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Negotiating the Recession Challenges: Options for the Structurally Unbalanced Nigerian Economy By Mr. Ernest C. Ebi,Chairman, Fidelity Bank Plc, Guest Speaker at the 9th Convocation Lecture of Redeemer's University, Ede, held on 27th September, 2017
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Mr. Ernest C. Ebi, Guest Speaker at the 9th Convocation Lecture
Mr. Ernest C. Ebi, Guest Speaker at the 9th Convocation Lecture

Negotiating the Recession Challenges: Options for the Structurally Unbalanced Nigerian Economy

 

MR. ERNEST C. EBI, MFR, FCIB, Chairman, Fidelity Bank Plc

THE 9TH CONVOCATION LECTURE OF REDEEMER’S UNIVERSITY, EDE, OSUN STATE, NIGERIA.

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1.0 Salutations

The Founder of this great institution, Your Excellencies’, Members of the Board of Trustees, Distinguished Faculty, Graduating Students, Ladies and Gentlemen.

I count it a privilege to have been chosen to deliver the 2017 convocation address of this great Institution.  I do not take this opportunity for granted but as a veritable platform to encourage our leaders of tomorrow.

Let me begin by extending my sincere appreciation to the Vice-chancellor of this great University, Professor Debo Adeyewa, and the Chairman, Redeemer’s University Board of Trustees, His Excellency, Professor Yemi Osinbajo, GCFR, the Vice-President, Federal Republic of Nigeria. Thank you for counting me worthy to address this august assembly on this great occasion.

I would also like to extend my deep gratitude and congratulations to the Founder of the University and my Father in the Lord, Pastor E.A Adeboye, who has been a great inspiration and role model to me, amongst many others around the world.

To the students, who will be stepping out of these walls today, please accept my congratulations. It is instructive to note that the degrees that would be conferred on you were achieved through long hours of hard work, in addition to been found worthy in character and learning. I, therefore, wish you well as you begin your journey into “life” and urge you not to rest on your oars.  I hope you find success in your chosen career paths and I pray that in the final count; this institution, your parents, and indeed Nigeria will be proud of you.  

I remembered with nostalgia, my own graduation ceremony 43 years ago. Right there at the convocation ground in faraway Washington DC, I knew my destiny was in my hands. Today, I am telling you the same thing – fulfilling your destiny depends on you and how you work things out. I challenge you to make all of us proud by creating a bright future for yourselves and our great nation.

It is pertinent to note that in many ways, I am a part of this great family. I was a pioneer member of the Redeemer’s University Board of Trustees and today my better half, Elizabeth, is also a member of the University Board of Trustees.

I must also commend the administration of this great Institution for the giant strides they have made; growing the student population to a modest 1,800 and winning several awards and recognition within 12 years of its existence. Of importance note, is the winning of the prestigious grant that funded the establishment of African Centre of Excellence for Genomics of Infectious Diseases (ACEGID) sponsored by World Bank,  winning of 2017 Seeding Labs Equipment Grant by USA, the Osun State’s outstanding private university award and Best IT-driven Institution Award in Ogun State given by the Nigerian Computer Society. Of equal significance is the prestigious Roger Hatchuel academy award on creativity, won by a student of the University. These are testimonies of your greatness. I urge you to keep up the good work and always reinvent yourself in other to keep pace with emerging trends and innovation. Our expectation from you is to be Nigeria’s answer to the Ivy Leagues and other great citadels of learning where great minds are moulded.

 

2.0 Topic for discussion

I have been asked to speak on the topic “Negotiating the Recession Challenges: Option for the Structurally Unbalanced Nigerian Economy”. At a glance, I have my reservations about the topic for the simple reason that Nigeria has exited from the recession it plunged into in 2016, posting a GDP growth of 0.55per cent in the second quarter of 2017 from -0.9per cent in the first quarter of 2017 and -1.49per cent in second quarter of 2016.[1]  Notwithstanding, the need to interrogate how we got into the recession cannot be over-emphasized with a view to putting in place the appropriate policy framework that will put the economy on the path of sustained and balanced growth.  I believe that this, perhaps, informed the choice of the topic by the organizers of this forum. I therefore, consider it quite auspicious and topical.

I have structured this presentation to run through the concept of recession, both theoretical and the experience of Nigeria and other countries, the particular effect of our structural imbalance and options to put Nigeria on the path of balanced and sustainable growth.

2.1 Recession

The concept of recession has been defined variously. However, it is a “period of general economic decline, defined usually as a contraction in the GDP for six months, (two consecutive quarters) or longer; marked by high unemployment, stagnant wages, and fall in retail sales; A recession generally does not last longer than one year and is much milder than a depression”[2]

Technically speaking therefore, a recession occurs when there is negative economic (GDP) growth in a country for two consecutive quarters. This was the case with Nigeria when it posted –0.67per cent and – 1.49per cent GDP growth in the first and second quarters of 2016. This was to extend to the third and fourth quarters of 2016 and first quarter of 2017, when it posted GDP growth of – 2.34per cent, -1.73per cent and –0.91per cent respectively[3]. The effect of a recession is that “macroeconomic indicators such as GDP, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise”[4] – we saw this happen in Nigeria.

You will notice that in a period of recession, it is expected that inflationary pressure will decelerate. But clearly, this was not the case with Nigeria, as inflation actually spiked moving from 12per cent in March 2016 to 18.72 per cent in January 2017, before trending downwards currently at 16.05 per cent in July 2017[5].  Thus, giving rise to what is called stagflation. However, the inflationary pressure at the time was not caused by system liquidity but rather by structural factors such as cost of energy and transportation, infrastructural deficit, and FX pass through to the domestic economy.

Let me also add that recession could be triggered by events such as financial crisis (GFC- USA, Greece, Russia, Italy (2007-2008)), external trade shocks (Nigeria, Angola, Venezuela (2016)), adverse supply shock, or the bursting of an economic bubble[6].

3.0 THEORITICAL AND CONCEPTUAL BACKGROUND

3.1 The Great Recession or Global Financial Crisis (GFC) 2007 - 2008

A financial crisis is any of a broad variety of situations in which some financial assets suddenly loose a large part of their nominal value. This could be as a result of banking crisis, currency crisis, stock market crash, speculative bubbles, sovereign default etc. The nexus between financial crisis and recession has been subject of debate amongst economists. While some economists have argued that financial crisis is caused by recession, others posited that recession have in part been caused by financial crisis.

However, there is no doubt that financial crisis has caused economic recession in many countries. The Great Depression of 1930 and the Global Financial Crisis of 2007-2009 are readily available examples of financial crisis that triggered slowdown in global economic growth. 

The GFC for example, was due to poor and irrational lending policies from the financial industry that allowed people to buy houses they could not afford because everyone thought housing prices would continue to rise.

In 2006, the bubble burst as housing prices started to decline. An escalating foreclosure rate caused panic and many banks and hedge funds who had bought mortgage-backed securities on the secondary market suddenly realized they were facing huge loses. By August 2007, inter-bank lending weakened in a bid by banks to avoid toxic assets as collateral. This led to the $700 billion bailout from the United States government to help save several large financial institutions from bankruptcy. By December 2008, employment was declining faster than in the 2001 recession, and the country fell into a deep recession.[7]

During the Great Recession years – identified by the United Nations as the period between 2008 and 2010 – global productivity dropped substantially. Total global gross domestic product (GDP) slid in 2008, but it actually became negative (and substantially so) in 2009, bottoming out at a -1.7per cent annual growth rate. This may not seem significant at first, but 2009 was the only year in the post-World War II era with a net negative global GDP.[8]

Ironically, while countries like USA, Russia and Greece, where adversely affected by the GFC, the impact on Nigeria, was moderated by the buffer provided by our reserve, Excess Crude Account, and the banking sector consolidation[9]. According to Prof. C. Soludo ‘Nigeria is not insulated from the GFC but it is now better prepared to withstand the shock than in the past by : Debt Relief (effectively saving about $4bn in annual debt service payments), Banking Sector consolidation  and Robust External Reserves (about $52 billion) with ‘Savings for the Rainy Day of $20 bn as possible cushion’.[10] From Soludo’s informed stance, we can deduce that the foundational defense against recession is buffer provided by savings.

2.1     The business Cycle Theory

This is another contribution to the body of knowledge on recession. Proponents of this school of thought posit that an economy witnesseses a number of business cycles in its life. A business cycle involves periods of economic expansion, recession and recovery (Table 1)[11]. However, the duration of each stage may vary from case to case.

 

  

Graph 1 – Business Cycle

2.5 Country Experiences with Recession

Global GDP has rebounded post GFC, but different countries applied different approaches and hence, are recovering differently. Some nations, such as Greece, have obvious problems while others, including Japan and Russia, comprise some of the most influential economies in the world in terms of recovery.

 

2.5.1 Greece: The Never-ending Tale

Greece remains one of the most high-profile struggling economies in the world. According to U.N. data, Greece was in a period of recession (defined as multiple quarters of negative GDP growth) for an unheard-of 63 consecutive months between the third quarter of 2008 and the second quarter of 2014.

Greece briefly emerged from its recession in early 2014, but it began to contract again for the final quarter. The numbers entering 2015 were not good: Youth unemployment was well above 50per cent, at least 80per cent of the unemployed have been without jobs for more than six months, and gross government debt exceeded 160per cent of GDP.

In terms of percentage of GDP lost, Greece's downturn was never as deep as the recession in the United States. However, the Greeks don't have their own printing press for the conduct of monetary policy (it has no central bank because it is part of the EU economic alliance), and its future prospects appear quite bleak.

The major hurdle to economic growth appears to be political. Greece's intractable government – buoyed by a population unwilling to accept EU bailout conditions – appears to be incapable of taking serious steps to fix the country's balance sheet or credit issues.

2.5.2 Russia: A Double-Dip

From 1991 until 1999, the new Russian Federation experienced a period of remarkable economic upheaval. However, the former superpower saw a rising GDP from 1999 until 2008, when crisis hit global markets.

Starting in 2008, the Russian economy saw sharp declines in GDP and stock prices. The benchmark share index, the RTS, lost nearly three-quarters of its value by January 2009. Industrial production fell by 12.5per cent in the following 12 months, and many of the gains from the previous decade were wiped out.[12]

Russia showed signs of recovery in 2012 and 2013, posting positive year-on-year GDP growth on the back of high energy prices and rising productivity. However, from 2014 with reversals in the price of oil, the economy experienced huge revenue shocks and gradually slid into another bout of recession. Russia thus appears to have similar economic experience with Nigeria.

In October 2015, Forbes magazine ranked Russia as the single worst economy in the world. Suffering a recession on the back of dropping crude oil prices – a commodity comprising 68per cent of Russia's total exports – and a flailing fiscal and monetary policy, the future prospects for Russia are bleak at best.

2.5.3 Italy: A Drain on Southern Europe

Several countries in South Eastern Europe struggled for much of, if not all, of the period between 2008 and 2015. Next to Greece – by far the worst economy in the region – Italy stands as the slowest gainer since the Great Recession.

The Italian economy officially pulled out of the recession and posted positive GDP in the third quarter of 2009, but two years later, it spun into a 27-month long productivity drain. Productivity per person in Italy was lower in 2015 than in 2007.

On a real, seasonally adjusted basis, the Italian economy has lost nearly 10per cent of its GDP since its 2008 peak. Private consumption and investment remain low. Youth unemployment reached a record high of 44.2per cent in July 2015, and overall unemployment stayed above 12per cent from 2013 to 2015[13].

3.0     The Nigerian Experience

3.1 The Economy from the Global financial Crises era; 2008 to 2016, showed a progressive drop in real GDP growth.

From table 1 below, Nigeria's GDP, from a high of 8.3 per cent in 2009 crashed to its lowest between 2015 and 2016 culminating in the recession. Many economists hold the view that the Nigerian economic recession was triggered mainly by severe drop in oil revenue. However, many other scholars including the former CBN Governor now, Emir of Kano – Emir Sanusi Lamido Sanusi in 2016 argued differently. According to him, a nation cannot be in recession, because a sector that contributes 15per cent of its GDP has declined. He posited that “We have had decades of policy failure. The last decade was Africa’s miracle decade because we moved from a continent that was known for hunger and war to a decade where we were seen as a land of opportunities and investments. Nigeria grew at seven per cent every year throughout that period as the economy doubled and we became the biggest economy in Africa but lack of appropriate policy implementation made us lose all proceeds.”[14] Like Soludo, he also attributed the cause of recession to the nation's poor savings over the years and misappropriation of resources which should have been injected into strategic sectors of the economy such as agriculture, infrastructure, and general improvement in the business environment (ease of doing business).

Year

Growth rate (in per cent)

2006

6.73

2007

7.32

2008

7.2

2009

8.35

2010

7.98

2011

7.36

2012

4.21

2013

5.49

2014

6.22

2015

2.79

2016

-1.51

 

Table 1 Source: National Bureau of Statistics (Culled from several reports)

Graph 2 Source: National Bureau of Statistics (Culled from several reports)

The records of downward spiral of the nation’s reserves and Excess Crude Account (ECA) are shown in detail in Table 3.  It reflects the crass depletion of our Excess Crude Account from about $22 billion in 2007 to approximately $2 billion as of December 2014. Accordingly the country had no buffer to cushion its finances in the rainy day as oil prices began to decline in late 2014.

YEAR

RESERVES (B'$)

ECA (B$)

2007

51

23

2008

53

20

2009

42

7

2010

32

2

2011

33

5

2012

44

11

2013

43

3

2014

34

3

2015

28

2

2016

27

3

 

Table 2: ECA & Foreign Reserves of Nigeria 2007-2016(Source: CBN)

Graph 3: ECA & Foreign Reserves of Nigeria 2007-2016(Source: CBN)

Other commentators posited that a major cause of Nigeria's recession is pervasive corruption perpetrated under several administrations occasioned by stealing and misappropriation or misallocation of public assets.

It is therefore clear that factors that triggered recession in Nigeria's economy were more of structural than monetary or fiscal. Historically, the root of the crises in the Nigerian  economy  lies  in  the  neglect  of  the  agricultural  sector  by  the  Federal Government and preference to developing a mono-cultural economy based on oil. Ukeji  (2003) submits  that  in the  1960’s,  agriculture  contributed  up to  64per cent  to  the total  GDP  but gradually declined in the 1970’s to 48per cent and continued in 1980 to 20per cent and 19per cent in 1985, this was as a result of the oil glut of the 1980’s. Thus, rather than improving on what we had through value addition, the groundnut pyramids in the North and oil palm in the south east, all vanished, youths abandoned the cocoa farms in the South West and the elasticity of production of rubber in the Mid-Western region got to a breaking point.

As the main revenue earner for Nigeria, fluctuation in the price of crude oil creates distortions and hence challenges in foreign exchange management. For example crude oil prices rose from around $3 per barrel to $12 per barrel in 1974 following the 1973 oil crisis and fell from $27 per barrel to below $10 per barrel during the 1986 glut. In the decade from 1998 to 2008, it rose from $10 per barrel to $145 per barrel, before falling by more than half to $60 per barrel over a few months[15]. Table 3 below shows the data from 2006 to 2014

Year

Average annual OPEC crude oil   (USD/B)

2006

61.00

2007

69.04

2008

94.10

2009

60.86

2010

77.38

2011

107.46

2012

109.45

2013

105.87

2014

96.29

2015

49.49

2016

40.68

 

Table 3: Annual OPEC Crude Oil Price 2006-2016. Source: Statisca.com/OPEC Reports

 

 

Graph 4: Annual OPEC Crude Oil Price 2006-2016. Source: Statisca.com/OPEC Reports

Susceptibility to this volatility can be increased where governments choose to borrow heavily in foreign currency. When prices fall, however, the governments' capacity to meet debt repayments will be reduced. Nigeria and Venezuela saw rapid expansions of their debt burdens during the 1970’s oil boom; however, when oil prices fell in the 1980s, the flow of credit to both countries also fell triggering penalty interest charges that made their debts grow even more. As Venezuelan oil minister and OPEC co-founder Juan Pablo Pérez Alfonzo succinctly warned in 1976: "Ten years from now, twenty years from now, you will see, oil will bring us ruin... It is the devil's excrement’. This is the tragedy of resource paradigm shift and unfortunately, the bane of our economic trajectory, which has also brought us ruin[16].

However, this is not to downplay the causative significance of other factors such as weak institutional framework, pervasive corruption, policy inconsistency, economic mismanagement by successive governments and lack of political will to sustain reforms.

Therefore, substantial structural reforms aimed at altering the course of the nation's economic system so that it serves the people rather than narrow interests of the few is a desideratum. There is also the need to diversify the nation's economy, particularly the development of agriculture and other non-oil sector exports.

4.0     Economic management efforts at exiting recession

Traditionally, efforts to pull out economies of nations from recession are in two broad components: monetary and fiscal approaches. The monetary antidotes implemented by the Central Bank are highlighted in this section as well as the efforts of the fiscal authorities.

4.1     CBN Monetary Efforts

The CBN implemented the following policy thrusts to combat the recession:

4.1.1  Continued tight liquidity stance

Considering the peculiar nature of the recession in Nigeria in which inflation spiked over 16per cent in 2016, there was need for the CBN to keep strong hold on the liquidity in the financial system as a strategy for managing inflation. All through 2016 the MPR remained at 14per cent while retaining Cash Reserve Ratio at 22.5 and Liquidity Ration at 30per cent.[17]

4.1.2  Ban of 41 Items at the CBN Foreign Exchange Window

Arising from the fact that Nigerian economy is import dependent, the drop in foreign exchange earnings from crude resulted in paucity of foreign exchange in the market. The exchange rate of the Naira therefore plummeted on the parallel market to an all time low of over N500 to the US Dollar in January 2017 from N197 in 2014.  The Central Bank of Nigeria (CBN) in an effort to manage the paucity of foreign exchange earned from crude oil revenue restricted the issuance of foreign exchange for the importation of some commodities which could be produced within Nigeria. Many of the items listed were not out rightly banned by the government but importers of these items were no longer qualified to get foreign exchange from the CBN or the official market to buy these items from overseas. As such they must resort to private sources to finance the importation of the items. The policy in addition to better management of forex, helped to give competitive advantage to local producers of the items, increase production and create jobs.

4.1.3  Implementation of the Flexible Exchange Rate Policy

While the CBN recognized that the Naira was under pressure due to the huge drop in revenue from crude, it was also clear that the devaluation at the time was as a result of speculative attack. The CBN was not to allow the free fall of the Naira to persist to avoid total loss of confidence and gradual dollarization of the economy. In July 2016, the flexible exchange rate policy was introduced to replace the Dutch auction system of the foreign exchange market.  Under the new policy, the CBN partially floated the Naira but intervened in the market from time to time to stabilize the rate. This policy ramped up confidence in the market, reduced the interference by speculators and enhanced the exchange rate. This in turn reduced the cost of imported items including raw materials thus spurring growth in manufacturing and other economic activities.

4.2. Federal Ministry of Finance (FMF)

On the fiscal side, the FMF implemented some policies that complemented the efforts of the CBN in reversing the recession in the economy. Two notable policies are:

Treasury Single Account (TSA) and the Economic Recovery and Growth Plan (ERGP)

4.2.1 Treasury Single Account (TSA)

The TSA is a policy geared towards financial prudence by consolidating all inflows from all Federal Government agencies into a single account domiciled in the CBN. By this policy, the Federal Government has a consolidated picture of its financial position at a glance and is therefore able to plan better. It also eliminates multiple borrowings from different agencies and the attendant cost to government. Given the need to drastically cut wastages during the recession, the impact of the TSA was immediately felt as the saved resources were available for investment in other strategic areas, such as infrastructure (power, railway, repair/construction of some federal roads & the Nnamdi Azikiwe Airport).

 

4.2.3 The Economic Recovery and Growth Plan (ERGP)

The ERGP is a Medium Term Plan for 2017 – 2020 that builds on an urgent need to reverse the downward trajectory of the Nigerian economy in a structured and robust arrangement. It was developed for the purpose of restoring economic growth while leveraging the massive human capital endowment of the nation. The Plan is hinged on Science, Technology and Innovation (STI) as strategy to building a knowledge-based 21st century economy. The ERGP is also consistent with the aspirations of the Sustainable Development Goals (SDGs) as it also addresses its three dimensions of economic, social and environmental sustainability issues.

I believe that a purposeful implementation of the ERGP will put Nigeria firmly on the path of sustained economic recovery.

5        Options for the structurally unbalanced economy

5.1 Diversification

Economic studies are replete with trends of how nations endowed with huge natural resources, particularly hydrocarbons and solid minerals, post less economic growth, less social advancement and in fact worse development outcomes than peer countries with much less endowments. This is what is referred to as the resource curse or the paradox of plenty.

According to the IMF, out of 51 countries termed resource-rich, 29 are low income to medium income nations with the attendant socio-economic challenges. Therefore, the case of Nigeria is not an isolated one.

There are countries that have travelled through this route but quickly retraced their steps and consequently set their economies on the path of economic recovery. A clear example is the case of The Netherlands, in dealing with what has been referred to as ‘the Dutch Disease’. The term is used to describe the economic recession that happened to the Netherlands post discovery of gas in Groningen in 1959. With the discovery of gas, Netherlands concentrated on the natural resource and made huge profits. The currency became very strong and it appeared the economic development of the country was on the right track. However suddenly, they observed that the overall effect on the economy was the shrinking of other exports and ultimately a recession. The experience showed that the ‘Dutch Disease’ presents short term and sudden rise in the value of the currency of nations but without commensurate productive base on the medium to long term; this hurts other exports and gradually leads to a negative balance of trade.

The managers of Netherlands’ economy at that time introduced disincentives to massive gas exploration while offering huge tax breaks to export oriented real sector businesses. Gradually, the structural defect occasioned by the Dutch Disease was corrected[18].  

Diversification of the Nigerian economy is therefore a must, rather than an option to correct the current skew to oil. As a country of over 187 million people, unleashing the capacities of the huge population will result in the deepening and diversification of the economy. In this connection the current traction the country has gained in agricultural output is exemplary and needs to be sustained. The figures released by National Bureau of Statistics for second quarter of 2017, show that agriculture posted a growth of 3.01 per cent, thus maintaining its positive growth over the period when other sectors of the economy were contracting. We must therefore, sustain the ramp up of agricultural production through the Anchor Borrowers Programme ABP and other agricultural initiatives of the government.  Other interventions of the CBN with direct impact on agriculture in particular and the real sector in general include:

  • N220 Billion Micro, Small and Medium Enterprises Development Fund (Disbursing loans up to N50m to a MSME borrower at 9per cent p.a. 60per cent of the funds earmarked for women)
  • Youth Entrepreneurship Development Programme (Granting loans of maximum N3million to youths at 9per cent p.a using NYSC and University certificates as collateral).

5.2     Renewed focus on Production

There is no doubt that a key component of economic development and growth process of a nation is an increase in the country’s production; especially of its exportable goods and services. Accordingly, the pursuit of diversification of Nigeria’s monolithic economy should be with a bias to production (out right manufacture of new items or value addition to primary products) for local consumption and exports. Moghalu (2013) opined that Africa will not achieve sustainable economic development in the present economic trajectory ‘which is strongly susceptible to exogenous shocks in the global economy’[19]. The well implemented production based economy will lead to job creation, specialization and gradual sophistication of products. All developed economies have these attributes as enablers to their sustainable economic development.

 

5.2     Infrastructure and Improved Business Environment

Production requires infrastructure to thrive efficiently. Due to the epileptic power supply, many industries in Nigeria have crumbled under the weight of huge energy costs as they provide power for their businesses using private electricity generating sets. Until the power problem in Nigeria improves, there can be only little growth in the manufacturing sector that houses production of goods. Other infrastructural provisions in parlous state include roads, bridges and transportation.

A review of other components of enablers for business growth in Nigeria depict a similar poor position. In 2016, the World Bank ranked Nigeria 169 among 190 economies in the ease of doing business rating. The relevant agencies of government saddled with the responsibilities of improving the business environment need to be re-invigorated to deliver on their mandates to achieve the desired level of production in the economy and reverse the slide in Foreign Direct Investment (FDI) to Nigeria, which dropped from a high of $20.75 billion in 2014 to a low of $5.16 billion in 2016[20].

5.3 Import Substitution

According to the International Energy Agency IEA, in 2016, even with our position as the world’s 8 largest producer of crude oil, Nigeria imported at least 70 percent of its refined fuel despite pumping average of 1.6 million barrels of crude oil a day. And this was at a colossal cost of $8.176 billion per annum on average (from 2013-2016) to the economy.

 

YEAR

PETROLEUM PRODUCTS             IMPORT ($)

2013

8,159,277,716.96

2014

10,730,749,622.31

2015

8,005,352,879.45

2016

5,811,141,562.64

Jan- Jun 2017

1,929,893,630.47

 

Table 4: Petroleum Product Imports 2013-June 2017. Source: CBN

Graph 5: Nigerian Petroleum Products Imports 2013-June 2017) Source: CBN,

Nigeria’s near-total dependency on imported manufactured goods, ranging from the simplest household consumer items to the most complex industrial inputs makes the economy very vulnerable to external shocks and this must be addressed for the nation to have a sustainable economic growth.  

However, the citing of a refinery in Lagos by the Dangote Group is expected to reverse this trend and save the nation foreign exchange. The Group is constructing, the largest single train petroleum refinery in the world with a production capacity of about 650,000 barrels per day.  The $12 billion Dangote Oil Refinery which is scheduled to open in 2019 will be 40 per cent larger than the current largest refinery which only has a capacity of 450, 000 barrels per day. The plant will also house Africa’s largest urea plant with a capacity of 3 million tons per annum as well as 1,100kms of sub-sea pipeline infrastructure to handle 3 billion SCF of gas per day. This truly is a game changer which should be replicated in other strategic sectors like agriculture!

6.0     Conclusion

From our exposition, it could be seen that countries pass through economic turbulence at various stages and therefore, such economic challenge is not peculiar to Nigeria. However, how quickly they recover from such shocks will substantially depend on the structure of the economy, institutional policies and frameworks put in place, and the willingness to enforce those policies.

We have seen that our over reliance on oil as the main source of revenue to the government and foreign exchange has made the country highly susceptible to external shocks that triggered the slip into recession in 2016, from which we currently exited after five successive quarters of contraction. But as can be seen from the National Bureau of Statistics NBS report, the exit was substantially accounted for by improvements in the oil sector.

According to the NBS report for the second quarter of this year (Q2 2017), the Nigerian economy grew by 0.55per cent from -0.91per cent in Q1 2017 and -1.49per cent in Q2 2016. The report further indicated that this positive growth is attributable in part to non-oil sectors like manufacturing but predominantly due to favorable outcomes in the oil sector of the economy in terms of price and production volume.

Growth in the oil sector which has been negative for about two years starting from Q4 2015, became positive in Q2 2017. The figures actually rose by 1.64per cent as compared to the plunge of -15.60 in Q1 2017, representing a cumulative of up to 17 percentage points improvement. A disaggregation of the growth reveals that the non-oil sector growth slowed down to 0.45per cent in Q2 2017 from the impressive 0.72per cent in Q1 2017.

It is therefore pertinent to note that given that nearly 60per cent of the non-oil sectors contribution to GDP is influenced by the oil sector, the above data of sectorial contributions to the mild economic growth further reflects the fragility of the Nigerian economy due to its over dependence on oil.

What the country needs at this time to sustain the exit, is a fundamental transformation of the economy that will address the structural economic imbalance, improve on institutional framework, ease of doing business, infrastructure, and strong private sector participation. On this, I share the Federal Government’s ‘cautious optimism’ on the exit from recession and the resolve to ensure a sustainable economic development of the country through the faithful implementation of the Economic Recovery and Growth Plan. As ambitious as the plan looked, it appears that there are no clear time lines and deliverables as well as people held accountable for its implementation.

It is important that the renewed focus should be on creating jobs on a massive scale and growing the economy from the bottom of the pyramid to avert the ticking time bomb of youth restiveness and unemployment. This will ensure inclusive economic growth that works for everybody, bridge the inequality gap, provide the enabling regulatory environment for the private sector to thrive and help prioritize the main drivers of the economy. 

Finally, to you graduating students, you are the reason that we are gathered here today and I therefore charge you to seize the moment and write your names in the sands of time. As Dr. Steven R. Covey in his best seller; The 7 Habits of Highly Effective People, would advise, I urge you to “Begin with the end in mind”.  This principle will basically help you to take charge of what you create and make you more likely to achieve it.

From this moment, start thinking of that thing you can do on your own. If the white collar job comes, fine but don’t completely put your hope on that.

Also, the other principles that will help you achieve this desired end is focus, contentment and hard work. Having identified how you want to end, stay focused on that aspiration.  Do not vacillate based on what you see around you and don’t compare your life to others.  You have no idea what their journey is all about.  Be content and work hard towards achieving your set goals.  Strive to make a positive difference in your sphere of influence to leave a legacy to the glory of God and to the service of humanity.  Success does not consist of only what you own but on the impact you make on other people’s life.

To achieve your dreams, you must think out of the box and entrepreneurial. Be passionate about your dreams and try to live it out. In our days, at the point of graduation, you have several job opportunities waiting for you. But not anymore, time has changed and is still changing. The people that rule the world today are the entrepreneurs. They are the ones who make things happen, creating job opportunities. And perhaps, as Tom Freston, co- founder of MTV would say, “If you feel you have chosen the wrong career, then re-assess and redeploy the skills and knowledge you have developed along the way”.  

Only recently, the daughter of the Vice President of Nigeria, Kiki Osinbajo, started her own enterprise; Glam’d Africa Beauty House, and in her own words, ‘My generation is getting to create our own brands and identities. We’re creating the ‘New Normal”. This is quite inspiring and worthy of emulation. I must add that there are many other young Nigerian entrepreneurs who worked through this path before her, like Bankole Cardoso, CEO of Easy Taxi Nigeria, Titus and Tobias Igwe, Founders of Speedmeals, Peter Nsikan, the CEO of Crystal Travels and Tours, Dolapo Babalola – The MD, Dolapo Creations, among others. I therefore, urge you Don't wait for the perfect moment, take the moment and make it perfect!” - Abraham Hicks.

You can leverage on some of the interventions of the Central Bank of Nigeria, CBN like the Youth Entreprenuership Development Programme, YEDP and Bank of Industry - The Youth Entrepreneurship Support (YES) Programme, to live up your dream. Great entrepreneurial opportunities are also available in the agricultural value chain, for production and export.  There are massive opportunities in the Information and Communication Technologies (ICT) and the value chain around it is enormous.  This sector has been popularly referred to as the new oil economy.

The transformation of this country lies squarely in your hands and we are counting on you all to live up to the motto of this great University, whose principles and core values we hope you have imbibed and fully immersed to impact the world. I wish you all every success in all your endeavors and pray that whenever we hear from you it will be good news.

Ladies and Gentlemen, it is our collective responsibility to make this country a better place for this generation and the generation unborn.

According to Mao “The future is bright but the road is bumpy”

Thank you for listening and God bless you all.

 

Ernest C. Ebi, MFR, FCIB

Chairman,

Fidelity Bank Plc.

 

 

 

 

 

 

 

 

References

 

Anthony, J. (2016). "Using Natural Resources for Development: Why Has It Proven So Difficult?". Journal of Economic Perspectives. Vol. 30(1), pp: 161–184. doi:10.1257/jep.30.1.161

Central Bank of Nigeria: Monetary Policy Communique, 2013, 2014, 2015, 2016

Forbes Magazine Editorial: April 12, 2013 https://www.forbes.com/sites/realspin/2013/04/12/the-worst-four-years-of-gdp-growth-in-history-yes-we-should-be-worried/#b2ead4a39679

Four Countries in Recession and Crisis Since 2008 | Investopedia http://www.investopedia.com/articles/investing/111615/4-countries-recession-and-crisis-2008.asp#ixzz4s5fSrusE

Ministry of Budget and National Planning (2017). Economic Recovery and Growth Plan 2017 - 2020. Publication of the Federal Government of Nigeria

Moghalu, K.C. (October 2013). Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter

Naija.com News: https://www.naij.com/1123797-president-buhari-reacts-news-nigeria-recession.html

National Bureau of Statistics NBS Quarterly Economic Reports 2017, 2016, 2015, 2014 and 2013

Natural Resource Governance Institute , 2017 Resource Governance Index:  https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf

Olukoju, K. (2009). The United Kingdom and the Political Economy of Global Oils and Fat Business during the 1930. Journal of Global History, Vol. 4, pp 165

Ross, M. L. (1999). The Political Economy of the Resource Curse". World Politics. Vol. 51(2), pp: 297–322. doi:10.1017/S0043887100008200.

Statistica.Com  https://www.statista.com/statistics/262858/change-in-opec-crude-oil-prices-since-1960/

The Economist: November 11, 2014 -Dutch Disease and Why it is bad for the Economy: https://www.economist.com/blogs/economist-explains/2014/11/economist-explains-2

The Guardian Newspaper, UK: The Credit Crunch. October 2, 2008

The Point newspaper’s Public Presentation and First Annual Conference on Economic Regeneration: Interview -Sanusi (September 2017) published by Leadershipng.org http://leaders.ng/sanusi-explains-why-nigeria-is-in-recession/

Ukeje, R.O. (2003). Macroeconomics: An Introduction, Port Harcourt, Davidson Publication

Wikipedia: http://www.wikipedia.com

World Bank (2017). The World Bank in Nigeria: Overview http://www.worldbank.org/en/country/nigeria/overview. Accessed on 09 September 2017

 

 

[1] National Bureau of Statistics NBS Report Q3, 2017

[2] www.businessdictionary.com/definition/recession

[3] National Bureau  of Statistics Report Q3 2017

[4] Wikipedia – https // Wikipedia.org

[5] National Bureau of Statistics Q2 2017 Report

[6] Four Countries in Recession and Crisis Since 2008 | Investopedia http://www.investopedia.com/articles/investing/111615/4-countries-recession-and-crisis-2008.asp#ixzz4s5fSrusE

 

[7] https://www.theguardian.com/business/2008/oct/02/creditcrunch.marketturmoil

[8] https://www.forbes.com/sites/realspin/2013/04/12/the-worst-four-years-of-gdp-growth-in-history-yes-we-should-be-worried/#b2ead4a39679

[9] http://www.cbn.gov.ng/out/speeches/2009/govadd-21-1-09.pdf

[10] Soludo (2009): CBN presentation on Global Financial And Economic Crisis: How Vulnerable Is Nigeria

[11] https://www.google.com.ng/imgres?imgurl=httpper cent3Aper cent2Fper cent2Ffinanceandcareer.comper cent2Fwp-contentper cent2Fuploadsper cent2F2014per cent2F03per cent2Fbusiness-cycle-graph.

[12] Four Countries in Recession and Crisis Since 2008 | Investopedia http://www.investopedia.com/articles/investing/111615/4-countries-recession-and-crisis-2008.asp#ixzz4s5fSrusE

[13] Four Countries in Recession and Crisis Since 2008 | Investopedia http://www.investopedia.com/articles/investing/111615/4-countries-recession-and-crisis-2008.asp#ixzz4s5fSrusE

[14] The Point newspaper’s Public Presentation and First Annual Conference on Economic Regeneration: Interview -Sanuai (September 2017)published by Leadershipng.org http://leaders.ng/sanusi-explains-why-nigeria-is-in-recession/

[15] https://www.statista.com/statistics/262858/change-in-opec-crude-oil-prices-since-1960/

[16] https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf

[17] CBN Monetary Policy Committee Policy Communique Q1-Q4, 2016

[18] The Economist-Dutch Disease and Why it is bad for the Economy: https://www.economist.com/blogs/economist-explains/2014/11/economist-explains-2

[19] Moghalu, K.C 2013-Emerging Africa: How the Global Economy’s Last Frontier can Prosper and Matter- (page76)

[20] Thisdaylive.Com/index.php/political-path-to-economic-transformation(Sept 11, 2017)

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