….Nigeria out of Economic Recession!
…..The World Economy declaration based on market growth index – Prof. Ajakaiye, NES President
By Udeme Clement
Olu Ajakaiye, a professor of economics and the President, Nigeria Economic Society (NES), speaks, in this interview, on the Economic Recovery and Growth Plan (ERGP) 2017-2020 unveiled by President Muhammadu Buhari, and how the plan can be fully implemented to achieve N75trillion investments target, in order to pull the economy out of recession.
How can the plan be implemented to tackle unemployment, exchange rate instability, poverty and inflation between now and 2020?
The targets of 15million jobs, exchange rate stability and single digit inflation from 2017 to 2020 are realisable, depending on the infrastructure, which can be labour intensive. The ERGP for agriculture must be speedily implemented to enhance greater outputs, in order to increase domestic production. So, greater outputs will bring about lower prices of goods in the economy. This will pave the way for single digit inflation. Exchange rate stability can be achieved by diversifying the economy from almost 100percent dependence on crude oil into non-oil export sectors, to reduce the vulnerability of the economy on oil. Exporting agricultural produce will increase foreign exchange inflow for the economy as well.
This means the ERGP must ensure diversification of the sources of foreign exchange through export of value added domestic products, such that if there is problem with crude oil, other sources of revenue generation can be utilised. In doing this, we must not export solid minerals in their raw form, because that will not add value to the economy. Once we start adding value locally, that will create more jobs to reduce the impact of imported inflation, cost pull inflation and domestic inflation. If we reduce the things we import through increase in locally manufactured products, the demand for forex will reduce drastically, and this will curtail imported inflation components as well as domestic inflation.
What measures do you advise government to put in place, in order to monitor the implementation at various stages by different departments of government?
Implementation is crucial, so we must ensure that these programmes are adequately implemented through government policies. Also, government must pay particular attention to the contents in the plan during implementation to ensure that domestic production is encouraged. This is important to reduce high demands for imported goods, to create millions of jobs that can reposition the economy on the path of sustainable inclusive growth. The growth must create jobs, not like jobless growth that the economy experienced in the past.
What should be the contributions of sub-national governments in driving the plan?
The ERGP is currently the programme of the Federal Government but the sub-national governments must be involved in the plan. This implies that all states should formulate their own economic recovery plans to promote domestic production, value addition in creating jobs, promoting agriculture and export. If all the states are able to do this, we can achieve more than15million jobs across the country, because it will reduce the economy’s vulnerability on crude as the major source of revenue for Nigeria.
Which areas of rapid development do you advise government to give priority in running the plan?
Every sector of the economy is important when implementing the plan; government should focus on addressing critical issues of expanding and improving infrastructure like power, road, rail system, among others. Infrastructure should be the main focus to lower the cost of production and cost of living. This will enhance the real value of life and the general welfare of the citizens.
The United Nations Development Programme (UNDP) has just released its 2016 global human development index report ranking Nigeria 152 out of 188 poorest countries in the world. The report further revealed that Nigeria’s human development index has dropped to about 13.1percent in the same period. What is the implication of this?
This shows that Nigeria is lagging behind in this area. Therefore, in the medium and short term, there is need for human resources development for expansion and increased capacity utilisation. So, it is either we go on expanding or creating new capacities, in order to create more jobs where income will be earned. This will move people out of poverty in Nigeria.
Can you give us more insight into how capacity building can fast track human development to raise the low index rate?
Capacity building is quite essential because this means that government will have to revamp the education system to produce high quality human resource based in the country. Similarly, capacity utilisation must be increased in manufacturing industries and agriculture for more business opportunities for the people. For example, a lot of people can work as farmers and extension workers. Also, capacity should be increased for manufacturing companies to create jobs for highly skilled Nigerians in specialised departments.
In the 2015 UNDP rating, Nigeria was at the same 152nd position. So, what roles can the service sub-sector play in creating new capacities to improve on human development?
This sector should become increasingly modernised to expand and create new opportunities. This requires high quality human resources. The moment this is achieved, investments in infrastructure and human resources will be complementary. Therefore, the next aspect should be creating an enabling environment, as a large part of investments will come from the private sector. For domestic investments to thrive and signal foreign investments, the environment be must conducive. Once this is done, it will pull Nigeria’s economy from recession to a path of sustainable growth capable of creating more employment opportunities to curtail inflation.
So, by 2020, we can realise a growth rate of about 7 percent, which is the target in the recovery plan. Looking at the developmental framework of the plan, the economy is expected to move from the current growth rate to 4 percent and from there to 7 percent. That means inflation will be single digit like what we had in the past. Meanwhile, the economy would have been diversified into non-oil sectors, such that revenue to states will be high, and revenue accruing from taxes will equally increase.
Looking at the components of the plan, are the key assumptions realisable?
The key assumptions here include the crude oil price at the international market and the quantity of oil we produce locally. The plan says the price will be systemically raised and the benchmark will be about $50.
In that case, what happens to the economy if the oil price goes below the $50 bench mark forecast like what we experienced in 2016?
If the oil price goes below the bench mark, it can create a problem in the system. On the output side, the huge quantity of oil government needs is in the Niger Delta; therefore we must continue to promote peace and enabling ambience in that region. If we discover oil in other places, it may not be sufficient now to give government the kind of revenue needed to drive the growth process.
Crude oil is still needed to empower government in sustaining infrastructure development and human resources to boost investments. We can only engineer Nigeria out of dependent on oil in the medium term; this means economic diversification will require oil and government must ensure effective fight against corruption in the process of delivery on the plan. If there is any doubt about implementation, especially in the Civil Service structure, that can threaten the plan, government has to train the Civil Servants and improve their welfare, for them to deliver on the plan. If not, delivery may pose a major challenge.
About N75trillion is the total investment projection in the plan and government says 80percent is expected from the private sector, but some experts believe the private sector often contributes to recession, as they usually panic at the slightest economic crisis, throwing workers into the labour market. They stressed that government’s intervention is what is needed to tackle this crisis. What is your take on this?
The government has to catalyse the private sector to achieve this objective. The National Assembly side should also be addressed because it takes ages for annual budgets to be passed into law due to the processes by the legislators. The lawmakers must be carried along in preparing budgets to prevent this delay. For instance, this is April and the 2017 budget is not out. If this continues till 2018 and beyond, the long lag between the time the budget is submitted and when it is passed into law will affect the plan, so the time lag must be minimised.
The United Kingdom-based World Economics Organisation, commonly known as the World Economy, which produces data on economic issues, has said that Nigeria’s economy is out of recession and growing positively, but the data available locally shows high rate of inflation, poverty and unemployment. How do you reconcile these seemingly conflicting positions?
The World Economy based its survey on purchasers involved in the business of buying raw materials. They must have asked those buying raw materials their own forecast to ascertain their level of confidence in the economy. So, they realised that purchasers are optimistic in getting inputs for production. Based on this judgement, they concluded that since members of these outlets are buying more raw materials, getting more inputs for production, the economy is getting better. For example, the World Economy players deal with people who import tyres, petroleum products, vehicles and other inputs for investments. So, if they are pessimistic, it will give an impression that the economy is in recession. To them, their logic means the economy is out of recession based on the market growth index of 58.5percent.
In the last two quarters of 2016, the economy recorded negative growth rate of between -3.36percent and -2.06percent. Now judging from the assumption of World Economy, is the economy making any positive impact?
The last quarter of 2016 showed negative growth rate of -3.36 percent but the economy has turned up in the first quarter of 2017. Though still negative, it has moved from -3.36percent to -1percent. If the growth continues in this trend, it can cross the zero line by the second quarter of 2017, and move steadily to 4percent, which is the target in the Plan, all things being equal. But let us see what the National Bureau of Statistics (NBS) will come up with.
Now, gas supply is steady and there is relative peace in the oil region, which means the economy can gradually return to sustainable growth, especially if government utilises the money they are getting well in education, infrastructure and other sectors. The forecast of NBS may be a little above zero, which is why the World Economy used that logic in its analysis. I personally expect NBS forecast to be near zero or positive rate, because the negativity has reduced.
In terms of development, how do you assess the economy from May 29th, 2015 when Buhari came into power and now?
Mostly, the declining oil prices in the global market and instability in Niger Delta affected the economy. So, we cannot blame Buhari for what happened in the global oil market, because this is an exogenous factor that is out of the control of government.
The post ’How Buhari’s ERGP can bring 15 million jobs, single-digit inflation’ appeared first on Vanguard News.