Causes of the Current Nigeria's Economic Recession.

Discussion in 'General Forum' started by izu, Jul 23, 2016.

  1. Izu

    Izu Admin Staff Member

    PREAMBLE
    Now that the CBN and the Finance Minister have told Nigerians that we are in an economic recession, it is very important that we quickly identify what actions or inactions that quickened the our arrival at stage.
    The causes can be well understood if we revisit the definition of an economic recession.
    An Economic Recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real Gross Domestic Products, real income, employment, industrial production, and wholesale-retail sales.

    IDENTIFIED CAUSES
    Without doubt, Buhari's administration inherited a challenged economy from Jonathan's . At the run up to the elections, Buhari and his party claimed to have understood the challenges and promised to fix the economy and they were overwhelmingly voted in.
    The following actions of the government quickened what we now see today:

    1. IMPLEMENTATION OF TSA BY FIAT:
    In a bid to bring sanity, stop corruption and to consolidate all FG's funds, PMB instructed that all ministries, departments and agencies of the federal government should transfer their funds in all commercial banks to the Central Bank of Nigeria with immediate effect.
    Any contrary voice cautioning for a stepwise approach was tagged as corrupt. The banks that delayed in executing the instructions were heavily fined.
    Government officials, party leaders and particularly our Finance Minister hailed and advertised the successful implementation of the program as a huge success.
    I cringed when a senior government official gloated that the 2016 would then be funded from idle funds realized from TSA. It was a macabre dance.
    TSA DECISION'S IMPACT: The withdrawal of huge deposits from banks reduced the ability of banks from granting loans to their customers. A bank lends a portion of its deposit to customers while the balance is reserved to meet withdrawal demands from the depositors. Govt's deposit had been a very reliable source of deposit to commercial banks.
    Companies will produce less, sell less, sack more of their workers or even close shop if they cannot access bank loans to fund their operations.
    Painfully some banks, had to stop funding projects halfway hence making completion impossible and resulting in bad loans.
    Not many read any ominous sign or bothered when the big banks recorded huge bad loan provisioning last December and diminished profit in the 1st Quarter of 2016.
    We witnessed the gale of sacking of bank workers before the Labour Minister threatened banks with license withdrawal.
    Coincidentally, many of the sacked bankers campaigned and voted for "Change".
    RESPONSIBILITY: The economists in GEJ's administration who conceived the TSA idea knew the impacts of its speedy implementation and commenced the actual implementation but in a phased manner but PMB, who I'm sure acted with good intentions, didn't obviously know the side effects of a wholesomely implementation of TSA with alacrity.
    He wanted to stamp out a wide spread corruption and rent seeking in the management of govt's funds.
    There was indeed a serious corruption that needed to be stopped. Being that he hates corruption. He acted so fast, damning the consequences. He now has to accept the consequences of his patriotic act.

    2. STOPPAGE OF PIPELINES CONTRACTS, HASTY CRACKDOWN ON NIGER DELTA MILITANTS AND DELAYED DIALOGUE
    The genuine-intentioned actions of PMB to suspend and probe all bogus contracts awarded by his predecessor especially to Niger Delta ex-warlords and the suspension of the implementation of the Amnesty Program gave the militants the excuse to sabotage the national oil assets hence causing a reduction in the revenues from oil, and gas to fire our power plants.
    IMPACTS : Reduction in the amount of crude oil available for export is like an addition of blindness to the problems of crippled man. There is already a global fall in crude oil prices.
    The implications were that the national budget cannot be funded adequately resulting in the failure of all tiers of government to fulfill their electoral promises packaged in the budget.
    Also, the decrease in oil revenues reduced the ability of the CBN to provide importers the required foreign exchange leading to a reduced output by manufacturers as essential foreign raw material inputs cannot be sourced.
    Consequently, companies have to reduce production capacity, buy less local inputs, sack more workers, pay less or no tax and finally close down. That's a symptom of recession.
    Also, Niger Delta is chiefly the investors' destination or the investors would need raw materials from there to feed their production. Following the restiveness in the area, a huge portion of Niger Delta-attracted foreign direct investment that would come into the economy has been kept in abeyance.
    RESPONSIBILITY: The president should have weighed the consequences of his immediate actions in Niger Delta owing to the area's strategic importance to our survival. You don't use a live bullet on robbers at a refinery; it may result in huge fire which will damage the products and the entire refinery you want protect and which cost of repair outstrips the cost of the fuel being stolen. Is it not an admission of an initial wrong approach to decide now to dialogue with the militants?

    3. TESTED ECONOMIC MANAGERS
    Our president is widely believed to think that all Nigerians are equally gifted or that all Finance or Accounting graduate can equally manage the nation's economy.
    I believe he is yet to get the best to do the work.
    It is only in Nigeria that we give a job of driving a Trailer to a driver of an SUV who has not even driven a minibus in his career. Critical economic problems are solved by the best economists in the country. No amount of passion or patriotism would make Yakubu Aiyegbeni play better than Ronaldo or Messi. Yakubu may have more stamina determination.
    IMPACTS: Only experienced doctors know the exact dosage of multi-drug therapy. A rookie would keep trying and failing.
    Perhaps, the current economic managers are gathering experience at the expense of our economic woes.
    We have not seen turn around Fiscal policies that would take us out from the woods. You cannot give what don't have. "It shall be well" is only a wish and has no place in scientific management.
    RESPONSIBILITY: All officials of this government are agents of the president. They take orders from him and also work for him.
    PMB should please talk to the previous managers of the economy for valuable advise. Many of them still love the country and would help albeit on advisory capacity.

    CONCLUSION
    It is the responsibility of President Buhari to fulfill his campaign promises. He should lead us out of this economic recession we just entered.
    I listened to most of his campaign speeches he delivered extemporaneously. He claimed knowledge of the bad state of the economy and promised to fix it. He must do it.
    Continuously blaming the previous administration after one year in office is no longer a good music to the ears of the populace.
    Many Nigerians including those that didn't vote for him want our country exit this economic recession as quickly as possible.
    He has to get our best people to help him do it.

    By Anayo Nwosu.
     

Share This Page