Economy is Collapsing, Save Them Now – Punch Newspapers | Vette Leader

Long weakened by mismanagement, underperformance and decline, Nigeria’s economy is showing clear signs of impending distress. Doom and gloom was heightened over the weekend as the Nigerian Economic Summit Group and Nigerian Employers’ Consultative Association warned the economy was teetering. Like multilateral organizations and other experts, the duo justified this with, among other things, increasing debt and repayment obligations, inflation, widespread uncertainty and the currency crisis. Rescuing the situation is a daunting task given the history of the President’s regime, Maj Gen Muhammadu Buhari (retd.).

But something must be done quickly to save Africa’s largest economy. While regime officials continue to deny it, the reality is that the positives are few, while the negative numbers are skyrocketing. Nigeria failed to meet its OPEC production quota of 1.83 million barrels per day. Throughout 2021, it posted a deficit of 300,000 bpd, mostly due to oil theft. Officially, the number now stands at 400,000 bpd in losses. For a country in financial distress, this creates serious liquidity problems.

As a major oil producer with no functioning domestic refinery, the federal government has budgeted N$4.19 trillion for gasoline subsidies in 2022. In the five months to May, it paid N$1.27 trillion. For 2023, the regime has proposed $6.72 trillion in subsidies. The economy has been suffering from a fuel shortage since February. Partial and possibly temporary relief came only because the government looked the other way when marketers hiked the pump price.

Manufacturers, airlines and households are groaning as prices for diesel, kerosene and aviation fuel soar. Some companies are drastically curtailing their operations. The Manufacturers CEO’s Confidence Index survey of 400 CEOs in the first quarter of 2022, organized by the Manufacturers Association of Nigeria, showed a decrease in confidence by 1.5 points to 53.9 points in the first quarter compared to 55.4 points in the fourth quarter of 2021.

MAN blames the slowdown on “rising production costs, illiquidity in the foreign exchange market, uncertainty causing disruptions in supply chains, and increasing uncertainties due to tensions in Eastern Europe and the impact of the war in Ukraine on us.”

With the industry in decline, the unemployment rate of 33.3 percent points to a serious economic impact, particularly for the youth. Further job losses are expected. State governments assume they will soon stop paying salaries because of deductions for gasoline subsidies. It’s a messy, opaque accounting system.

Inexplicably, the governors have refused to pressure Buhari to auction off the four loss-making state refineries. Privatization is best global practice. In the largest single deal in history in 2019, Saudi Arabia partially privatized Saudi Aramco, raising $30 billion. With a goal of raising $55 billion by 2030, the Saudis will privatize other state assets. In contrast, the Buhari regime unwisely holds on to commercial assets that could make it money and stop waste.

More dangerous is Buhari’s excessive debt addiction. From N39.1 trillion in Q4 2021, the total debt stock increased to N41.6 trillion in Q1 2022, the Debt Management Office said. Between January and April, debt service swallowed N1.94 trillion compared to retained earnings of N1.63 trillion. It is unconvincing that the regime attributes its borrowing to the need to build infrastructure, but it fails to address the enormous cut recurring expenses. Currently, over 90 percent of revenue is spent servicing debt, a recipe for disaster.

As a result, the country’s public finance system is unsustainable. From 25.34 percent in 2017, the debt-to-GDP ratio rose to 27.69 percent in 2018, 29.17 percent in 2019 and 34.49 percent in 2020.

Illogically, Finance Minister Zainab Ahmed persists in arguing that “Nigeria’s problem is not debt, but one of revenue.” The regime adamantly refuses to introduce measures that can increase its revenues, including effectively collecting stamp taxes, curbing Treasury Single Account leaks, liberalizing and privatizing commercial public assets, and drastically reducing administrative costs.

In the long term, the prospects are bleak. The government forecasts debt service of N10.25 trillion by 2025, an increase of 186 per cent from 2022’s N3.69 trillion. Tax collection, including VAT, is very low: politicians and businesses routinely evade taxes. Vice President Yemi Osinbajo said the tax ratio was 8.0 percent of GDP. Our colleagues make between 15 and 25 percent.

The government is ignoring calls to repeal the 1955 Railways Act, which discourages private investment in railways. Instead, it borrows to build railroad tracks and pursues a doomed state-sponsored national aviation project.

In order to save the economy, Buhari should wean himself from statism. The oil refineries, Transmission Company of Nigeria, airports and seaports should all be privatized. The government should significantly reduce its stakes in the electricity distribution and generation companies to allow private capital to begin the arduous task of reliably powering Nigeria.

No doubt the naira’s plunge (from N710 to $1 in early August) has fueled unprecedented inflation, now at 18.60 percent. It’s never been this bad. The economy has suffered two recessions under Buhari.

To avert disaster, some tough decisions must be made. The six implementing regulations to facilitate business activities, especially at the seaports and airports, should be implemented. The government should cut costs and stop lending. The Ajaokuta Steel Company, which has not been completed since 1978, was to be transparently privatized to provide the industrial backbone for the economy.

The government’s increasing reliance on “means and ways” has unpleasant long-term implications. Instead, it should plug tax leaks, work with the private sector to refine and import petroleum products, and prioritize building world-class infrastructure.

The state should collect its taxes effectively. Tax evaders should be prosecuted as in other jurisdictions where the government works with taxes rather than sales of goods.

A conversion of the security system is essential; the regime should secure international help to defeat Islamic terrorism and banditry. According to the Nigerian National Petroleum Company Limited, it should stamp out oil theft, which is costing the economy $1.9 billion a month.

State governments are a big problem. Most governors depend on government handouts, live like emperors, and offer nothing in terms of formulating and executing autonomous economic programs. They should develop strategies to utilize their special talents and aim for fiscal self-sufficiency and the operation of self-sufficient economic entities.

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