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Analysis: Nigeria needs an austerity diet

Why the Nigerian government needs to implement on Austerity Measures

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Analysis: Nigeria needs an austerity diet

Something strange happens on Saturday mornings on Bourdillion Road, Ikoyi, the UNILAG campus in Akoka, and Bode Thomas in Surulere is not exempted from this phenomenon.

If you look intently, you may observe it like David Attenborough filming the life of a baby elephant. Scores of differently sized people get on the road, some in lycra, some in garish pink, some in shorts, some on bicycles, and some with fanny packs.

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What are these people doing on the road? What do they want? Why would anyone wear reflective visors, 6 armbands, and ill-fitted long socks? It’s weight loss time, yeah! Excessive sugar is bad — it’s the work of the devil!

Chocolates, biscuits, and weight gain

You know deep down you shouldn’t eat these incredibly sweet things, but when you are down and tired, you can’t resist — it improves your mood. The World seems like a sweeter place suddenly, you smile a little bit, and you forget the problem.

READ: Nigeria’s total debt to hit N33 trillion – Senate

However, you get another urge for more sugar and eat again. Your problem is still not gone, but you feel alright. With time, you realize that you have gained weight and must face the hard truth — cut down on sugar or choke on it.

If you choose the latter, five years down the line, your weight has grown from 75kilos to 225kilos — an additional problem to your worries. A person weighing 225kilos is super morbidly obese and may have many health problems.

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The Nigerian government is in a similar situation, it has a weight problem, a large debt load attached to it that it simply can’t afford or ignore any further. It’s time to hit the road, change its diet, and consult with the doctor. In orthodox economics, countries getting on a diet and hitting the gym is called Austerity. Austerity is never a popular route for governments.

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In Fela’s classic, Teacher don’t teach me nonsense, he lamented about the pain of austerity and included it alongside other pains felt by the citizenry some 30 years ago. Whether we like it or not, government finances must be put on a diet; at best, a delay can ensue.

The longer the delay, the fatter the debt pile gets, and many more problems will emerge. People will feel even more pain without austerity. Austerity is not unique to developing countries, it is important to mention that in 2010, post the global financial crisis, the UK’s Chancellor of the Exchequer, George Osborne, introduced austerity measures on government finances to enable its future sustainability. This after all is an economically developed country mindful of its finances. If the UK government can do it, why not Nigeria? Could it be the do-it-yourself economic ideas?

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What does austerity diet involve?

A significant cut in government spending and largesse. It entails saying goodbye to the sweet-looking jeeps and furniture, the not so large civil service a.k.a government jobs, and to an ever-increasing attempt at collecting more taxes from poor Nigerians.

Recall, more than half of Nigeria’s population is living below the bread line. It’s unclear from whom any tax increase will emerge. There is debate amongst orthodox economists about the timing of austerity diets — should it be during a crisis or during boom times? There is no clear-cut answer, but it’s easier to take the pain in a growing economy than one undergoing strain.

READ: Nigerian retail industry can’t grow without proper franchise system – CIG boss

It is sometimes possible to escape the diet. Some patients go for bariatric surgery and extensive liposuction and this helps them cut down in a very short space of time, without the attendant pain via the organic process. Nigeria did this in 2005 by securing debt forgiveness from the G8 countries to the tune of thirty billion dollars. Interestingly, this is roughly what Nigeria owes today.

Borrowing into unsustainable debts

It is unlikely anyone will cancel Nigeria’s debt again. So, why does the government keep borrowing when it’s apparent the country can’t afford it?

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Well, if one keeps getting cheap biscuits and chocolates, then it’s easy to eat more. Reviewing the basic debt stats can be deceptive without a good enough grasp of the stats for sustainable and non-explosive debt.

In my last article, I discussed how DIY economics or homegrown economic ideas have done damage to price stability in Nigeria. Without a critical review of how best to adjust an explosive debt path, countries are bound to stay the destructive course. Considering indicators used by George Osborne as a benchmark for Nigeria, Nigeria is on an explosive and unsustainable borrowing path.

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There is absolutely nothing wrong with leverage or borrowing. In many instances, especially with businesses and corporates, it helps them achieve their financial goals. However, there is a proverb from the South Western part of Nigeria that translates to, “one ought not to live an extravagant life, whilst in debt”.

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The statistics show that Nigeria continues to borrow extravagantly, without the impact being felt on the streets.

READ: 9 Brilliant ideas to pay off debt fast in 2021

What is the near term solution?

A selective increase in government revenue may be the way. Tax increase is highly unpopular but selective taxes on businesses that have benefitted from historical tax cuts and waivers may be the place to start.


This article was contributed by Dayo Oduwole. You can contact Dayo via his email, [email protected], or tweet at him @TheRealOladayo

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform.To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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Columnists

SEC and the proliferation of unregistered investment platforms

The recent move has generated diverse views from stakeholders with some critics classifying this action as irrational.

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Reps raise alarm over N200 billion unclaimed dividends in 2020, the Capital market, Lamido Yuguda assumes duty as new DG of Security and Exchange Commission

According to a circular issued by the Securities and Exchange Commission (SEC), it affirmed its knowledge of the existence of trading platforms that allow investors access to securities listed in other jurisdictions.

The capital market regulator further reiterated the provisions of sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations which state that only foreign securities listed on any exchange registered in Nigeria may be issued, sold or offered for sale or subscription through approved channels to the Nigerian public.

The announcement furthers SEC’s quest to strengthen investor protection, promote transparency in the operations of the Nigerian capital market and ensure all investment transactions are within the regulatory purview of the commission.

READ: Nigeria’s public debt rises to N32.915 trillion as at December 2020

Recently, the capital market regulator introduced a new requirement for the inclusion of the commission’s contact details in all prospectuses or offer documents issued to the general public in a bid to ascertain the genuineness of such securities. Besides, it is often found that the activities of illegal fund managers become prevalent during a financial or economic downturn, making the public susceptible to the juicy yet unsustainable returns promised by these managers.

The recent move has generated diverse views from stakeholders with some critics classifying this action as irrational. They cited the impact of investing in foreign stocks on portfolio diversification and the role of Fintechs in driving financial inclusion among others. On the other hand, supporters of this action argued for the need to reduce the pressure on external reserves especially at a time when the green-back is needed to stimulate economic recovery.

Also, that it helps to safeguard the country’s investing community. We recall that the recent policy by the CBN to close all accounts by Deposit Money Banks (DMBs) and Other Financial Institutions (OFIs) involved in dealing with cryptocurrencies received a lot of backlash from the public.

READ: Why SEC banned investment technology platforms from offering foreign stocks to Nigerians

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On this move, however, we opine that it is still within the legal purview of the SEC to discourage investments in foreign listed securities. Nonetheless, we are aware of the concept of globalization in commerce and thus, there might be a need for a rejig of the Investment and Securities Act 2007, and other related acts to capture current trends and developments in the investment globe.

To avoid backlash going forward, we suggest more public education for clarity with regards to future policy decisions.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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AfCFTA to promote inclusive trades for women and youth in Africa

The SMEs and Startup ecosystem in Nigeria which are dominated by women and youths should equally take advantage of these opportunities.

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Border closure is a threat to forthcoming Lagos Trade Fair - LCCI 

Inclusive economic development remains one of the core elements of both the African Union’s Agenda 2063 and the United Nations Sustainable Development Goals (SDGs). In furtherance of this, article 3(e) of the AfCFTA main Agreement and article 27(2)(d) of the Protocol on Trade in Services specifically mandate State parties to promote gender equality and “improve the export capacity of both formal and informal service suppliers, with particular attention to micro, small and medium-sized; women and youth service suppliers.

With over 60 percent of its population being under the age of 25, Africa is regarded as the youngest continent in the world. This presents both challenges and opportunities for the continent. For instance, in Nigeria, the young population has led to attendant social risks as unemployment nears 40% creating a ticking time bomb. The popular saying is that an idle mind is the devil’s workshop.

On the positive side, however, the young population when properly harnessed will heighten productivity and provide affordable labour which in turn may lead to increase in investment. Nigerian youths just like their counterparts in other African States are known to be very innovative and enterprising. With the right policy and the enabling infrastructures, this energic population can drive the AfCFTA agenda.

Relatedly, women constitute most of the players in the SMEs ecosystem, accounting for nearly 90% of the labour force in the informal sector. A visit to the popular Balogun market in Lagos Nigeria will attest to this fact. No doubt, regional informal trades amongst women and youth within the ECOWAS region have been going on even before AfCFTA. But the new trade deal is meant to open the door to a population of 1.3 Billion people with a combined GDP of USD2.6 Trillion.

This is a huge opportunity and further buttresses the need for gender-sensitive and youth-centric implementation that will ensure sustainable and inclusive growth. As noted by a commentator, women and youth traders are less likely to be equipped with the appropriate skills, technology and resources that would enable them to benefit from trade and trade liberalization as they continue to suffer from invisibility, stigmatization, violence, harassment, poor working conditions and lack of recognition for their economic contribution.

These challenges are made worse by non-tariff barriers such as poor infrastructure, insecurity, lack of access to funds, high unemployment, weak currency, cost of capital, multiple taxations, and other regulatory hurdles.  A clear example of the hurdle being the recent intervention by the agencies of the Federal Government of Nigeria in the areas of FINTECH and Cryptocurrency.

Just last week, the Securities and Exchange Commission issued a circular advising Capital Market Operators to sever ties with platforms that facilitate access to trading in securities listed in foreign markets. While recognizing the role of the regulators to protect the investing Nigerian public and their assets, however, the interventions have been interpreted by many as capable of sending a wrong signal and acting as disincentives to innovation. Again, this brings to the fore the need for Continental Free Trade that fosters inclusiveness with member States initiating policies that create more opportunities for the youth and women.

At the webinar held on 29 March 2021 to mark the signing of the MOU on strategic partnership between the AfCFTA Secretariat and the United Nations Development Programme (UNDP), the AfCFTA Secretary-General Mr Wamkele Mene re-echoed the need for inclusiveness in the AfCFTA implementation with the following words:

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We’ve learnt from other trade agreements in the world. And the lesson to draw is that if a trade agreement neglects the most vulnerable segment of the society, if a trade agreement is perceived to benefit only the multi-national corporations, only the elite, it shall not succeed and it shall not have legitimacy as far as the citizens are concerned. And so that is why I have made it my priority in the implementation of this agreement that there should be shared benefits, there should be shared responsibility with Africans across the length and breadth of the African continent in concrete areas such as affirmative action for women in trade. We are looking at concrete ways in which we can expand the benefit for young people and for women in trade. This is the type of development that we require in order to make this agreement successful. This is the type of development that we require to make sure that the benefits are inclusive.

This Statement coming from the AfCFTA Secretariat is a clear indication of the aspiration towards gender-balanced and youth-sensitive AfCFTA. However, one is not unmindful of the limited role of the AfCFTA Secretariat in the implementation process.  The actual implementation is done at the national and regional level. And this is not to underestimate the very critical albeit complementary role that the Secretariat plays in this regard.

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Therefore, the change must start from each member country and percolate through the regional economic blocs and finally to the entire Africa. Nigeria through its agencies such as the Central Bank of Nigeria (assisted by the private sector) can support inclusiveness by providing AfCFTA-focused low-interest financing, training of the SMEs on cross-border trades as well as other incentives to promote the engagement of women and youth in trades on the continent.

The impact of the COVID-19 pandemic on youth and women-led businesses has widened the economic gap and further impoverished those at the lowest rung on the economic ladder – mostly women and youths. This calls for heightened capacity building in creating new trading and entrepreneurial opportunities for all. With the constant value erosion in the local currency and low-yield environment, entrepreneurs and SMEs in Nigeria can, through cross-border trades, hedge against business risks and equally take advantage of possible arbitrage that exists in different markets within the AfCFTA.

A shift from the business-as-usual approach on the issue of women and youth is needed under AfCFTA to ensure that the objectives are actualized. Although the AfCFTA is not the magic bullet or the cure for all the economic challenges facing the youths and women in Africa, it is hoped that when fully and equitably implemented, it will go a long way to address some of the factors inhibiting the economic growth of these vulnerable groups.

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A recent report commissioned by the UNDP and the AfCFTA Secretariat titled “The Futures Report: Making the AfCFTA Work for Women and Youth” which was published in December 2020 has shown that beyond the projections, numbers and negotiations, the realization of the AfCFTA objectives will depend on decisive actions and collective efforts of the African people. Therefore, concrete measures and investment are needed to ensure that women and youths, who account for the majority of the population, business owners and workforce can be better integrated into the value chains, jobs and opportunities available under the AfCFTA.

As shown by the Report, many entrepreneurs and SMEs across Africa are already taking steps and positioning themselves to benefit from the free trade area and scale their businesses. Some SMEs owners interviewed noted that they are increasing their production lines and sourcing for inter-continental partnership ahead of the progressive implementation of the various phases of the trade regime.

The SMEs and Startup ecosystem in Nigeria which are dominated by women and youths should equally take advantage of these opportunities. Finally, given that trades in goods and services are fast moving into the digital space, the AfCFTA members States need to invest heavily in digital infrastructures and urgently address the high cost of data in Africa which has made it difficult for the majority of women and youths to access opportunities available online.

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