“Today the ‘Giant of Africa’ is walking with a spring in her step inspiring others in the region and across the world,” said Christine Lagarde during her visit to the Nigerian National Assembly.
On Monday, Christine Lagarde paid a visit to Nigeria in order to engage with policy makers and other stakeholders in the country for four days. On the third day of her visit, she went to the Nigerian National Assembly where she talked to the legislators about the current state of the country and what the country and policy makers can do to salvage the economy.
According to her speech at the national assembly on Wednesday, here are 10 important things she relayed to the members of the national assembly.
- Nigeria’s growth after her last visit in 2011
In December 2011, the IMF director made her first official visit to Africa where she visited Nigeria first. During this period, Nigeria was emerging from a commodity price collapse as well as a banking crisis. Also, at that time, the country was not the largest economy in Africa. However, that has changed now.
“Since that visit, Nigeria has been acknowledged as the largest economy in Africa with a maturing political system. We saw a peaceful general election last year in which for the first time in Nigeria’s history, there was a democratic transition between two civilian governments. It was a strong sign of Nigeria’s commitment to democracy, to a new Nigeria” Christine Largade said.
- Economic issues that have also affected Nigeria
Although Nigeria has grown after her last visit, several global issues have affected the country including the sharp fall in the price of oil, the tightening of global financial conditions,the slowdown in the growth of emerging and developing economies and an increase in geopolitical tensions. All of these have occurred at a time when Nigeria is facing an urgent need to address a massive infrastructure deficit and high levels of poverty and inequality.
“So, Nigeria faces some tough choices going forward. Nigerians, however, are well known for their resilience and strong belief in their ability to improve their nation and lead others by example. I firmly believe that Nigeria will rise to the challenge and make the decisions that will propel the country to greater prosperity,” Christine Lagarde said.
- Three major economic transitions that have affected growth both in Africa and globally
According to the IMF Managing Director, China’s move to a new growth model, the prospect of commodity prices remaining lower for longer and the increasing divergence in monetary policies within major economies, especially since the recent rise in U.S. interest rates, has affected growth both in Africa and globally.
- Oil prices are likely to remain low
The fall in prices of oil has affected the country severely as the country is dependent on oil for most of its revenue. Nigeria is currently working towards diversifying the economy in order to increase export earnings and government revenue, as oil prices are likely to remain low.
“Over the medium term, oil prices are likely to remain much lower than the 2010-13 average of more than $100 a barrel. Why? Because of the huge oversupply in global oil markets. Think of the shale oil boom in the United States and some historically large producers such as Iraq and Iran coming back to the market. Other factors include OPEC’s strategic behaviour and the drop in global demand for oil, especially in emerging economies,” said Christine Lagarde.
- Near term vulnerabilities in Nigeria
According to Christine, Nigerians have created a large and diversified economy that has grown by about 7 percent a year over the last decade. This has been a remarkable achievement, a testament to Nigeria’s immense potential. The outlook, however, has weakened. Growth in 2015 is estimated at about 3.2 percent, its slowest pace since 1999 and only a modest recovery is expected in 2016.
“For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms. Low fiscal savings and reserves restrict the ability to manage shocks. And the weakening oil sector could stress balance sheets and put pressure on the banking system,” she said.
Ms. Lagarde also said that “reduced confidence and lower capital spending also impacts the non-oil corporate sector. Unfortunately, this sector looks less resilient today than during the downturn of 2008-09. Companies that have increased their leverage and US-dollar debt in recent years may now come under pressure as they face rising interest rates and a stronger dollar.”
- Three ways policymakers in Nigeria can manage these near-term vulnerabilities
According to Lagarde here are three ways policy makers in Nigeria can manage these near term vulnerabilities in Nigeria.
- Act with resolve—by stepping up revenue mobilization. The first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency. At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members—so an increase should be considered.
- Build resilience—by making careful decisions on borrowing. Nigeria’s debt is relatively low at about 12 percent of GDP. But it weighs heavily on the public purse. Already, about 35 kobo of every naira collected by the federal government is used to service outstanding public debt.
- Exercise restraint—by focusing on the quality and efficiency of every naira spent. This is critically important. As more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.
- What Nigeria should do on both recurrent and capital expenditure
According to Christine, on capital expenditure, the focus must be on high-impact and high value-added projects. This is why the government is focusing on power, integrated transport (roads, rail, air, and ports) and housing. These can help connect centres of activity across the country and drive growth prospects.
On recurrent expenditure, efforts should be made to streamline the cost of the government and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programs for those who need it the most.
- Nigeria is already a 21st Century Economy
Nigeria has grown over the past two decades to become a 21st century economy. Prior to this time, the country could not boast of mobile telecommunication, innovative start up as well as a place in the fashion and filmmaking scene.
“Nigeria can now boast of a boom in mobile communications in a country where more than 140 million cell phones are in use, nearly one for each Nigerian. A vibrant, homegrown film industry that has become the world’s second largest by output. Nollywood employs about one million people who create films that are winning audiences across the continent and beyond as well as a growing number of innovative startups—from fashion to software development—that are promoting Brand Nigeria,” said Christine.
“Indeed, the growth in services to about half of Nigeria’s output is a testament to the transformation that has begun and which needs to continue,” she also said.
- Key policy priorities for Nigerians
According to the Managing Director of the IMF, the key policy priorities for Nigeria include an investment in quality infrastructure, making the banks work and improving governance. Nigeria also needs to significantly improve transportation networks and power delivery (generation, transmission and distribution of power).
“Nigeria could be exporting tomato paste—a staple of Nigerian cuisine—on a large scale, but it imports about half of what it needs. This is why Nigeria needs to build more roads and better rail networks, so that more farmers can bring their crops to market.”
The country’s second priority should also be to build resilience by fostering a sound banking system. This will help channel more savings into productive investments, especially in quality infrastructure.
“Nigeria’s banks are generally well-capitalized and more resilient than during the downturn of 2008-09. However, they are beginning to feel the impact of the growing vulnerabilities in the corporate sector. This means rising non-performing loans, which will need to be carefully monitored and managed.”
Nigeria needs to act with resolve in fighting against corruption. Corruption not only corrodes public trust, but it also destroys confidence and diminishes the potential for strong economic growth.
“At the global level, it is estimated that the cost of corruption is equivalent to more than five percent of world GDP, with over US$ 1 trillion paid in bribes each year.”
- Acknowledging Nigerian Novelists
During Lagarde’s speech at the Nigerian National assembly, she used quotes from two of Nigerian greatest Novelists, Chinua Achebe and Ben Okri.
“As the great Nigerian novelist, Chinua Achebe once said: ‘If you don’t like someone’s story, write your own.’ ”
“As the great Nigerian poet Ben Okri once said: ‘Our future is greater than our past.’ ”
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