23 Sep

The week ahead – Patience is key to overcoming the recession

The CBN-MPC has retained the Monetary Policy Rate at the current 14 percent. The decision to leave the rate unchanged was contrary to expectations of economic analysts, manufacturers and some government officials. Finance minister, Kemi Adeosun, had on Monday called for the regulator to lower interest rates so that the government could borrow domestically to boost the economy without increasing debt servicing costs. In an interview with CNBC Africa on Sep. 19, she said, “We would like to see the interest-rate increase that happened at the last MPC meeting reconsidered. At the moment in the Nigerian economy, growth is the most important thing.” However, the MPC decided to hold the lending rate in order to maintain its primary objective of price stability; the deçision was unanimously agreed on by all the 10 committee.

Some senators have asked President Buhari to sack or reshuffle some of his ministers who are currently saddled with the onerous task of managing the economy. The legislators want the Minister of Finance, Kemi Adeosun and her counterpart in the Ministry of Budget and Planning, Senator Udoma Udo Udoma, relieved of their duties or redeployed to other ministries where “they could be more competent and productive.” The call was one of the numerous suggestions the lawmakers put forward to set the country on the path of recovery when they began to debate the recession.

Nigeria has “hunted down” 700,000 firms that have never paid taxes as the country seeks new revenue sources to offset low oil prices that have pushed Africa’s biggest economy into its first recession in more than 20 years, its tax chief said. Tunde Fowler, executive chairman of the Federal Inland Revenue Service (FIRS), said in a rare interview that he also expected 10 million individuals to be discovered by December and made to pay taxes for the first time. The federal government, struggling to fund a record ₦6.06 trillion (£14.19 billion) 2016 budget that aims to stimulate growth by tripling capital expenditure, set the FIRS a target of raising ₦4.95 trillion in taxes, up from ₦3.73 trillion last year.

Nigeria’s power generation fell by over 1,000 megawatts as four power plants are reportedly down, bringing the total number of plants not generating any electricity at the moment to 10. Total system collapse on happened Friday, September 16, the 17th time this year, according to reports. It is stated that the total power generation currently stand at 2,555.7Mw, down from 3,596.2Mw at the same period, leading to even more power outages and blackouts across the country. Electricity from the nation’s biggest power station, Egbin, located in Lagos, hit a record low of 246Mw on Saturday from 425Mw, while output from the Shiroro in Niger, one of the nation’s hydro-power plants, hit a high of 600Mw. The plants that were shut down after the collapse included Olorunsogo I and Olorunsogo II in Ogun; Omotosho II in Ondo; and Ihovbor located in Edo, with installed capacities of 294Mw, 500Mw, 500Mw and 225Mw respectively. Olorunsogo II and Omotosho II, which were built under the National Integrated Power Project, had on Friday generated 171Mw and 83.5Mw, while Olorunsogo I and Ihovbor produced 148.1Mw and 165.6Mw, respectively.

The Nigerian Army says six people were killed on Monday in Borno in an attack by Boko Haram. Army spokesman, Sani Usman, said the incident happened when the militants ambushed troops escorting commercial vehicles from Damboa to Maiduguri, at Sanda. According to him, three soldiers sustained injuries during the incident. Usman assured that the incident is isolated, and that the attackers would be caught.

President Muhammadu Buhari told the UN Secretary General, Ban Ki-moon, that Nigeria will welcome the help of international intermediaries in swapping the 273 abducted Chibok schoolgirls with Boko Haram prisoners of war. The President,speaking during a bilateral meeting with the UN scribe on the sidelines of the 71st UN General Assembly in New York said he was committed to swapping the abducted schoolgirls from Chibok with Boko Haram fighters in custody.

Suggestions

  • In an ideal situation, a country’s fiscal policies (the means by which a government uses taxation and spending to influence its economy) and its monetary policies (the means by which the central bank influences the country’s money supply) should be in sync. But this is not always the case. On September 19, whilst the CBN’s Monetary Policy was meeting, the Finance Minister, Kemi Adeosun, called for a rate cut in order to help support fiscal measures. This call was expected because government had previously stated that the strategy for pulling the nation out of the recession is through spending and availing credit to the private sector in order to spur growth. However, the MPC decided to hold the lending rate in order to maintain its primary objective of price stability. This decision was expected by most CBN watchers because an immediate reversal of its previous decision would have be interpreted as a sign of incompetence. The next MPC meeting is in two months and it is very likely that barring a further spike in the inflation rate, the MPC will heed the government’s call for a reduced lending rates.
  • We expected the Senate to come up with a plan, and also work closely with the executive to steer the country out of a deep recession. Making general statements of intent and advice will not resolve the current economic instability. Any plan put forward by the Senate that does not include making the details of their own budget public as well as cutting their own remuneration down is not acceptable. There are clear actions the senate can take to drive solutions, including paying expeditious attention to enacting or updating important laws such as the PIB, the Land Use Act and the overdue constitutional review. We advise the Senate to redeem themselves and be seen to have played a crucial role in rescuing the economy from the brink.
  • The government has a unique opportunity to not only grow the tax base as part of efforts to fund a record budget which boasts an equally record deficit, but also begin to enact the structural reforms needed to pivot the economy away from disastrous rent seeking. This is a step in the right direction and we hope that this tax rationalisation exercise will be carried out in a measured, intelligent and holistic manner. The government must however watch that its measures to drive increased tax compliance do not have the unintended consequences of driving businesses out of business. The language and the rhetoric must also be right to show this to be collaborative, rather than purely punitive. Finally, the real focus should be on how to build collection capacity in Nigeria to collect taxes from the sections of the economy that our current approach clearly cannot reach.
  • President Yar’Adua once promised to declare a state of emergency on Nigeria’s power sector followed by a road map by his successor. All of these efforts have yet to deliver to the electricity this choking economy so desperately needs. We advise the government to approach all the segments of the power sector holistically and bring about urgently needed reforms and the necessary legal framework to finally banish the darkness that has taken a firm hold of the land. Critical to doing this is resolving the issues around our heavy dependence on gas as the fuel for power generation. Also of equal importance is the need to liberalise the transmission infrastructure of the nation in order to improve its carrying capacity, and possible laws enabling interested states to create their own power infrastructure.
  • Despite the claim of victory by the Nigerian military against Boko Haram, the group still poses a threat to the general security of Nigeria’s North-East and the approach to issues in the region must be with this in mind. This continues to have an adverse effect on farming and other economic activities in the region. It also has an impact on getting much needed supplies to IDPs in the area. The federal government must push for a final and decisive offensive aimed at routing the militants and ending this insufferably and unnecessarily long conflict There are reports of redeployment of experienced personnel from the North Eastern front to the Niger Delta Operation Crocodile Smile. We believe this might be an error that will give Boko Haram an opportunity to regroup. The Niger Delta situation can be handled with deft politicking and a reasonable threat of force, an option which is not readily available with the more fundamentalist Boko Haram.
  • We strongly believe that local assets should be utilised towards the resolution of the Chibok girls’ captivity. The possible involvement of the UN, an organisation that has traditionally repudiated by terrorist groups such as Boko Haram, will be counterproductive and may further complicate the process. We believe Nigeria’s intelligence assets as well as those of neighbouring countries, once sincerely used, can successfully secure the release of the missing schoolgirls.