The world today is run on knowledge derived from human capital development. With massive knowledge at the disposal of man today, COVID-19 will soon be defeated, even faster than envisaged. However, the economic woes it will leave behind will take more time to rectify. It is clear that the world economy is in the throe of a recession, a precursor to economic depression, unless the coronavirus pandemic is arrested in time. Most developing countries, including Nigeria, are consumers of ideas generated in the emerging and developed economies. This is not because their citizens do not generate ideas but because government officials are doubtful of effectiveness of such ideas. The governments know they have not played adequate roles in financing education and therefore look towards where education is properly treated and funded. The citizens too cannot trust their leaders on actions being taken because they have failed them many times. This is the time to come together. Time to fund and accept home-grown ideas and to believe in the ability of the government to implement the right policies. I have yet to see Nigerian leaders jump into planes to go for treatment abroad since this scourge started, or is it that they are no longer falling sick? They now subject themselves to the local medical personnel. It is because of a time like this that the government must fund the health sector properly for the benefits of all. COVID-19 has shown that no one has a monopoly of knowledge or that human knowledge is limited to what God offers. Here is a disease that has rendered all weapons of mass destruction useless.
The rising inflation rate for the sixth time in Nigeria is indicative of the fact that sectoral outputs in the economy are not expanding and the economy is moving back into recession. Marginal growth in gross domestic product (GDP) recorded for January 2020 did not show any significant improvement in the industrial sector but oil sub-sector. The marginal growth was anchored on temporary rising oil price before coronavirus tightens its grip on the world economy. All the signs of recession are now present, viz rising domestic prices, falling output and income, worsening unemployment rate, currency depreciation and rising cost of production despite the Central Bank of Nigeria forcing down interest rates through Treasury bill and bond rates. The capital market is becoming weaker and erratic with growing loss of confidence by investors. If the COVID 19 scourge continues even for a short while, the Nigerian economy will enter recession full blown. The fact that the emerging recession is coming from the angle of falling outputs in all sectors of the economy rather than financial misalignments implies that effects will be deep and long-lasting.
How long an economy remains in recession will however depend, not only on policy put in place but on how fast policies are initiated and implemented, the structure of the economy, the soundness of the economic policies, the transparency and dexterity in policy implementation, all of which will impact on the speed of adjustment of economic variables in the economy. So, the time to start is now. We have to accept that the recession is here and start tackling or solving the problems. The other time when the President, Major General Muhammadu Buhari (retd.) set up new economic advisory team led by the Minister of Finance, I was wondering what his Economic Management Team inaugurated in 2019 was expected to do or whether the ‘new team’ had taken the spirit away from the old one which comprises of erudite economists imbued with the right knowledge to prescribe appropriate policies. One is happy that the initial economic management team has now risen to the occasion and one hopes the minister’s team should constitute the implementation group.
A bold step has been taken in revising downward the budget for 2020 but it still requires cleaning up of frivolous spending by various agencies including the National Assembly members’ intention to import exotic cars for their personal use or frequent travel abroad for workshops that we are equipped to conduct in various specialised institutions in the country. So, proper management of the dwindling resources is imperative and has to start with the budget. There is the need to take advantage of the current situation for the country to negotiate with creditors that we cannot afford to service our debts for now and ask for a moratorium. A country that spends one-fifth of its annual budget on servicing debt can neither grow nor develop. That is one of the reasons why the Nigerian economy shows no positive progression.
The government has to stop all sorts of external borrowing for now but could engage in domestic borrowing since it is a form of internal transfer of funds from surplus area to the deficit area. It can be seen that there is still a lot of free money in the economy and both the CBN and the banks are playing on the intelligence of the government and the public. The fact that the CBN reduced interest rates on Treasury bills and bonds below inflation rates implies that people should move their funds to invest directly in the real sector or through the capital market, yet those bonds and bills were oversubscribed. This is indicative of excessive liquidity that people want to get rid of. But the CBN wrongly prevented the public from investing in Treasury bills and the banks took advantage of that to terminate individual and even corporate holdings of Treasury bills but quickly used the same funds to invest in the bills, asking those individuals to fix their money at even lower rates. In addition, the banks have assumed the role of sole investors in government bonds by telling people that they have no mandate to provide or accept individual or corporate forms for purchase of these bonds. To assist the banks in these nefarious activities, the CBN later increased the rates on the bonds over and above the inflation rate. The primary implication is that the CBN is not working for the nation but for its subsidiaries. That is why in the face of present economic difficulties, the banks, including those that have not held shareholders meeting for many years, are declaring huge profits and paying huge dividends.
The private investors with large funds from their war chest and without alternative array of portfolio investments have, on the other hand, taken decision to go to the foreign exchange market and buy up foreign currencies. Ordinarily, in this period of global economic problems, the demand for foreign currency should be low since production has fallen drastically everywhere. Why is there pressure on our foreign exchange market at this time such that naira depreciation continues unabated? The price of crude oil has fallen drastically because there has been great fall in production and demand for oil world-wide. The same thing should happen to the foreign exchange market anywhere in the world, particularly for a inputs importing country like Nigeria but the reverse is the case. So, while the CBN and the banks have taken over the market for domestic debts, the rich people who could not put their money directly in the banks for fear of BVN revelation and banking system rip-off have moved their assaults to the foreign exchange market. Fortunately for them and unfortunately for the economy, the CBN has succumbed to speculative attack by devaluation of the currency. It is an unfortunate move to devalue the currency at this stage. The CBN should have allowed the market forces operating the black market to play itself out. Many a time, I have suggested in the past that the CBN should swap the colours of N500 and N1000 as a way of tackling excessive liquidity outside the banking system but this was ignored. The kind of speculative assault being witnessed today could not have occurred.