Where and how Nigeria’s economy will end this year is now a matter of conjecture. But one indisputable fact is that by the end of the year, part of the growth originally envisaged for 2023 would have been sacrificed on the altar of this currency redesign programme.
That is the way of policies. One policy objective is often achieved at the expense of the other due to conflicts. It just depends on the priorities of the authorities concerned at any point in time. So there is nothing uncommon about this, except that in some cases the sacrifice given up in a policy milieu is sometimes more than what the designers imagined. Giving up part of a policy objective in order to achieve another is an integral part of policymaking. It also shows where the interest of the authorities lies.
Most predictions, both original and revised versions made concerning the performance of the economy this year will subsequently be revised. The IMF projected a 3.2 per cent growth for this year. The World Bank’s projection was 2.9 per cent, down from the 3.1 per cent it projected previously.
This is because the assumptions on which such predictions were based have been altered significantly by the events of the past month or so. And going forward, there is no clear indication of what the next steps will be. So, more revisions are inevitable.
This is not to say that economic predictions come with mathematical exactness. Yet, to serve any reasonable purpose, they must reasonably approximate the actual performance within a tolerable margin of error. But given what this economy is currently going through, there certainly must be a major revision to what has been forecast as its likely performance this year.
Economic growth comes through the effective deployment of resources in the production process. This growth is an additive process, with every successive generation building on what others have done before. Growth also depends on the productivity of factors, including labour, and financial capital. So, if this deployment of resources has been disrupted by social and economic dislocations such as we are experiencing currently, there is no reason to expect things to go the way they were projected to go.
This first quarter is likely to end in the negative region because what Nigerians are currently going through is not likely to end soon. Within these first two months hardly can any economic operator say they have made progress that can translate into real growth.
There have been disruptions in supplies/supply chains, in production, and in virtually every segment of our economy. Both the informal and formal sectors have been hit. In the city, you would have noticed that in some places your neighbourhood stores no longer open on time. In the markets, supplies have thinned out because the demand for cash payment versus transfers is a big constraint to commerce.
This is why the National Economic Summit Group has raised its voice, warning that this economy faces contraction, which is the opposite of growth. The group has noted that with about 65 per cent of Nigeria’s GDP coming from the informal sector, which runs primarily on cash, the drought in cash means a shutdown of more than half the economy. Besides, the informal sector also employs over 80 per cent of the labour force.
“The cash scarcity associated with the currency redesign policy will likely motivate a slowdown in economic growth as many productive activities have been halted due to the inability to access cash,” NESG has said.
Indeed, our rural economy has been hurt in a special way. Some aspects have been shut down. An uncommon combination of fuel scarcity and cash crunch has virtually brought life there to a halt. Many people there have no way and no reason for going out early in the morning. The village roads looked empty, as in times of crisis. The cash crunch has drained the local economy of its lifeblood. Movement is tough, the difficulty being compounded by the fuel scarcity that has made Okada rides expensive for the villagers. A litre of petrol that they previously bought at about N200 has jumped to over N500, so the fare for a trip has nearly tripled.
Many of them have been cut off from the banking system. While there is no cash, bank transfers are now like a punishment. Someone to whom is sent the sum of N10, 000 will look for N2,000 or N3,000, in some cases, to access the full amount. Consequently, business in rural areas has been slowed down.
While others were projecting higher growth rates for the year, the CBN presented a different picture. Speaking at the conclusion of the Monetary Policy Committee meeting in January, CBN Governor, Godwin Emefiele, said: “Available data and forecast for key macroeconomic indicators for Nigeria suggest that the economy will continue to grow through 2023 but at a subdued pace.”
He went on to explain that, “The economy is forecast to grow in 2023 by 2.88 per cent by the CBN estimate, 4.2 per cent federal government estimate, and three per cent by the IMF estimate.”
This picture was also captured by Fitch Solutions late last year. In its statement on the Nigerian economy in early December, Fitch had said the economy would in the fourth quarter of 2022 grow by 2.3 per cent, which would see Nigeria slip into a six-quarter low of 2.3 per cent in Q422. It expected this to ease in 2023, with a 2.5 per cent expansion, “due to disruptions associated with the February 2023 election and the continued decline of oil production”.
Given that at the time he spoke the naira redesign programme was already on course, one wonders if Emefiele had known the level of dislocation that the policy would inject into the economy.
After all, Ghanaians say in a proverb that if your grandmother is telling you a story, you cannot run to your mum and ask, “Is it true?” Grandma should know better than mum. Since the CBN is a research-based institution, one expects that some econometric models and other statistical iterations would have given them an indication of the possible level of disruptions to growth arising from this programme.
