The Central Bank of Nigeria (CBN) has prognosticated a possible economic recession in 2016. This possible worst outcome of the present slump is something I am sure President Muhammadu Buhari would do everything to prevent. No president wants to be known in history as a ‘Recession President.’ However, this undesirable economic situation can sometimes become a reality, even in spite of the best efforts of a well-meaning leadership. Exploring the worst case scenario, the following are the factors that, if they conspire together, a recession might become a reality. Of course, this discussion is meant to inspire concerted efforts, including, perhaps prayers, so that we avoid the likely ugly prospect.
The most crucial factor is oil price. If the price of oil falls below $40 a barrel for a stretch of time in the coming months, we would have a very serious economic crisis. Some might say why should this be the case, if the economy is as diversified as the rebased Gross Domestic Product (GDP) showed in 2013; and if oil constitutes just about 15% of the GDP? Therein lies the unfinished work of the diversification of the Nigerian economy. The diversification we have achieved so far is from the standpoint of a wider base of production, with some new sectors admitted into the GDP calculus for the first time in 2013. From the standpoint of government revenue, however, oil still accounts for 70 per cent of total receipts and over 90 per cent of external earnings.
As a result, the price of oil still wields an outsized influence on overall economic fortunes of the country. At this stage of Nigeria’s economic development, low oil price will definitely depress asset values, non-oil sectors’ performance and overall production. A sharp decline in oil price will generally sap business confidence in Nigeria. The subsisting dependency, under our worst case scenario, would also erode liquidity and consumption. The second determining factor is located in the fact that the current weak price outlook of oil is in a loop involving weaker growth in China and weaknesses in economic data from the matured markets. Given that before the current slowdown, the global economy was only at a slow pace of recovery from the last financial crisis, a sharp upward inflection in the global economy is very unlikely in the next two years. Thus, the protraction of a slowdown would have adverse effects in developing economies, including Nigeria. It will take a miracle for this not to happen; but miracles do happen.
The third factor is that President Buhari is fighting an insurgency. The insurgency may have all along been underrated because of its unconventional tactics and the need to project national security. Therefore, the value in the resolve of Mr. President to end this ugly, growth-sapping insurgency as quickly as possible is well-considered. So, defence will continue to receive a sizeable chunk of the budget until Boko Haram is thoroughly degraded. Until we achieve this success, some growth-spurring infrastructure would be alternatives forgone with high defence budgets. A facet to this argument is ongoing in the United States as well as other big defence spenders of the world. For Nigeria, defence spending will cease to be zero-sum for growth only as victory is attained against Boko Haram and post-insurgency reconstruction kicks in, or if the budget is spent on military hardware manufactured in the country.
The sum of these is that, with ill-luck, Nigeria can indeed slip into a recession, even if briefly. While leadership may not be able to prevent it, leadership can definitely inspire an economic turnaround that will lift growth above the pre-recession level. Former U.S. President John F. Kennedy responded to a brief period of recession and high unemployment rate by expanding social security, unemployment benefits and cut taxes to bring the economy back on the growth track. Because Nigeria faces different economic dynamics, our strategies would be different. In the instance of tax cuts, our strategies need to be diametrically the opposite of the early 1960s U.S. reforms.
So where should we start and what is the latitude we have in reversing the current negative trend of economic fortunes? Where we have to start is where President Buhari has started and maintained focus. We have to raise the level of efficiency in the system. We have to plug revenue leakages. And, of course, we have to rein in corruption. One of the strategic accompaniments is provision of depth for the nascent sectors of Nigeria’s economic diversification. For Nigerian Export – Import Bank (NEXIM Bank), these sectors are Manufacturing, Agro-processing, Solid minerals and Services. If we disaggregate what NEXIM Bank has in the past five years promoted as the MASS Agenda, we see the strengthening of both manufacturing and agro-processing. The services sector, has literally exploded, while the solid minerals sector is the weakest of these four sectors that can help create jobs and non-oil export revenue.
The multi-billion dollar question is where are we to source the financing for the various programmes? But equally important is how to channel the financing. I believe development finance institutions (DFIs) have the aces in providing workable answers to both the “where” and “how” questions. Over the next 15 years, global resources would be mobilised in funding the Sustainable Development Goals (SDGs). The SDGs will provide the focal points of global financial interventions. Nigeria is in a unique position to tap into the emerging global finance that would increasingly promote sustainable development.
Nigerians now lead the two frontline Pan African Development Finance Institutions. Erstwhile Nigerian Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina assumed the leadership of African Development Bank (AfDB) on September 1. Later that month, another Nigerian, Dr. Benedict Oramah, became President of Africa Export-Import Bank (Afreximbank). These Nigerians were appointed to work for the entire continent. But their nationality provides Nigeria an opportunity for closer affinity with these institutions beyond being the biggest financial contributor to them. Adesina, like his predecessor, Donald Kaberuka, is poised to making the AfDB catalytic for African growth based on deep knowledge of the local context. His work in reforming Nigeria’s agriculture tells how much help he can lend from his new vantage position.
Another area of benefit is expansion of Nigeria’s network within the global community of Development Finance Institutions. I have seen first-hand the importance of this point since my ascension to the presidency of the Global Network of Exim Banks and Development Finance Institutions (G-NEXID) earlier this year. Nigeria needs to network better with the global development community.
One of the greatest economic challenges Nigeria faces is how to economically empower the youth. The answer to this is support for entrepreneurship. Nigerian youths have been actively engaged in business creation. They control the entertainment industry and are expressing themselves in the technology sector. If we managed to unlock funding for these and other sectors, the doldrums that a recession symbolises would become a possibility farfetched for Nigeria. The good news is that the DFIs are well-focused and increasingly resourced to support the commercially viable enterprises of our vibrant youths to complement national efforts.
Orya is MD/CEO of Nigerian Export-Import Bank. He writes from Abuja.