The year 2020 was a devastating one globally for many people, organizations and nations around the world. For a year reckoned as the beginning of a new decade, the expectations were high with high optimism in the air. But as events began to unfold, especially the outbreak of the novel corona virus, the whole world was once again thrown in panic like it was in 1918.
The ravaging Covid-19 pandemic among other things took a toll on the world’s economy, Nigeria inclusive. And for an already fragile economy still battling slow recovery from a recession in 2016, Nigeria’s economy was particularly hard hit by the Covid-19 crisis as global oil prices began plummeting, economic activities dwindling due to imposed lockdown measures put in place to curb the spread of the virus.
Good Riddance to 2020! But not without some lessons. A new year has come, despite the lingering Covid-19 crisis, we are hopeful for a better year. But how?
In an interview with Phoenix Relations, Paul Alaje an Economic Development Consultant and Senior Economist with SPM Professionals speaks on the lessons for Nigeria and Outlook for the economy in 2021.
Q: 2020 was a year with many crises that took a toll on Nigeria’s economy. What lessons should we take from it and what’s ahead for 2021?
Well, I think the world is not waiting for us, in the year 2020, we saw all manner of punches; in the health sector which of course, extended to the entire economy. It was evident in education, ASUU went on a nine months strike and called off the strike at the end of the year but rumoured that it may resume the strike.
So, when you look at the year 2020, it was a summary of two decades. All the challenges we’ve had in two decades from 2000 to 2019, all came up and faced us with full force in 2020. All the refusal to spend on the health sector in 20 years, we saw the results in 2020, all the agreements government have had with ASUU since 2000 to 2020, government received the report card in 2020. The refusal to make major investment that are efficient in terms of infrastructure, we also got the results in 2020.
But what was a bit more disturbing was insecurity; it took a new turn as there is now commercialization of kidnapping. It now became full-fledged, particularly in the northern region and even in the south. So, insecurity was major in 2020 and it also comes back to tell us that if we don’t give our problems all the attention needed, it’s going to always find a way to come back to haunt us. An American was kidnapped in 2020, in less than 7 days America came and rescued their own from the same dreaded Boko Haram. What did they do differently that Nigerian forces are not doing? So, for me 2020 has told us that there is no way you can excuse the real problem, you must face those problems and solve them… not with ‘quick fixes’ solutions but the real solutions to the problem and I think that for me is the summary of year 2020.
But what should we do differently for 2021? I think the first thing need to do for this year is to have for development plan for the next 20 years. We have seen how we were scored in the last 20 years, now we are starting a fresh 20 years. “If the foundation be destroyed, what shall the righteous?” The first thing for us to do is to rebuild that foundation and this is a time for us to work on the national development plan that will help us all round.
Another thing we need to do immediately is to pay better attention to the ease of doing business. Despite the recent improvement, we still need to do more, but Nigeria needs to be among the top 50 when it comes to the ease of doing business. We have African countries like Rwanda that has achieved this already, Nigeria should be able to do more. And one of the things that has remained a major challenge to ease of doing business in the country is the issue of power. Power has refused to improve. Government said recently that is generating about 4000 -5000megawatt that it is being distributed to homes. But for a population of about 200milllion, you need minimum of about 200,000megawatt. When you find approximately the 5000MW government is doing, that’s about 2.5% and it is the main reason productivity is low.
If you focus on ease of doing business, which will resolve contract issues, access to credit, taxes and so many other items on that list and focus on it deliberately, I believe Nigeria will begin to see investment come into the country and we will see to a large number of expansion.
With regards to our education sector, I would say government is the best managers of universities. I would recommend that government run these schools under a public-private-partnership that will see the setup of a board led by private sector to manage the schools. For instance, a bank can own a school, manage it for 30 years on behalf of government, and appoint board members for the university, not political appointment of chancellors but professionals from the business community. 30% of the school population can then be government’s equity, which means 30% of the students (people from rural areas who evidently cannot afford the fees) can then be on scholarship while the remaining 70% will pay for it. That way, not all schools will be going on strike at the same time.
We just cannot run the economy the way we did in the last 20 years, we need people at the helms of affair to run this economy in a modern way.
Q: With a second wave of Covid-19 infection lurking and another lockdown looming, what will be the fate of small businesses and the Nigerian economy should we go into another lockdown?
I have been advocating that another lockdown is not desirable, I spoke against the first lockdown vehemently and after much ado, government yielded to the voice of truth and the result today is a recession. Countries that Nigerian copied the lockdown measure from provided support funds in thousands of dollars for affected citizens. But that was not the case with Nigeria. For some reasons, citizens were unable to access even the small palliatives that were provided. So, whatever we do, another lockdown is not desirable because we do not have the resources and capacity to take care of people. What we should rather do is enforce the compliance to the Covid-19 safety measures and put in place penalty such as mobile courts and fines attached to defaulters.
Q: Considering the crisis we have on ground, do you see the Nigeria emerging from its 2nd recession in 5 years quickly?
Well, authorities have said they are expecting that this quarter, the Nigerian economy should come out of recession. I doubt that very much. The major barometer for measuring what happens to the Nigeria economy is price of crude oil, exchange rate, inflation and job losses or job gains and this determine the economic growth. I understand that there is different factor to it now because of the vaccine, which may not get to Nigeria until March if not later… and we already have some economies on lockdown like the UK, even in Nigeria, work has been suspended from 12am to 4am because of the lockdown. And this is already affecting the entertainment and creative industry.
With of these, can we see full growth? I doubt. But I also want to believe in the integrity of the National Bureau of Statistics to release the right figures. Because when you compare the growth from this quarter with what we had in first quarter 2020, where we had 1.87% GDP growth rate, the things are clearly apart. You can’t grow on that balance economy year on year with this unbalanced economy we have right now.
But in Q2 where we had major reduction of -6.1% growth contraction, if you compare that to what we have currently, this is much better. That’s why I said Nigeria will come out of recession in Q2 2021 but in Q1, we will just be falsifying figures to say we have come out of recession. We lived in that time and we know quite well that the economic situation in Q1 2020 is far better than what we have right now.
However, Nigeria’s emergence from recession in Q2 2021 is possible because; firstly, global oil prices will rebound. Secondly the use of vaccines would have helped more in managing the crisis, and we will be comparing the economy to a worse economy year on year using Q2 2020 as the base year.
Q: CBN vs FG on GDP forecast: Do you think these forecasts are overly ambitious? What is your forecast for the year?
Well, I am expecting Nigeria to grow at a rate of 0.5% to 1.5% for the year. My lower limit is 0.5% and 1.5% being the upper limit, other things being equal. The kind of growth I expect to see is; a negative growth for first quarter, a marginal positive growth for second quarter in tandem with the International Monetary Fund forecast. The IMF has also predicted a slow recovery, in view of the intensity of the second wave envisaged, despite the use of vaccine.
However, for third and fourth quarter we may recover but then, it’s only forecast, we don’t know what may happen by then but largely I am very hopeful that we are going to have a positive growth on the average. But I don’t think we will have up to the 3% in the budget because even before the Covid-19 crisis, we never had a 3% growth rate since the last recession. So, government dashing itself 3% is over charitable to themselves.
Q: What factors/ sectors do you think will drive this growth? Especially as sectors such as the telecom, entertainment and creative industry are being affected by the recent policies as well as the partial lockdown?
I see banking, telecommunications and the oil sector which will most likely rebound this year, and this could change the whole narrative for Nigeria. As for the ban on the registration of new SIM cards, I believe the government will eventually extend the window period to allow people in the rural areas participate. But I would advise the government should go beyond this to linking the NIN to voters card. This will then improve our voters’ registration process, more accountable votes counts and better results during elections.
Q: Let’s talk about the N13.5tn budget for 2021; with dwindling government revenue and the crisis we still have on ground, how do you see the government funding this budget to full implementation?
Firstly, the budget isn’t as big as you think due to the devalued Naira at N379, so when you look at the difference between this and the N10.8tn for 2020, the gap is not much due to devaluation. And that means; once the government is able to sell a little more crude oil than was sold last year, and generate a little more foreign exchange (FX), then we could fund budget. But my major concern here is the government’s decision to fund the budget deficit of N5.2tn by borrowing. The question we need to ask is who will lend money to Nigeria? We are not that viable for Commercial loans, particularly for Eurobond because we have a lot on our hands we need to settle. Nigeria was unable to secure multinationals loans in 2020, and I doubt this year will be different. When this happens, government may have to raise the loan internally. That means treasury bills rate will increase, leading to a major crash in Nigeria Stock Exchange. Don’t take my word for it until you wait till May/June and see what happens to the stock market because it will crash and the price will go so low, putting investors at risk.
Q: Inflation has been on the rise for 14th consecutive time, what is your forecast for the year 2021?
For me, inflation for 2021 will not be less than 15%. Inflation in Nigeria is largely induced by food inflation despite the monetary policy rate. The regions where food comes from in the country are currently being ravaged by terrorism, banditry, kidnapping and high level of insecurity and this will continue to affect food prices and push up inflation.
Government can only achieve the set target of less 11.9% if it is able to do more to curtail the rising insecurity issues bedeviling the food producing areas. But if government will not secure the country, I’m afraid we will not have inflation less than 12%. Furthermore, if exchange rate remains unstable as we have it now with about 50-70 Naira gap between the official rate and the parallel market rate, we may not have inflation less than 14%. However, if the MPR remains really low, then we can’t have less than 15% inflation rate for the year 2021.
Q: Unemployment is surging, what do you think the government isn’t doing or doing right?
The government’s approach of social investment programmes to fight unemployment is wrong. I think most of the strategies are not sustainable and cannot result in a significant reduction on unemployment figures. Giving stipend to the poor will never suffice for a productive population and countries like China and Indonesia have tried this model and didn’t work. Not to mention that government revenue is dwindling, so there won’t be much to give. This is not good economics. Government needs to understand the economics of numbers like China, Indonesia, U.S. etc who have producing population; these countries do not suffer recessions like we do here because they have been able to understand their numbers.
Government needs to make production work, make the market work and we are going to see a significant reduction in unemployment rate and improvement in the economy.
Q: In a nutshell, what is the hope of the common man in all of these for the year 2021?
The hope of the common man is to find something doing to sustain through this period of crisis, do not rely on the government and more importantly, stay safe. Because if the health crisis escalates, it can ruin everything. And if you can, get the vaccine.