COVID-19 is a rude awakening for the world. It has catapulted us into a health and an economic crisis that is affecting not only the poor but also the rich. The inconvenient pandemic has laid bare for the world to see the underlying problems of the global economic paradigm. It highlights the unsustainability of the current systems and the need for change – from the US with the biggest economy, to the smallest most fragile economies in Africa.
Sadly, this is not news. It was not a secret that the current economic system was not working for the majority of the planet; the dominant paradigm was simply unquestionable. However, now faced with a shared crisis on a global scale, the impact – as with every other challenge – will be felt more by the majority poor. And while the pandemic has been problematic for all, it comes with the very real and frightening potential for a systemic meltdown in Africa. Indeed, as that Anon WhatsApp, that’s been doing the rounds says: we may be in the same storm, but we are not in the same boat.
The good news is that questions are now a fair game about the system that has left a sizable share of the global population on their knees even in good times. A system that has also been choking our planet. And respected opinion-makers around the world – including Africans – have indeed been calling for change.
So now here we are. In response to the pandemic, many countries and international institutions have moved rapidly to adopt counter-cyclical measures to provide stimulus to the economy. The US approved two programs worth over 2.6 trillion dollars combined. International institutions are announcing programs for immediate relief and plans for additional financing that will help countries return back to scale.
While the wealthy countries are mobilising hundreds of billions of dollars in stimulus packages, most of the world’s poor nations essentially do not have the fiscal space to do much besides hope and ask for relief. The result is that many are now calling for a moratorium on debt repayments, but this is temporary relief. The debt will still have to be paid and for many African countries, more and more, the debts are owed to the private sector. While some are calling for increased aid, others are calling for China to pay reparations to African countries. Many intellectuals of African descent have signed a public letter calling for change with a focus on the need for African governments to invest in the people, end corruption and aim for second independence.
Though these are all good ideas and will likely help, they are not enough. In essence, everyone is drawing from their usual arsenal of arguments and instruments to suggest the means to “recover” from this pandemic. It is a view of the epidemic as an interruption rather than as a surprise, even though gruesome, game changer. Even though we do not recognise this as the answer to the prayer we have been making on the need for transformation to deal with chronic poverty, the growing inequality, unsustainability and climate disaster, this pandemic might yet lead us towards positive economic transformation if there were such a thing. It could be the opportunity to confront our demons and perhaps shift trajectory; something we had come to believe is impossible because of our unbridled capitalist holy grail.
Our conviction is therefore that none of these well-meaning interventions is the long term solutions. Even if all the debts were magically cancelled, without changes in the underlying conditions (both global and national) our countries would likely just get into debt again soon. For example, Nigeria’s external debt stood at about $36 billion at the end of 2004. Negotiations with the Paris Club in 2005 yielded debt relief and with payments by the government, Nigeria’s external debt declined to about $3.5 billion in 2006. Today, Nigeria’s external debt has reached over $27.6 billion and debt service has become the biggest item in the budget, requiring over 50% of foreign earnings.
We are not arguing against aid or reparations; this is a time in which the developing world needs all the support and redress possible. However, we must view these as temporary and residual measures. They should happen, but they are not going to bring about the transformation humanity needs.
It is time to break out of this illusion of a box. The problem is not only African; it is a global challenge. No amount of tinkering at the edges without a fundamental shift will solve the underlying problems. After all, Africa was being hailed as rising! Yet just one virus and we are facing a potential economic collapse in Africa and many parts of the world? And the long lines in many US cities for free meals at food banks is an indication that precarity is not limited to the developing world. We cannot and must not continue to produce a few billionaires in return for millions living on the edge. The current economic system is and has been failing humanity.
The question has often been asked what Africa may have to offer the world from her creativity, cultures and wisdom, partly because Africa has seemed less far gone, so to speak, in terms of being entrenched in global capitalism and hyperbole. Yet it has also been difficult to take Africa seriously when constantly on the backfoot – patronised and infantilised – in part because our leaders circle the globe with begging bowls and promises on one hand, while on the other hand, our elites are siphoning our commonwealth into private accounts overseas. But the times have become urgent, and the needs globally mutual.
For once, our underdevelopment and exclusion spell not only precarity but also opportunity. Our prevalence of and comfort with alternative and informal ways may not be simply dismissed as backwardness and fragility, but rather read as the seeds for resilience, new models, and better growth paths. Perhaps we finally have – albeit in strange costume – the level playing field in the realm of ideas about how to better organize our future economies.
And yes, Africa is willing and able to lead in finding ideas. In fact, we are proposing a project to do just that. We are launching a project on reimagining economies around the world, starting in Africa. The project boldly calls for a real reset and invites a much more radical, imaginative exploration of new economic foundations, principles, shapes, structures and systems. The goal is to design and propose to the world new socio-economic systems that are more inclusive, sustainable, and just.
There will be no investment in what has been, no holy cows. A venture of imagination to redefine and expand the economic menu is what is called for. We will explore multiple answers and approaches, pushing to think beyond the current paradigms, to imagine a new world with novel ethos. It will require new imaginaries, new processes of engagement, new institutional configurations and methods, new eco-logics, and boundless horizons. Will the world welcome and support this potential silver lining?
For us, it comes to this: It is time to break free from our limited appetites for new thinking and imaginations. The fact is “the time is never right”. But there is no better time than now. We are all finally humbled to the point of vulnerability. Nobody knows any better than the other. It is therefore crucial that we seize this opportunity to seek new thinking and new ideas. The world needs everyone to contribute their ideas and innovations. We might as well get started in Africa!
Article written by Olugbenga Adesida, co-founder of The Africa Innovation Summit and co-founder of Bonako, a tech company based in Cabo Verde. and Geci Karuri-Sebina, co-founder of the Southern Africa Node of the Millennium Project and a visiting research fellow at the University of Witwatersrand in South Africa
Has the President erred in stopping CBN from funding food imports?
What implication does the President’s directive to the CBN hold for the economy?
The President of Nigeria, President Muhammadu Buhari, last week said, “I am restating it that nobody importing food or fertilizer should be given foreign exchange from the Central Bank. We will not pay a kobo of our foreign reserves to import food or fertilizer. We will instead empower local farmers and producers.”
Why is the president stopping the CBN from funding food imports? The answer is simple. The CBN Exchange rates are cheaper than autonomous sources. The CBN lists the exchange rate for the Dollar at $1 to N379, however the Naira is being sold on the parallel market at N440. Hence, importers prefer to access CBN funds to import, because it reduces the cost of those imports. In effect, at N379, the CBN is subsidizing those imports via a ‘strong Naira’
The President’s directive is thus in line with his new overall push to eliminate all subsidies especially subsidies funded by the scare US dollar. In this aspect, the President is simply seeking to protect the foreign reserves which are paying for other imports. So, he is right.
Is this a wise strategy?
Nairametrics earlier reported on the NBS recently released report on Nigeria’s total spending, which indicated that about N22.7 trillion was spent on food in 2019. This is 56.7% of the total spending (N40.2 trillion) for that period.
Where does the food Nigerians eat come from? Clearly Nigeria has a large agricultural base, but a significant proportion of Nigeria’s food is imported, and the cost of those imports have risen, as the value of the Naira has depreciated in relation to the US dollar.
According to data from the NBS, Nigeria’s spending on food and drink importation increased from $2.9bn in 2015 to $4.1bn in 2017, but dipped in 2018.
Have these imports plus local production met local demand on a consistent basis? The answer is no. Take rice for instance, the BBC reports that, “Between 2015, when the foreign exchange restrictions for rice came into effect, and early 2017, the price of a 50kg bag of rice went from $24 to $82 and fell in mid-2017 to $34, but in June 2019, the price stood at $49.”
The law of supply in economics, states that when the price of a commodity increases, its supply also increases. Hence, there is a direct relationship between price and supply of a commodity. In other words, if the price of rice goes up, more suppliers will enter the market to supply rice.
However, In Nigeria, as the price of food is rising, the NBS in the latest Inflation report, says the composite food index rose by 15.48% in July 2020 compared to 15.18% in June 2020. This rise in the food index was caused by increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fruits, Oils and fats, and Fish. (essentially everything). The NBS says, the average price of 1kg of rice (imported high quality sold loose) increased year-on-year by 37.72%.
So why has the supply of rice not risen to correspond with rise in prices? Well, because the supply of rice and other foodstuff have indeed risen, but the problem remains logistics processing & storage.
In Nigeria, you only eat corn during corn season, same with mangoes, and tomatoes. Prices fall during harvest, then rise after harvest. The problem is not just with the harvest, but getting that harvest to market, storing the excess, and processing its supplies all year round. Therefore, imports are needed to plug supply holes.
Nigerians in 2019 alone spent N1.9trillion or 4.7% of their budget on rice alone. When the President banned food importers from getting the CBN dollar at N379; he simply pushed them to import rice at N440; a N61 difference that will be added to the cost of imports, and will fuel imported inflation.
Where the president got it wrong is trying to fix a local logistics problem with a foreign exchange fix.
The solution is to go back to the various food supply value chains, de-risk and de-cost them. If food is cheap and plentiful, there will be no need for imports and inflation will fall.
Can Agriculture replace Oil in Nigeria?
To truly diversify from oil and create proper value, agriculture must give birth to an industry.
Over the years, Nigerians have clamored for a diversified economy, that is not over-reliant on crude oil. Recently there have been several talks about agriculture being on the front-burner of our exports.
But the reality is that there is a gulf in difference between the revenue agriculture can bring in and what Oil currently generates. Despite the steady growth in the value of Nigeria’s agricultural exports over three years (2016 to 2018), the country’s agricultural exports to total exports remained below 2%.
During the period of independence, Nigeria was a major exporter of food to West African nations; Unfortunately, she has morphed into a net importer. With the advent of oil in the 1970s, fiscal and economic policy was one-sided, and the country’s domestic and foreign investments were on oil, at the expense of other sectors of the economy. Inadvertently, Government revenue has increasingly come from oil and remains hostage to volatile oil prices.
In a recent report, the National Bureau of Statistics (NBS) claimed that Nigeria earned close to N289.3 billion from the exportation of the top 10 agricultural produce between April 2019 and March 2020. The report asserted that both commodities (sesamum seeds and cocoa) accounted for over 60% of the country’s exports as they are the most sought after internationally. Comparatively, the top 10 agricultural produce made N289.3 billion across three quarters. These figures are relatively low compared with the Q2, 2020 proceeds of crude oil which stands at N1.6 trillion.
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From the above diagram, Oil generated N1.6 trillion in Q2 2020, while the other commodities combined to record about N612 billion in Q2 2020. One trillion naira lesser (considering Oil prices were significantly low during that quarter). A 2018 report from PWC showed that oil revenue accounts for more than 80% of total value of annual Nigerian exports. Ironically, the agriculture industry contributed an estimate of 25% to total GDP in 2018, while the oil’s share of GDP was 8.6% over the same period. Since the agriculture sector is the largest contributor to Nigeria’s GDP, it has potentials to contribute a larger percentage of our annual export revenue.
Explore the Nairametrics Research Website for Economic and Financial Data
Agriculture toppling Crude oil as our main export might be a tall order, but if we want to truly diversify from oil and create proper value, agriculture must give birth to an industry.
If agriculture currently employs, say, one million Nigerians; the agro-allied industry can employ five million in the value chain. In a monetary context, if Nigeria produces cocoa beans, which recorded over N30billion revenue in 2018, an industry that processes cocoa to chocolates & beverages would produce double the revenue or more.
Oil would be the main commodity for a long time, but it is possible to create more financial values from other commodities.
CBN Vs NESG: Waving the white flag for the benefit of Nigerians
As Nigerians face up to what is likely a fresh round of recession, all stakeholders in the economy must come together to ensure that our economic recovery plans are well thought through, backed by empirical data.
On Monday, September 7th, 2020, the Nigerian Economic Summit Group (NESG) published a press release titled “Matters of Urgent Attention”, in which it x-rayed the state of the national economy and expressed a number of reasoned concerns over the poor state of performance of some critical economic indicators affecting the country. Treatises like the release have become, for several years now, a common feature of the country’s dialogue on the economy.
They serve an extremely useful purpose because these publications permit individuals and organisations that embark on this course, not only the opportunity to ventilate important, topical, subjects in the widest possible manner but also to enable those views to come to the attention of several organs of governance responsible for policy formulation and implementation.
It is also the case that the reaction to these exercises would often be gauged by the credentials of the author whose antecedents will, typically, determine the depth and appreciation of the reading audience. That thermometer reading, therefore, is dictated by credentials of the author. The more accomplished; the greater the interest in the contents. This, it appears, is what happened following the public circulation of the NESG press release.
The Nigerian Economic Summit Group (NESG) is a private sector-led think tank that was incorporated in 1996 as a not-for-profit organization to promote economic reformation and policy advocacy that positions the Nigerian economy for sustainable growth and global competitiveness. For 24 years, it has provided a platform for bringing together private sector leaders and senior public sector officials to collaborate and dialogue on the imperatives of deepening the Nigerian Economy.
Comprising some of the most influential economic and financial actors outside the government, its views, in the past and now, have conveyed some of the most incisive commentary on the economy of Nigeria. As such, it has become very highly respected. Understandably, therefore, its comments were always likely to attract both attention and comment with all kinds of flavours.
The Press Release, importantly, commended the efforts of the Federal Government at creating short term jobs across all facets of the economy as well as recognized the willingness of the Federal Government to work with the private sector in the design and implementation of national economic development plans.
In addition to calling for re-evaluation and re-tooling of the country’s security architecture to address the dire challenge of in-country insecurity; raising the emphasis on reopening national borders because of the negative impact its protracted closure has had on free flow of legitimate trade among sub regional economies, NESG’s analyses touched on various policies, decisions and actions of a number of other key national institutions, including, majorly, the Central Bank.
It expressed deep concern with what it described as CBN’s opacity in managing foreign exchange transactions; loan disbursements regarding its special purpose monetary interventions, and price fixing without providing adequate clarity on policy objectives; trends and practices which are not in tandem “with evolving developmental roles of central banks around the world especially as it concerns resource allocations”.
Fairly swiftly thereafter, NESG also published a letter it had written to the President, in which it specifically raised issues with some of the provisions of the bill for an Act to repeal the Banks and Other Financial Institutions Act (BOFIA) 2004, and to re-enact it and other matters connected therewith, 2020. Although the BOFIA Act has been 29 years in the making, it had been recently passed by both houses of the National Assembly and was awaiting presidential assent when NESG appealed to the President for intervention.
NESG ‘s contention was, among other things, that certain proviso’s in the amended Bill, if not “deleted or amended, may be inimical to the fulfilment of the mandate of formulating and implementing policies and programmes which attract foreign and domestic investments”. Among other issues, it highlighted specifically, sections 2(5) (a) and (b), 12(6) and 57(1) and (2), which, respectively, extends CBN’s regulatory oversight outside the scope of “banking business”; grants it immunity from restorative orders and promotes overreaching by the Central Bank. NESG concluded that these policies and interventions, if assented to by the President as is, over-regulates the economy and gives sweeping powers to the CBN Governor, which are prone to abuse.
The CBN, in its well-publicized response debunked the claims made by NESG, and in defense of its economic policies over the last 5 years explained that “access to credit is listed among the three major challenges faced by farmers and businesses in Nigeria”, hence, it was vital for it to “address an area that it had sufficient ability to impact upon, while the Federal Government seeks to address issues such as access to electricity and logistics”. On the allegation that its lending process is devoid of a proper framework, it stated that recipients of intervention funds from CBN go through “extensive” due diligence process supervised by participating financial institutions (PFI), followed by additional assessment process by the CBN before disbursements are provided.
However, in its response, the Central Bank resorted to the use of vitriolic, derisive and even contemptuous language that, almost regretfully, personalized a hugely important dialogue. It was language that, potentially, may have caused the CBN to dip below its exalted status as a foremost regulatory institution in Nigeria. Aside painting NESG as an irritant, CBN’s argument may have recorded limited success in fully addressing the concerns raised. Whilst the CBN has every right to defend the integrity of its policies against what it perceives as an “ignorant or malicious” attack and false claims by the NESG, the comportment and communication of the response presents a cause for apprehension, especially, given the gravity of the issues at stake.
With most economic indicators pointing southward; rampant and widespread insecurity in the midst of insurgency; domestic and international terrorism; banditry and proliferation of arms which has led to softened sovereignty in some parts of the country; endemic corruption; runaway inflation: poverty and illiteracy; food crisis and insecurity; burgeoning unemployment; community clashes with attendant rise in brigandage and carnage; needless to say, the fault lines of our nationhood has never been more barely exposed as they currently are. Our depiction as the “poverty capital of the world” is because millions of our citizens continue to wallow in despondent poverty and disease over the effect of some of the negative consequences of the economic policies about which NESG – and, it has to be said, many others before them – have spoken to.
What appears to have now transpired is that important and crucial dialogue about the quite serious problems we, as a nation, are now confronted with, ran the unfortunate risk of being “diverted” and supplanted by a “collision of intellectual egos”. To be clear, we, the National Association of Seadogs, Pyrates Confraternity do not believe that to score points, it is permissible to rely on assertions that are either flawed or out rightly untrue. Nor do we consider that it is acceptable – or permissible – that the reading audience should be misled by self-serving or manipulated interpretations of issues being discussed.
To the extent that these postures exist in any of the respective parties’ public explanations, we demur and deprecate such conduct and commentary. That said, we maintain the view that NESG and its members, in their capacity as an economic and policy advocacy body, reserve individual and collective rights to comment on matters of the economy; directly criticize and express contrasting opinion about the policies and interventions of the Federal Government and, or its agencies, including the CBN.
The resignation of Chief Executive Officers (CEOs) of 3 prominent Nigerian banks from the Board of NESG coincided uncomfortably with the emergence of these differences between NESG and CBN. Whilst it appears that there may be well-informed reasons for the CEOs actions, it is only logical that there may be those who will see this as having occurred, not without certain influence or pressure connected with sentiments arising out of this situation. As Nigeria’s apex banking and financial regulatory institution, CBN must be mindful of its utterances and comportment, as its body language may inadvertently create an environment that censures instead of extracting value from opposing views, ideas and counsel.
We are not insinuating any direct link between CBN, NESG and the resignations, but the enormous regulatory and other powers it wields over banks and the speed at which the resignations were effected creates an inescapable wireless connection between the two. These kinds of rancorous conduct, which are inimical to deliberate knowledge integration and management to deepen policy responses, must be avoided in the future. It is critical that the strangulating poverty which threatens average Nigerian families today does not drown in the sea of rhetorical vitriol.
Like all very anxious and concerned Nigerians, we are entitled to – and expect – constructive engagements that will lead to the enactment of economic policies that create production-based jobs so the national economy can grow sustainably. As Nigerians face up to what is likely a fresh round of recession, all stakeholders in the economy must come together to ensure that our economic recovery plans are well thought through, backed by empirical data. The CBN should muster the humility to admit the fact that some of its policies have failed to deliver the expected outcomes and rather than create more jobs, have made the economy more atrophied; impoverishing more Nigerians than it has lifted out of poverty.
We hereby call on the Federal Government; CBN, NESG, and other well-meaning institutions and stakeholders in the country to focus their energies on activities and commentary that galvanize the immense intellectual capacities that are available to the country to enact policies and intervention that provides very desperately needed socio-economic relief and support to long suffering Nigerians.
Nigerians need jobs, not invectives!
National Association of Seadogs