Almost 6 months after its inauguration in May this year, the Buhari administration’s choice of ministers has returned national conversation back to the task at hand: fixing an ailing economy, without leaving any Nigerian behind. While much of the new discussion has laboured through the effort of determining each ministerial nominee’s fit for particular office, President Buhari has exerted himself inking in a dismal picture of the state of the economy.
Still, leave aside ― for now ― the propriety of President Buhari’s recent plaint on the sorry state of the economy, and concentrate, instead, on the many indices by which an economy’s health is gauged and you could well charge the former general with a strategic blunder: understating the size and complexity of the challenges faced by his government. Again, (although related to the visceral worries over it) current concern with the economy goes beyond the fate of the naira.
Despite the conflicting price signals from the foreign exchange markets (stable at the official market where access is well-nigh impossible; volatile at the parallel market, where access is retail and positions built incrementally; and with the premium between both markets widening), we do have the dubious benefit, in this case, of the incumbent government having expressed its preference for the allocation of this scarce national resource in rooms filled with smoke and mirrors, rather than through the market.
But that still leaves us with other measures of worry. Inflation, for instance. Not only is this up. Not only has it risen steadily since the beginning of the year. Not only is it set to breach the Central Bank of Nigeria’s (CBN) target band (6 ― 9%) by year end. But everyone agrees that rising prices hurt economies everywhere. Because wages and price-setters’ demand increases as they try to compensate for rising domestic prices, a vicious cycle, distortive of domestic resource allocation decisions, may set in on the back of our rising consumer price index numbers.
Yet, it would seem that the CBN’s ability to focus on its mandate of maintaining price stability in our current economic climate is trammeled by its recognition that action to stem rising prices, including through raising rates and tightening monetary conditions, could tip the economy into recession. Still, put this way, the problem is but a passive one. A much bigger worry is that the CBN is actively pursuing lower interest rates.
If indeed the impediments to loan growth in the economy are more structural than the relative price of bank loans, then, the new levels of (higher) banking sector liquidity could trigger new vulnerabilities ahead. Unfortunately, our sense of the lag between policy implementation and market responses is patchy. And our models are often unable to control for the other variables, without which a full analysis of the impact of different policies is impossible. In passing, I have heard it whispered that the numbers for domestic output growth in the third quarter of this year are as close to negative as they have ever been in a long time.
While growth numbers should worry: despite its fiscal influence, the oil and gas sector was always reported as contributing far less to local economic activity than the non-oil sector. The sub-narratives around rising domestic prices should concern us even more. On one hand, it would seem that a drop-off in demand has helped keep runaway inflation at bay even as domestic costs have risen. In part, demand has tapered off as public sector workers’ take-home pay (which was never able to take them home in the first place) turned epileptic. In the main, domestic economic actors have started to put off spending as the economy’s outlook sours.
Workers, unsure of both continued employment and when the next paycheck will be sent in, are deferring spending. While businesses have deep-frozen new investments in the absence of a market in which to sell the final products.
Moreover, businesses ail in another way. Performance numbers for the third quarter amongst non-financial (quoted) companies has most of them bleeding red ink. Ignore slowing demand, and it is obvious that the organised private sector is having problems passing on its rising costs to the market. If there is any iota of truth in this possibility, then, current inflation numbers tell only a small part of the tale around the country’s new woes.
Relentless increase in domestic prices; the impending death of businesses, even with bank lending rates hugging new floors; and rising unemployment. These are equally matters of concern.