I still remember, as if it was yesterday while walking on the street of New York, as I was trying to cross Madison Avenue by 5th, heading west, I saw who looked like a familiar face, as I looked closely, I could not believe my eyes. I was seeing Mrs. Ngozi Okonjo-Iweala, face to face. Though she did not respond to my attempt to give her a hug, as she was in a hurry to cross the same street heading east, but the few seconds that we spoke made my day that day.
That was during the last United Nations General Assembly in New York, before Corona Virus put paid to movements and social interactions. This is a woman I have come to appreciate her success and the pride of place she has bestowed on Nigeria with her professionalism, in periods when Nigeria’s image needs a makeover.
When the World Bank presidency became vacant, I did a piece on “Time for a Nigerian To Preside Over the World Bank” which appeared on Nairametrics on January 22nd, 2019, asking the president to nominate Mrs. Okonjo Iweala, for that post. That enviable position eluded Nigeria, but there are always opportunities. Another of such opportunity has come. It is the opportunity for a Nigerian to oversee the World Trade Organization, WTO. This time, the president has nominated Ngozi Okonjo Iweala (disregard the initial controversy that originated from Egypt about the nomination).
Nigeria’s nominee in the person of Mrs. Ngozi Okonjo Iweala has all it takes to preside over the WTO. She has been Independent Director of Twitter, Inc. since July 19, 2018, and Senior Advisor of Lazard Ltd since September 21, 2015. Dr. Ngozi Okonjo Iweala has worked with Asian Infrastructure Investment Bank and she is also an Adviser to World Bank on the Stolen Assets Recovery initiative. She served as Managing Director at The World Bank Group from December 1, 2007 to August 2011.
Before serving as Minister of Foreign Affairs of Nigeria from 2003 to 2006 and Coordinating Minister for the Economy and Honourable Minister of Finance of Nigeria until 2015, she served in a number of important positions at the World Bank such as Vice President and Corporate Secretary, Director of Operations in the Middle East and North Africa region and Country Director for Southeast Asia and Mongolia Country unit. Not too long ago, South African President, Cyril Ramaphosa appoints Ngozi Okonjo-Iweala as a member of the Economic Advisory Council of South Africa. With over 30 years of economic development and financial expertise and as an internationally renowned economist and a prominent African leader, Dr. Ngozi Okonjo Iweala more than qualifies to do Nigeria proud, once again.
It will not be Easy
Nothing good comes easy as we all know. And for Mrs. Okonjo Iweala, the assumption of the highest office of the World Trade Organization will not be easy, given the caliber of people being nominated by other countries. Those are the people that Mrs. Okonjo-Iweala will go head to head with when the nomination closes in August and the selection process begins. Here they are:
Ms. Yoo Myung-hee from the Republic of Korea, the first female trade minister for the Republic, she has over 25 years of career experience in trade. She is described as being a skilled negotiator and strategist
Another nominee is Mr. Jesús Seade Kuri from Mexico. He is said to have a unique experience in global trade negotiation and policy. He had worked at the WTO, IMF and World Bank in the past. He was once a deputy director of GATT and founding deputy director-general of WTO. He is currently Mexico’s under-secretary for North America.
Mr. Tudor Ulianovschi from Moldova (never heard of that country before). Mr. Tudor Ulianovschi served as the minister of foreign affairs for his country as well as representing his country in various international fora like the World Economic Forum in Devos in 2019.
Mr. Abdel-Hamid Mamdouh from Egypt, another nominee, has played an important role in trade policy and diplomacy for 35 years on half of Egypt. He had worked for the WTO as a senior official and he counts on his supposed long WTO senior management experience to take him through the selection process.
Fight of the Titans
As can be seen from the biography and success of the various nominees, they are all qualified, crème de la crème of their countries. It is indeed going to be a fight of the titans and I am confident that our flag bearer, Mrs. Ngozi Okonjo Iweala, will come up victoriously. Nigeria and Nigerians have done it in the past and the selection of our own Ngozi will not be different. When, in Atlanta 1996, Nigeria went against Brazil, as the underdog, history of Olympic soccer was rewritten with the overpowering success of the Eagles. Be it in the field of sports, engineering, or even in pioneering the internet, Nigeria never carries last, so Go Mrs. Ngozi Okonjo Iweala, Nigerians are with you, Sub Saharan Africa supports you, and God is with you. You will do us proud, like you have always done.
Effects of the recession on families and how to cope
For families, it will require a lot of sacrifice, adjustments and prudence in the management of resources to navigate the economic storm.
The National Bureau of Economic Research defined a recession as a significant decline in economic activities spread across sectors, lasting more than a month, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale/retail sales.
According to the just-released data by the National Bureau of Statistics, Nigeria’s Gross Domestic Product (GDP) declined by -3.62% (year-on-year) in Q3 2020, thereby marking a full-blown recession and second consecutive contraction from -6.10% recorded in the previous quarter (Q2 2020).
The year 2020 has been a trying time, not only for Nigerians but for the world generally; this is as a result of the novel coronavirus, which has impacted the economy negatively.
The Nigerian economy over the years has been striving to be stable because of the mismanagement of funds, high debt rate and unemployment, etc. However, the recent recession compounded Nigeria’s socio-economic challenges caused by the COVID-19 Pandemic and Post #Endsars Violence.
Furthermore, to curb the spread of the pandemic, a lockdown was imposed nationwide, during the period of March to August 2020 and a lot of families found it challenging to survive the impact of disruptions to daily commercial activities.
Some had to dip into their savings to remain stable during that period. Jobs were lost as some companies could not afford to pay salaries, while some companies had chosen salary reduction as a way of sustaining their businesses.
Prices of goods and services also increased astronomically during this period. On the other hand, economic activities, religious and social gatherings were limited to contain the pandemic across the nation and the negative effects on the economy.
The following are the major causes of recession in any given economy as drawn from the past Nigeria economic recessions:
- A general rise in price of goods and service which leads to low purchasing power.
- Increase of debt, especially foreign debts.
- High-interest rates discouraging investors
- Importation bans in Nigeria which increased poverty rate in Nigeria.
- Mass unemployment and general loss of confidence in the government due to the challenging economic indices.
In a recession, families with little or no barriers to resist the effect of recession are most likely to be hit severely. Though there are some families who may not be able to avoid the effects of the recession, they can make changes that can improve their situations and help them prepare for the future, while they wait for an economic upswing,
Nigeria’s Q3,2020 Recession, below are the implications on families and households
- Rising food inflation of over 17% will impact the cost of food prices as the festive season beckons.
- Purchasing power parity of Nigerian households is challenged due to the economic situation.
- Marital issues crop up, as financial pressures can damage mental health which can lead to depression and frustration in marriages.
- The low-interest yield environment in the Nigerian capital market also affects appetite for savings in the fixed income market.
The unfortunate condition could be managed by families with these measures:
- Families are advised to cut down costs ruthlessly, especially in this festive period. Have a reasonable festive celebration.
- They should have a budget/financial plan put in place for the year 2021 as no one knows how things will unfold.
- There is a need to have another stream of income or work overtime to sustain your family during this period and this can be achieved if you are skillful.
- It is also advisable to purchase all you need for the festive season now, as prices of goods and services might triple because of the festive period.
- It is crucial for some families to switch to cheaper schools around with the same qualities and standards to reduce expenses.
- FMCGs are already tailoring the sachet-economy to the lower-class families whose earnings have dropped this year.
- Households experiencing financial difficulties during this period are advised to position themselves to see how they can benefit from the various interventions from the Government for citizens.
- Couples should have conversations around their finances and prioritize expenses while adapting to the new economic realities and coping with necessary adjustments
What Government can do to enhance the economy
- Tax rates should be reduced on individuals, corporation, and small businesses. This high tax rate is affecting many small-scale businesses. Foreign investors will also be encouraged by the reduction in tax rate. This will increase inflow of dollars to Nigeria’s economy, and ultimately increase investment and standard of living. It will solve the problem of high exchange rate.
- It is important for the government to curtail any unnecessary expenditure and focus more on expanding her export earnings and production through wise investment. Putting funds into the economy is a good idea, but there is need for diversification, allowing the free flow of naira and stabilizing the oil sector, modernizing agricultural sector. By this, Nigeria can spend her way out of recession wisely.
- Enhanced Access to Credit: Here, the Nigerian government, especially the federal and the state government, should grant soft loans to small and medium scale enterprises, to enable them boost gross domestic product (GDP) of the country. In the same vein, agricultural credit should be given to farmers to enhance adequate food production and reduce the bike of farm produce in the country (Nigeria).
- Nigerian Government should increase its expenditure on skills. It is only skills that lead to productivity and competitiveness as a nation. So, government should invest in skills acquisition in ICT, Telecommunications, Agro-allied, Sports, Vocational training among others. The training should be 80% free practical. There is need for multiple competence, particularly among youths as a measure to curb increase in global joblessness. The greatest challenge today in Nigeria is unemployment. The government should partner with private organizations, to organize entrepreneurship and skills acquisition programs for the youths. There should be a high level of transparency in the program to ensure the best candidates are picked. This way, Nigeria will soon see herself on top of the fastest-growing economy in Africa.
- Increased Agricultural Production: There is need to reposition agriculture as a major driver of the economy, like in the 1960s when it was the major revenue earner in the country. Today, Nigeria spends billions of US dollars a year on the importation of agricultural products. The youths, as earlier stated, should be encouraged to go into Agri-business covering the entire value chain.
For families, this will be a challenging time, and it will require a lot of sacrifice, adjustments and prudence in the management of resources to navigate the economic storm.
Financial institutions should be encouraged to support the real sector playing the intermediation role.
In the Fiscal Policy space from the Finance Bill 2020 the government has taken some key steps in taxation and duties to reduce the burden on families and companies, but the process must be followed through effectively for implementation.
The Government should demonstrate its seriousness in policy by cutting down costs from the Federal to State, and block all the leakages ensuring that funds are invested in infrastructure, healthcare, education and security.
Nigeria is a nation with resilient people. Families should remember that this is just challenging period to navigate what has been an unprecedented year in the nation’s socio-economic space.
Explore Data on the Nairametrics Research Website
Recession; proactive measures not cyclical factors can resuscitate economy
The National Bureau of Statistics (NBS) released the GDP report for Q3 2020 which officially confirmed the economy has slipped into a recession.
Earlier this week, the Minister of Finance, Budget & National Planning, Zainab Ahmed attended the 26th Nigerian Economic Summit and in her presentation highlighted some of the steps and investments the government is making to bring the economy out of a recession. Some of the points she highlighted were; stimulating the economy by preventing business collapse through ensuring liquidity, retaining and create jobs through support to labour intensive sectors such as agriculture, undertake growth-enhancing and job-creating infrastructural investments in roads, rails, solar power and communications technologies, promoting manufacturing and local production across all levels as well as advocating the use of made in Nigeria goods & services. She also highlighted focus on pro-poor spending as a strategy to mitigate the impact of covid-19 on poor households.
We recall that during the weekend, the National Bureau of Statistics (NBS) released the GDP report for Q3 2020 which officially confirmed the economy has slipped into a recession. Following the 6.10% contraction recorded in Q2 2020, the economy further contracted though at a decelerating rate of 3.62% in Q3 2020. We reckon that prior to the covid-19 crisis, economic growth had began to slow with Q1 2020 GDP growth of 1.87% trailing prior 5-quarter average of 2.29% (excluding Q1 2020). The economy has largely survived on an oil-led recovery which we consider cyclical with other core sectors lagging and reeling from the fallout of the impacts of the 2016/17 recession.
In our view, the government needs to be proactive and strategic about policies it intends to adopt to resuscitate the economy. The focus on social welfare, fiat-led interventions in agriculture, emphasis on infrastructure development and advocacy for local manufacturing is reminiscent of prior strategies that can’t be really be considered successful. In our opinion, the economy is in dire need of influx of investments and adequate skill pool to spearhead resource allocation, which we believe can be provided by the private sector. Thus, the public sector should in our view invest in tackling structural issues around ease of business operations (borrowing costs, regulatory & licensing bureacracies/inconsistencies, public agency corruption & FX policies etc.) as well as strengthening regulatory & legal frameworks while the private sector drives the investments for accelerated growth in manufacturing, infrastructural development, agriculture and other core sectors.
In our view, supporting a free market-led economy (given the more organised nature of the private sector than the public sector) would see a return of foreign direct investments into the Nigerian economy while local entrepreneurs would be motivated to take more risks to develop businesses. The outlook for oil prices remain weak and production levels may remain below historical levels as OPEC attempts to keep price stable. Thus, the possibility of a cyclical recovery is limited, only proactive measures to correct long term structural issues would restore the economy on the path of accelerated inclusive growth.
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Understanding T.I.N.A. in the Nigerian financial system
As investors face an environment where uncertainty persists, the alternative left will be to park their excess funds in a safe place until Covid-19 passes.
This week, I want to talk about T.I.N.A….(no not the girl)
T.I.N.A. is an acronym for There Is No Alternative. It is used to describe a situation where the markets have excess liquidity and have no outlet to invest, so they invest in low yielding government securities because there is simply no alternative out there.
The financial markets today are awash with liquidity.
In the US for example, the CARES Act 1 cost an estimated $2.3t (11% of US GDP) including $510b to prevent bankruptcies and $349b in Small Business Administration Loan.
All this cash simply increases the liquidity of the financial system. The US Federal Reserve further lowered rates to a band of 0-0.25% in March 2020, the effect? Rates offered by banks on deposits have crashed.
Thus investors face an environment where the economy is shut because of Covid-19, and uncertainty persists. The only alternative left to the market is to park their excess funds in a safe place until Covid-19 passes, that safe place being US Treasuries and Bonds.
Thus the Fed and US Treasury can offer the low yielding paper to the market because the market is chasing safety, the investors buy because there is no other safe alternative out there, safety first.
It’s the same in Nigeria, the economy has contracted due to the COVID-19 mandated shut down and also exchange rate and land border closures.
These issues have strained the economy and have been amplified by falling economic output. As a result, investors are very risk-averse and are not willing to expose their capital to risk, thus they are seeking the safety of the sovereign paper.
The Central Bank of Nigeria (CBN) faced with a glut of liquidity has done what any prudent banker will do, it has dropped the fees it pays to lenders when it borrows money from them.
Thus the Nigeria Treasury bill rate which is the cost of the CBN borrowing at the short end of the market, (less than 365 days) has fallen.
Take the latest auction of Treasury Bills dates 11/11/2020, the rate now being offered by the CBN for 91day and 364-day paper is 0.0350% and .300% respectfully.
The low rates to my mind is not a surprise, but consider that the CBN offered to borrow N19b from the market, but received subscriptions from the markets to place N99b, this at 0.0350%.
Why are investors flooding the Sovereign Debt market with money? Because there is no alternative viz a viz risk and reward.
The Nigerian Stock Exchange All Share Index for instance has fallen from a recent high of 42, 624 in January 2018 to 32, 990 as of the Week ending Friday 20th, 2020.
In essence, the Nigerian investors prefer to book negative real return by holding risk free government paper than take any investment risk by exposing their capital to commercial lending.
Again this is a normal consequence when there is uncertainty in the markets but the lack for a better word “greed” in the markets has offered the CBN a rare chance to drop rates even in an inflationary environment.
The consequences of T.I.N.A. in the Nigerian financial system is clear.
Low rates will discourage savings, already the Pension Fund Administrators have a decision to make if they will continue to hold a full 8% of their portfolio in a negative-yielding but safe investments. T.I.N.A. also supports the Central Bank of Nigeria’s strategy to force banks to lend to the real sectors.
By dropping the risk-free rates in the economy, the CBN is making a point that there is no more free lunch, rather yield will have to be generated from creating risk assets and earning a return.
This sounds good on paper but the investing environment in Nigeria is yet unchanged positively, new taxes are being proposed, land borders are still shut, wages are still low and falling due to inflation.
In general, the Nigerian consumer is in a weak state with very low buying power, as evidenced by the sachetization of the consumer space. It will take a brave investor to commit funds, but then again, fortune, they say, favors the brave.