million litres of petrol per day and just a few weeks ago, we were told that it has jerked up to 60 million litres daily; what went wrong? We are spending N1.5tn per annum on petroleum subsidy! And then we are subsidising electricity tariff. And maybe, you have to borrow from the capital market or the Central Bank of Nigeria to service the shortfall in the electricity tariff. Where is the money to pay salaries? Where is the money for education and other government projects?” Sanusi said.
In a report titled Baba go slow the Economist had called on the government to move quickly to introduce critical economic reforms, such as removal of subsidy, deregulate the forex market and reducing public borrowing to stem the downward spiral of the economy by saving needed funds for investment in basic infrastructure like power and transportation. According to the magazine without these reforms the economy may eventually collapse before the end of this administration.
To be expected, the Presidency ridiculed the magazine, calling it a ‘motor park Economist’ that does not mean well for the country. It would be recalled that the magazine had in the run up the elections endorsed the main opposition candidate and PDP flag bearer, Alhaji Atiku Abubakar, insisting that the victory of President Buhari will be bad for the economy and the country.
Since its report last month, two other foreign agencies have released reports warning that the economy is already in dire strait and called for urgent steps to save the situation. Forbes magazine, said that Nigeria is world greatest economic paradox with vast resources – both human and natural – yet abjectly poor.
In a recent report titled “Nigeria has become Africa’s Money Losing Machine. It said that the GDP contracted 13.8 percent in the first quarter, wiping out last year’s gains.”
It warned that the growing insecurity in the country is going to worsen as the economy remains depressed and lagging unemployment and population growth, which will become a disincentive for investment.
In another report, Fitch, a global rating agency, claimed that it will take Nigeria until 2028 before exiting the damage being caused by Buharinomics. The report released by Fitch Solutions on Nigeria’s country Risk for the third quarter of 2019 reveals Nigeria’s economy will struggle to return to the robust levels of economic growth, witnessed prior to the 2014 collapse in global oil prices due to the economic policies of the Buhari led Government.
According to the report, the contraction and slow projection in Nigeria’s growth will be driven by Nigeria’s challenging operating environment and back economic policies.
“Over the next 10 years, Nigeria’s economy will struggle to return to the robust levels of real GDP growth recorded prior to the collapse in oil prices. With substantial increases in oil production unlikely, the country will have to develop alternative sectors, but this will likely prove difficult in Nigeria’s challenging operating environment and weak reforms,” the report said.
The report details some factors that will be responsible for the likely contraction and slow growth and economic outlook in the next 10 years. The report revealed that there is a low expectation of oil production returning to the level witnessed between 2010 and 2014 for the next 10 years, and this will pose significant challenges to Nigeria’s economic outlook. The country’s oil output has stagnated at about 1.8 mbpd against the 2.3 mbpd in the budget.
However, it stated that the unfriendly business environment in Nigeria and the instability of the commodity-dependent economy will keep fixed investment below the levels required to move the country away from its oil dependence. According to Fitch report, the victory of incumbent Muhammudu Buhari in the February 2019 elections suggests little scope for structural reform in the years ahead, weighing on the economy’s long-term growth prospects.
Hence, Nigeria’s economic growth forecast is put at 3.4% per year over the long-term outlook from 2019 to 2028, compared with 6.1% in the 2010-2014 oil boom years. The report also showed that a combination of low prices and long-term constraints on production suggests that the oil sector will not be the economic driver that it was previously.
U.S. Assistant Secretary of State for Africa Affairs, Tibor Nagy, warned in Pretoria, South Africa last week that African countries are running up debt they cannot pay back, especially from China, and should not expect to be bailed out by western-sponsored debt relief. The International Monetary Fund and World Bank began the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to help the world’s poorest countries clear billions of dollars worth of unsustainable debt.
But Africa is facing another potential debt crisis today, with around 40 per cent of low-income countries in the region now in debt distress or at high risk of it, according to an IMF report released in April. Nagy, said “we went through this, just in the last 20 years, this big debt forgiveness for a lot of African countries,’’ referring to the HIPC programme.
“I certainly would not be sympathetic, and I do not think my administration would be sympathetic to that kind of situation,’’ he told reporters.
Under Donald Trump’s administration, the U.S. has criticised China for pushing poor countries into debt, mainly through lending for large-scale infrastructure projects. From 2000 to 2016, China loaned around $125 billion to the continent, according to data from the China-Africa Research Initiative at Washington’s Johns Hopkins University School of Advanced International Studies.
In April, IMF had warned Nigeria to moderate its debt portfolio to avoid another debt crisis shortly after exiting one just a decade ago. Nigeria’ debt has ballooned from N11 trillion in 2015 to N24 trillion in just four years sparking fear of debt overhang.
The President, Lagos Chamber of Commerce and Industry, Mr. Babatunde Ruwase, said the chamber had always stood against petrol subsidy, adding that it was not economically healthy to keep subsidising consumption. He said instead of subsidising consumption, the money should be channelled into capacity building in the educational sector, health and other ventures.
“Productive ventures like farming should benefit from subsidy and not consumption. If we continue the way we are going, it is only a miracle like a sudden and astronomical rise in the global price of crude oil that will save us; otherwise, the nation will definitely go bankrupt,” he added. According to Ruwase, the current subsidy regime is not sustainable and is open to abuse and fraud.
On electricity tariff, he said, “If the government wants investors to come into the electricity sector, it has to relax its control and allow the economic cost to determine the tariff. The current tariff we have was set three years back and it is lower than the cost of investing in the sector.”
The Director-General, Nigeria Employers Consultative Association, Mr Timothy Olawale, in a telephone interview with one of our correspondents, noted that the association had made its position known on the issue, arguing that the Federal Government should allow market forces to determine the fuel price. NECA, in its reaction described fuel subsidy as a conduit for corruption.
“The fuel subsidy should be scrapped. This has always been the position of NECA. As far as we are concerned, fuel subsidy is a conduit for corruption. It is a means of enriching certain individuals. Such money going into fuel subsidy should be channelled into a productive sector of the economy and not consumption,” he said.
On the issue of debt servicing, the NECA boss described the situation where the FG was spending over 30 per cent of the budget on debt servicing as unsustainable.
“There will be little or nothing left for infrastructure, after recurrent expenditure must have been removed also. It portends a bleak future for the nation, and a burden for the generation yet unborn; it is like going into slavery. It is not sustainable,” Olawale added.
The President, Chartered Institute of Bankers of Nigeria, Dr. Uche Olowu, also described fuel subsidy as unsustainable.
“But they (government) must find a way of how they can cushion the effect when they remove the subsidy. There will be pain in the short term. But in the long term, they will use the money from that subsidy to upgrade infrastructure that will encourage wealth creation activities, which will increase employment,” he said.
The Corporate Affairs Director, Manufacturers Association of Nigeria, Mr. Ambrose Oruche, said the Organised Private Sector, which MAN belongs to, had taken a position on fuel subsidy in 2014, supporting the removal of fuel subsidy and saying that the money should be invested in infrastructure.