Wednesday, December 29, 2010

How Nigeria’s Economy fared in 2010

2010 will go down as a year of mixed fortunes for Nigeria. The budget was proposed to stimulate the economy but the majority of Nigerians are yet to feel positive impact of the stimulus package. A number of positive developments in 2010 for me are the passage and signing into law of the Asset Management Company of Nigeria as well as the inauguration of the board. The other is the tsunami that swept away the board of the Nigerian Stock Exchange in August. There was also the sustained reform of the banking sector with the classification of the banks into four groups with different capital bases viz. International, specialised , regional, and national banks; the CBN also initiate idea of having a 10-year reform for the Nigeria banking industry which the CBN Governor at a pre-convocation lecture at Bayero Univeristy, Kano in February 2010 said is aimed at "enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that financial sector contributes to the real economy”. The CBN also set limit of maximum of 2 terms of 5 years each for bank chief executive officers (CEOs)

In September 2010 CBN withdrew the licence of 224 microfinance banks and thereafter restored the licence of 37 of them. There was also the reported crackdown on the bank debtors as 4 non-executive directors of Fin Bank were suspended for 90 days by Central Bank of Nigeria on September 27 for failure to pay their debts totalling N20 billion. The year has also witnessed crusade against corruption by the anti-corruption agencies. The Federal Ministry of Justice and the Economic and Financial Crimes Commission used plea bargain mechanism to mete out punishment to some erring companies and individuals. This was adopted in the handling of the Halliburton bribe scandal as well as the case of the former Managing Director of Oceanic Bank. News report has it that $170.8 million has so far been recovered as penal fines by multinational companies involved in the $180 million Halliburton bribe scandals while assets and cash recovered from Mrs. Cecilia Ibru, former Managing Director of Oceanic Bank was estimated at N191 billion.

However, in spite of the over N5 trillion annual and supplementary budget for 2010, not much has been achieved in terms of infrastructure development. Many of the power, road and other basic infrastructural projects are yet to be completed. While work is progressing on some, others have been abandoned due to paucity of funds. According to the Minister of Finance, Nigeria’s domestic debts stood at about $28.5billion as at last September, while the external was about $4.8billion, yet government is planning to borrow more funds. Plans are afoot by the current administration to obtain $900 million loan from the export-import (EXIM) bank for the implementation of the $500 million Abuja-Kaduna Railway project and the $400 million National Public Security Communications project. This penchant for accumulating more debts is worrisome more so as we approach the next general elections in April 2011. It is on record that the current government from 2007 is master of policy inconsistency. What guarantee is there that these loans will be well utilised and what happens if there is a change of government in May 2011 after the April polls?

Nigeria with Index of 0. 478 currently occupies 113 position on the Worldwide Trends in the Human Development Index, 1970 – 2010. This is unenviable. On the 2010 Corruption Perception Index, Nigeria ranks 134 out of 178 countries. This also shows that the fight against corruption is far from being won. The recent lift of ban on some imported goods like toothpick, matches, energy and health drinks, furniture, textile fabrics, cassava and vehicles which are 15 years old and below leaves a sour taste in the mouth. Nigeria is still largely import dependent; the manufacturing sector remains moribund even as Bank of Industry is being provided with some intervention fund to revive some of them. One of such is the N100 billion Cotton, Textile, Garment Revival Fund.

The major distortion in the economy is the disproportionate ratio of capital expenditure vis -a -vis the recurrent. Even the 2011 budget presented to national assembly on 15 December has barely N1. 05 trillion out of N4.2 trillion budget for capital expenditure. This is a queer way to grow the economy. More so, Nigeria continues to run a deficit budget while failing to block the leakages in the system. Are we still dreaming of Vision 20: 2020? It’s indeed long way to economic freedom for Nigerians given the soaring unemployment and poverty despite the multi trillion naira budget which has remained largely an annual ritual, a mere hollow promissory note without concrete achievements. The most unfortunate thing is that our parliamentarian has refused to pass most of the anti-corruption bills such as the anti- money laundering, anti-terrorism and the freedom of information bills.

Tuesday, December 14, 2010

Playing politics with the Nigerian economy

I thought I was suffering from visual and auditory hallucination when I learnt that government of Nigeria had decided to lift ban on some hitherto prohibited items. These goods include furniture, textile materials, tooth pick, matches, cassava, energy drinks and vehicles that are less than 15 years old. According to newspaper reports, the government’s decision is ‘to replace the bans with tariffs to protect domestic industries.’ Government opined that banned imports result in huge revenue losses to government through significant trade diversion to neighbouring countries, and the routine smuggling of these items into the country. In un-banning the prohibited items, government therefore decided to slam levies on them.

The tariffs put on the items are: cassava- 15% levy in addition to the substantive 20% duty; toothpick- 20% levy and duty of 20%; furniture- 20% levy and duty of 20%; textile fabrics and articles (lace fabric, brocade, voile, African print, etc. and made-up garments) - 20% levy and duty of 20%; waters and beverages (excluding items like health and energy drinks only)-10% levy and duty of 10%. Health and energy drinks, such as Power Horse, Red Ginseng -10 per cent duty plus 10 per cent levy.

As a Nigerian, I find this new policy preposterous, disingenuous, incredulous and anti-development. How can a country open its borders to all manner of junks in the name of making money? How can a nation worth its salt believe that the solution to the inefficiency of its security agencies in effectively policing its borders is to turn the country into a dumpsite where all non-essential and waste products from Europe, America and Asia can be dumped? What manner of ‘jankara and voodoo’ economics believe that the way to protect local industries is to replace product ban with increased tariffs? I weep for Nigeria.

Of all the products that were unbanned, I cannot see one which Nigerians cannot do without. If a country in its 50th year of independence has to import cassava, toothpick, textile products, matches and energy drink, then the country without any equivocation has become a failed state. It is a crying shame that Nigerian government has deemed it fit to play politics with the country’s economy.

Just few years ago, under the administration of Chief Olusegun Obasanjo, cassava production initiative was launched with pomp and pageantry. What has become of that initiative? It is policy flip-flops like this that has led to the collapse of Nigeria’s manufacturing industries. Today, because of lack of basic infrastructure and exposure to unfair competition with imported goods many industries have closed shop in Nigeria and relocated to better climes including South Africa and Ghana. Some of these include Dunlop and Michelin tyre manufacturing industries. Hitherto, it is a Herculean challenge for regulatory agencies like Standard Organisation of Nigeria (SON) and National Agency for Foods, Drugs, Administration and Control (NAFDAC) to effectively carry out quality checks on most of these imported goods because of their deluge into the country.

Of what use is toothpick to Nigeria’s economy that we do not feel ashamed importing it into the country? Under Chief Achike Udenwa as the Minister of Commerce and Industry, he launched the “Buy Made in Nigeria Product”. Today, all that has become history. There is nothing intrinsically wrong if these unbanned products are those that cannot be produced locally, but the irony is that most of these commodities can be manufactured locally and even exported to other countries if the basic incentives are given to local industries. As it is, cars, better still jalopies that have seen better days and which constitute environmental hazards are now being allowed into the country all for short-term pecuniary gains. We seem to have forgotten that throwing open our borders to these non-essential items will lead to increased demand for foreign exchange which we have in short supply. It will also lead to job loss as many of the local industries that are already producing below capacity utilisation due to the harsh production environment occasioned by multiple taxation, lack of basic infrastructure such as electricity, water and good roads and lack of patronage will now totally close shop and lay off workers.

The lifting of ban on the aforementioned merchandise is short-sighted and inimical to national development. 2011 General Election is looming and patently, government seems to be playing politics in coming up with this decision particularly as it was reported that just a couple of months ago, the Presidential Committee on the Review of Tariffs and Fiscal Incentives in Nigeria had asked government to peg age of imported cars at five years, commercial vehicles at seven years and ban vehicles that are 10 years old. The presidential committee was said to have also recommended that “Government should require that all brands of vehicles for which more than 5,000 units are imported annually into the country should be assembled locally, either by setting up a factory in Nigeria or partner with existing plants on contract manufacturing.” Furthermore, the committee was reported to have proposed total ban on importation of textiles that are produced locally. Rather than implementing these noble suggestions government instead lifted the ban, a move that endangers the ability of local textile manufacturers to repay loans obtained from the Bank of Industry, under the Cotton, Textile, Garment Revival Fund which is a government scheme to revive textile manufacturing.

Enough said, the wise men and women of the Executive Council of the Federation must meet urgently and re-ban these unbanned items. Nigerians should make do with those produced locally or do without them altogether, all in national interest.