Recession is a word
Recession is a word. It is a also noun. It is a powerful noun that has thrown 4.6 million people out of jobs in a little over a year. A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. I got that definition from Google.
No, recession is not just a word. It is a painful process that all economies pass through once in a while. It usually follows a period of high growth, and like a bubble, the growth stalls and then we reset. The job of economic managers is to ensure that the recession, this period of reset, is as short as possible because it can be quite painful. Recession is like that injection you have to take to bring your temperature down when you are running a high fever. The shorter one feels the needle the better. A very bad nurse keeps the needle in for far too long. And like a patient, Nigerians are in the hands of their economic managers, the nurse.
Let’s go back to the definition of recession, which we pulled from Google. A period of temporary economic decline. A period during which trade and industrial activity are reduced. First sentence — we know for a fact that the economic decline we are experiencing is temporary. But how long will it last? No one knows. But with what I see around me, it looks like this decline may last longer than it should. Second sentence — trade and industrial activity are reduced. Voila! Therein lies our solution. We need to increase trade and industrial activities! The economy needs to be shocked back into recovery. Fast.
Question. What are our economic managers doing to shock the economy back into recovery? The Honorable Minister of Finance said they are doing capital investments and diversifying the economy. Hmm. She was quite vocal about the N300 billion that would be injected into capital investments. Nigeria has been going everywhere to raise foreign bonds with no success. There is this Panda Bond that we heard so much about, which fizzled out unceremoniously. And then there is the $1 billion Eurobond we have also heard so much about, but has refused to materialize. What is going on? I mean $1 billion is just umm… N315 billion. No. Not N425 billion. No. It is N315 billion.
You might be wondering why I used the word “just” for that humongous amount of money. Yesterday, September 5, 2016, the CBN did an open market operations (OMO auction) for N90 billion, but it was subscribed to the tune of N127 billion. Just like that. In less than 30 minutes, the market snapped up N127 billion of Treasury Bills. Tomorrow, September 7, 2017, the Debt Management Office (DMO) will issue Federal Government Bonds worth N120 billion. I will wager $50 (at black market rate) that the issue will also be oversubscribed. In three days, over N240 billion will queue up to buy Treasury Bills and Bonds. But there is reduced trade and industrial activity, and Nigeria is looking for $1 billion. Can you see the disconnect I am seeing now?
This thing did not start today. In the last quarter of 2015 and early 2016, CBN refused to issue OMO. Treasury Bills were maturing and the funds did not have anywhere to go because there was no dollars to buy. What happened? Yields dropped into single digits and very low double digits across the yield curve. Oh, that means interest rates dropped to less than 10% for the shortest maturities and just to a little over 10% for the longest maturities. Interest rates were below inflation. CBN thought that by forcing interest rates down, banks will be forced to lend. Nothing happened. The banks kept cash, and were just looking at the money. Now inflation is up and interest rates are going through the roof.
The problem. There is so much money, but the money has refused to flow into economic activities. It is so bad that lenders would rather just sit on the money and lose purchasing power than send the money into the economy. There is a lot of investment going on, but there is no economic investment.
Let me make you cry a little.
Nigerian Customs says they have lost N600 billion to diverted vehicle imports in about three years. I have been hearing stories that Nigeria has only one port. That is not entirely true. Nigeria has a second port in Cotonou because three out of four cars on Nigerian roads are brought in from Cotonou. That is the diversion. What are the economic managers doing about this? They are increasing duties. Two weeks ago, a flash drive I purchased from Amazon was seized by Customs. (Nigeria doesn’t produce flash drives, so don’t ask me why I bought it from Amazon.) They said I have to pay for it to be released. I have being buying things from Amazon since 2007, and this was the first experience with Customs. Now, if I can use Benin Republic Customs to bring in my flash drive at a cheaper rate, why will I use Nigerian Customs? I think it is common sense. You cannot be patriotic to the detriment of your wallet. Markets don’t work that way.
CBN is quite miffed with the way Dollar has taken the Naira for a ride in the black market. But this is what you get when you ban things that Nigerians believe are essential, from “41 items” to rice.
Now, try and set up a shop anywhere in Lagos or Abuja. Believe me, before you generate N1.00 of revenues, at least two agencies would have collected some form of tax from you. In the event that you pay up the taxes, you have no idea when your shop will be marked for demolition.
Remember that we are in a recession, and what we need to do right now is to encourage economic activities. But we are going about it all wrong. We are increasing taxes, banning things, demolishing economic centres, and frustrating small businesses. We are only sinking ourselves further into the recession. The nurse has stuck in the needle, and she has refused to withdraw it.
Now, why would any investor in their right senses take their money from their bank accounts and invest it in any form of economic activity when the business environment is so acrimonious for small businesses? This is why Mrs. Adeosun is going all over the world looking for $1 billion, while Mr. Emefiele is busy commanding over N315 million every week right in her backyard. There is very little coordination going on, and this is needed so badly. Mark Zuckerberg can come to Nigeria 100 times and Warren Buffett can also visit 200 times; if we do not get our economic environment right for small businesses to thrive, the road to economic recovery will be very long and painful.
So now we know. Recession is not just a word. It is a noun with a very bad connotation.