By Emeka Anaeto, Economy Editor
THIS week has been particularly mind-boggling for Nigerian economy with grim facts about the state of the economy coming from the highest authorities, the finance ministry, Central Bank of Nigeria, CBN, and the National Bureau of Statistics, NBS. Naturally too, the various financial markets have reacted adversely to the information – the foreign exchange market, the stock market and the money market, all headed to adverse numbers.

First, from the CBN governor, Godwin Emefiele, came the gloomy picture of stagflation, a severe economic anomaly where inflation is rising amidst stagnation in economic growth rate. Under normal economic settings the inflationary pressures come along with economic growth or vice versa. Just yesterday, barely two days after Emefiele’s bombshell, the Finance Minister, Mrs Kemi Adeosu, summarised the situation thus: “the country was at the moment in tough place and in recession”. Both government top-shots were confiding these to the highest legislative authorities, the Senate. That is how serious the matter is.

These were coming just as NBS, the highest economic research agency of the government had rolled out June 2016 inflation readings of 16.5 per cent, up from 15.6 per cent previous month, indicating a consistent rise in the past 12 months which was also the highest point  in 11 years. Though the agency is expected to release the second quarter gross domestic products, GDP, by next week but most economy observers expect further decline to confirm that economic recession has set in, as already hinted by Adeosun yesterday.

With these barrages of negative information all the markets have been on edge, principally the foreign exchange market which has recorded its worst outing in history so far this week with the Naira at the regular interbank market crashing to all time low of N310/ USD1 while its parallel market rate was N378/ USD1.

• Similarly, interest rate has been on skyrocketing across all market segments including bonds market. The stock market was also not spared as equity losses resulted in a huge week-to-date, WTD, of over N300 billion.

The consequences of these developments are clear. In addition to increasing backlog of unpaid salaries in most States of the federation, Emefiele has hinted that if the situation did not change the federal government would also join in owing workers’ salaries from October this year.

Fundamental  challenges

Moreover, unemployment is worsening with more lay-offs buy companies as more businesses either scaling down or closing shops completely. There is obvious adversity amongst the populace with increasing poverty level as standard of living nose-dives.

Where do we go from here?

It should be noted that the fundamental challenges that led to this sorry state has been the adverse development in the nation’s mono-cultural economic base, the oil sector, where international prices had crashed by over 50 per cent last year to below USD30 per barrel. In addition, the economy has not been able to benefit significantly from the significant recovery in the prices mid this year to over USD 50 due to production shortfalls caused by the activities of militants in the oil producing territories of the country.

In the interim it appears the only solution is the diversification of the economy away from oil, but as good as this sounds it’s been obvious that not only has government always know this but they have also rolled out fantastic policies and actions aimed at addressing it for several years now. So, the question, really, is just about why have policies always failed? Are the people currently in-charge expected to be better than those who had gone this way before? Could a new strategy be forged? What was wrong with the import substitution, export drives, agrarian programmes, industrialization and other numerous real sector measures and economic diversification programmes of years past?

“Whilst a re-invention of these past sound policies could still be pursued, it is now clear that change is being foisted on us by circumstances rather than any deliberate policy engineering, or even focus.

For instance, as at this week CBN has been forced to abandon its controls over exchange rate when faced with the grim fact that it no longer has the capacity (foreign exchange resources) to subsidise the controlled exchange rate system. Naira may have become far less in value and it is obvious that import cost would escalate. But at this point two positive developments would take place: imported contents would have less patronage being too expensive, while its local alternative would become attractive or at least acceptable. Secondly, all the noise about export promotion to the extent that the country has spent over N1.8 trillion in the past 15 years in establishing and running its Nigerian Export Promotion Council, would give way to real business by private sector business people who will see profit in going into export and earning foreign exchange, the king of money.

“This scenario would also play out in food chain and agro-allied sector. So, by liberalizing the foreign exchange market with the attendant crash in the value of the Naira we have a solution by default, assuming the apex bank does not know what it was doing.

“By extension, necessities would really be the mother of re-inventing a Nigeria’s domestic economy that is production based and home grown.” The CBN and the fiscal authorities should not panic over the fate of the Naira, but they should be smart enough to channel the solutions and the new private sector-led energies being released appropriately.

The focus of the government should be on provision of infrastructure that supports the private sector businesses and investments. The government doesn’t need to provide all the monies for the infrastructure and this has also become a solution by default to the wastages that have accompanied governments’ expenditures for so long now, in the name of providing and funding infrastructure including the huge fraud in the name of power sector projects scattered, uncompleted and abandoned across the country. There is no more money or privilege of wastage now, thanks to revenue crunch. This should be executed through private sector-led concessions.

Policies should be designed and executed to support the private sector initiatives in this direction, with time even as short as two years we may be out of this economic quagmire, all things being equal.