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The COVID-19 Rain Has Come: Musings on the Nigerian savings shelter

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The COVID-19 Rain Has Come: Musings on the Nigerian Savings Shelter
CBN Headquarters in Abuja

By Chukwunonso Ekesiobi

The year 2020 is proving to be a year of distressing surprise, one that will certainly remain fresh in the minds of Nigerians in years to come.

It was billed to be a year of expectations – the climax of the much-touted Vision 20:2020, prophesies and counter prophesies breakthroughs, signs and wonders. But the advent and spread of COVID-19 has muted all prior interesting prospects for 2020. Maybe the signs were not clear enough and we are now left wondering.

The novel virus has cut across the globe and affected virtually everything in its way – tourism and hospitality, transport and aviation, trade and commerce, technology and manufacturing, health and education, agriculture and food security.

Even the entertainment and sports industry are not spared. Fashion shows, movie releases, festivals and concerts have either been postponed or cancelled, while sporting activities have also been put on hold. A penny for the thoughts of football lovers and bet companies!

In the era of globalisation, economies around the globe have been dealt a heavy blow similar to the economic meltdown that began 2007 – 2008. Predictions of an impending global recession occasioned by the outbreak of the coronavirus have been put forward by the IMF and other International Financial Organisations and Rating Institutions.

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The economic forecasts of virtually all countries have been revised downwards and some in the negative zone. Like the fingers pointed to the IMF and World Bank in the immediate past global financial crisis, questions are already being asked concerning the timeliness and adequacy of the warning signals by the World Health Organisation primarily responsible for global health surveillance.

As countries battle the pandemic to curtail the spread and limit the death toll, they simultaneously have to delicately balance this with keeping their economies afloat. The consequence of worldwide health and economic crisis would be unimaginable.

In response, the US and other buoyant countries in Europe and Asia have opened their economic reservoir and declared weighty amounts as interventions to keep their citizens and enterprises alive. This is a luxury most African economies cannot afford.

The Nigerian case is unsurprisingly different as usual. While other nations were saving and investing to upgrade infrastructure in critical sectors (most notably in science, education and health) during their years of plenty, we were “flexing away”. Economic prophets continued to cry “beware the ides of March” just like Caesar was warned in the Shakespearean classic, but all to no avail.

The need to save our excess crude earnings and diversify to other sectors was ignored by a leadership only interested in sharing and spending all receipts. Though we eventually created the Excess Crude Account and the Sovereign Wealth Fund, it was not an easy ride and has not been backed with the necessary commitment. Maybe, if our economic soothsayers were specific enough to tell the leaders “beware the ides of March in 2020”, perhaps the warning would have been taken seriously and the country would be adequately prepared for the “COVID-19 rain”.

An Igbo saying goes thus: “Nkụ onye kpara n’ọkọchi ka ọ na-anya n’udummiri”, which translates that it is the firewood fetched and gathered during the dry season that is used to keep the body warm during the rainy season.

Now the COVID-19 rain has come, we are faced with the reality of drawing from our savings to keep our economy warm. However, our meagre savings for the rainy day appears incapable of sheltering us from the heavy showers. Sadly, this is no ordinary rain neither is it the showers of blessing popular with Nigerian Christianity. This rain is not drizzling— this never-before-seen downpour is raining cats and dogs.

Expectedly, resorting to the excess crude savings is off the table, while the Sovereign Wealth Fund (SWF), has not been funded consistently and adequately enough to rescue the economy. The SWF principally entails a conscious policy to set aside funds received from natural resources particularly all through periods of rising prices to smoothen expenditure during a price drop. These economic buffers are supposed to be a major source of short-term (and medium-term) respite for domestic macroeconomic stabilisation.

On the monetary side, our Foreign Reserve buffer witnessed boosting: the present administration commendably grew it from $29 billion in 2015 to $45.14 billion in July 2019. It has however experienced a recent decline to $36.7 billion as at 20th February 2020. If the drop in reserves continues at the rate, the CBN may have a situation on its hands in a few years.

The CBN promptly intervened to cut the supply of foreign exchange away from the importation of unnecessary items that could be locally produced. Furthermore, the CBN has expanded its intervention in almost all sectors – Agriculture, Education, Health, Entertainment and others. An indirect indictment on the government which has not done enough to boost these areas, warranting the CBN to step in and assist.

These development initiatives of the CBN are welcomed but the Apex monetary institution should be allowed to focus more on its core responsibility of supervising and administering the monetary and financial sectors of the economy.

Looking at savings in the micro-economy, the picture is pretty similar. With the recent FGN savings bond initiative yet to fully mature, the Gross Domestic Savings GDS (% of GDP) of around 20%, is good but can be better relative to other countries (Niger – 21%, Ethiopia 33%, Morocco 28%, and Zambia 32%). Again, scanning through the computational complexity of the GDP and the percentage of Nigerians contributing to the savings, the GDS value becomes less compelling.

There is then the issue of the banked and the unbanked population which data from the Nigeria Inter-Bank Settlement System Plc. (NIBSS) puts at 124.85 million and 40 million respectively. Among the population with bank accounts (124.85 million), it is estimated 45.57 million are inactive, while recent financial inclusion statistics from the EFInA reports that 36.8% of Nigerian adults are not captured in the financial system.

The foregoing exposes micro and macro economies that were ineffectually primed for the COVID-19 rain. Alternatively, in the wake of the pandemic in Nigeria, it never rains but it pours.

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On the micro side, the ensuing lockdown (and recent extension) has escalated the hunger and misery in a land already battling with poverty, joblessness, and hopelessness. With a large informal sector activity, the pains of an economic shutdown have been immediate and severe on a population with little or no savings. Households who depend on remittances from abroad are equally stranded as their relatives overseas have been similarly struck.

Distributions of palliative by the federal government are not transparent, sufficient, inclusive and effective enough. It shameful that while citizens of some countries are being directly credited with substantial “free money” to sustain their lives indoors, we are embroiled in an argument of whether to use N100 cell phone recharge or accounts with less than #5000 bank balance as a yardstick for identifying those that should be credited with government financial support.

Factor in the earlier information on financial inclusion rate (especially in rural areas) and existing dormant accounts and you develop a headache. Among the state governments, some are sharing whatever they can muster, a few are still living in denial, while others are simply playing to the gallery.

On the macro level, we bluntly refused to take the national savings seriously. Instead, the leadership appear deaf to the advice and warnings from domestic and foreign sources. The country barely saved especially during the periods of plenty in the international oil market. Crude oil benchmarks are set with every other purpose in mind than to save.

When the oil market experiences a minor blip, we fall back on the little that was saved in the ECA and the party continues. Any attempt to curtail this is met with stiff opposition and litigation. The monthly Abuja oil money has continued to make governments at all levels lazy, less creative and innovative. How then do we promote and achieve the much-hyped economic diversification from oil rent.

Another popular escape route is borrowing which the government can afford to do more than the people. According to the Debt Management Office (DMO), external debt as at 31st Dec 2019 stood at $27.676 Billion (FGN – $23. 111 Billion and States – $4.564 Billion), this is up from $10.3 billion in June 2015. Total domestic debt within this period is $56.377billion (FGN – $43.781 billion and States $12.569 billion).

This puts the total of both domestic and external debt at $84.053 billion, a rise from $63.806 in June 2015. The revised 2020 budget increased the borrowing component from #1.59 trillion to #4.43 trillion, expanding the fiscal deficit from #2.2 trillion to #5.18 trillion. There seems to be no end in sight to rethink our worrying thirst for borrowing.

When debt burden concerns are raised, the defence team comes up with the capital project needs of the country and a reasonable Debt-to-GDP ratio – ignoring comparisons to Revenue-to-GDP ratio and debt-sustainability. There is also the ever-shrinking fiscal space which needs to be intelligently exploited.

The truth, however, remains that unsustainable external borrowing puts us at risk of sliding into a debt trap and mortgaging the future of the economy. On the other hand, continued domestic borrowing from a financial market witnessing a sudden and sharp decline in performance and value puts the economy at risk of crowding-out the private sector. The outcome of rising debt servicing and unchecked borrowings on the home front and foreign scene could inadvertently push us off a fiscal cliff.

Going forward, savings must represent a national assignment in governance. Savings culture should be popularised and mainstreamed into every facet of our lives. To begin with, this message has to be integrated into the workings of national and subnational governments to preclude the incidence of susceptibility to external shock in future.

More importantly, government spending ought to be demerged from oil rent and linked with the performance of the non-oil economy. This will hopefully shore-up the position of the SWF, unleash our creativity to spur diversification and break the natural resource curse.

At the federal level, the SWF should be constantly and substantially boosted to meet up countries like United Arab Emirates ($1,298 billion), Singapore ($764 billion), and Saudi Arabia ($697 billion). The current position of Nigeria (about $2.2 billion) is poor given her huge population – the federal government recently approved the withdrawal of $150 million for distribution to all tiers of government.

All pending differences surrounding the ECA should be resolved, swiftly followed by the proper legitimisation through amendment of relevant sections of the 1999 constitution. Transparency and commitment are expected to improve and guarantee investor confidence, thus avoiding public disagreements like the one between the IMF and the NSIA and the Ministry of Finance.

Within the scope of the savings discourse is the state of macroeconomic policy, beckoning for unassailable macroeconomic management to cater for exchange rate variations, the balance of payment challenges, job creation, poverty alleviation and focus on growth efforts that are inclusive and sustainable, as well as guarantee equitable distribution of economic dividends. When individual and household income grows, the propensity to save at that level increases.

Hence, for the sake of the economy, expectations are high for the success of the just proposed “Nigeria Economy Functioning with COVID-19”, under an inter-ministerial arrangement and supported by the Presidential Advisory Council and Economic Sustainability Committee. The drafters of this policy are implored to draw lessons from the mistakes of the ERGP and improve on them.

State (and local) governments should sit up and get to work. The effect of the resulting moral hazard from bailouts is blocking creativity at the sub-national level. If monthly FAAC receipts drop, most unviable states are unable to pay salaries and go into a coma. When interventions come, they resume their fiscal recklessness.

Some states are already in a debt mess and have restructured their debts to have a breather. This cannot be allowed to continue. The toga of fiscal discipline should also be worn by state governments to ensure they imbibe the habit of savings and cut down the cost of governance.

In conclusion, global economic uncertainty has heightened in the wake of the COVID-19 rainfall. Economies with strong economic buffers have deployed them to insulate the adverse effects more than others.

Policy analysts predict that economic relationships will turn out to be more complex and moving forward, more nations will prefer to restrict themselves into prosperity in the interim. Nigeria will definitely be in the race among countries that will aspire to emerge stronger post-COVID-19.

To have a chance at catching-up (and possible convergence), we must note and learn valuable lessons from the effects of the pandemic, to help grow the nation within and beyond the COVID-19 rain.

An Igbo adage, popularized by the late Chinua Achebe, states that “onye amaghị ebe mmiri nọ mawa ya anaghị ama ebe ọ ga anọ kwụsị”, which means that one who does not know where the rain started beating him or her does not know where it will stop. If we miss this opportunity to the detriment of generations to come, posterity will never be kind to us.


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