Buhari's 2016 Economic Recession

By

Sampson I. Onwuka

Nigerian economy is in recession and the President, Mohammed Buhari has called a summit on the economy. The government seeks to raise 120 billion naira from local markets to pacify the short term challenge of Nigerian economy. Short falls in crude oil price seems to have hit most oil-producing nations of the world hard. As such the 2016 economic recession of Nigeria is not peculiar, it is part of global markets trends that welcomes the poise of U.S economy to raise rates. Nigerian economic recession is a cultural concern, especially the role Buhari is playing. It is research expectation of the general public to compare Buhari's economic polices in 1983 through 1985 to the recent policies in 2015 and 2016, which will show deep cuts in budgetary provision. It will also show what he did when there is extra crude revenue under President Shehu Shagari and by long stretch, an essay by Professor Charles Soludo matter. This is not the case with the current recession in 2016.

The idea behind Government spending during periods of low ball movement and cash-flow is to jolt the market in such a way that repos and third parties can assume a position that will increase participation. The obstruction to this kind of practice is usually austerity measures and minimum government spending profound for maintaining strict budgets and fiscal planning, with the purview that a balanced budget will improve Nigerian buying power since cutting down deficit will make the budget responsible. The history of this kind of action without 'fundamental' changes in the work sector is entrenching the prolix of big companies. In Nigeria, these mainly banks whose fore-ground role in the economy is showing a permanent dependence on Nigerian one crop product, The way around this kind of thing is to expand the government through its fiscal budget and planning. That is an increase in Budget for 2017 can be borrowed forward for 2016 by raising the money locally or through the banks as they are seeking to do.

The central crux of budget expansion is tied to the appreciation of revenue, that is an appreciation of National Gross Domestic Product. For if this is not the case, the country may be struggling to plunk the holes of its new debt ceiling for a few years, and if this is the case, it may be said that Nigeria is living above its means and will therefore an economic ‘crisis’ if borrows more than it can afford. Yet the country has to raise more money - much more if crude oil price still remain this low.A recession is not defined by government cut backs or by introduction of austerity measures which are meant to helm too much economic waste. Recession defer from one major region of the world to another, differ from the circumstances surrounding certain economies of the world, differ from nation to another - from era to another - but seem to have similarity characteristic and symptom; it is mostly a matter of liquidity and investor confidence and perhaps price movement and not necessarily stagflation. It is imperative that when any economy in the world show signs of slow-go lasting for more than 3 months, that the leaders of the economy and government would have to response forcefully to forestall further decline in such economy. A further decline of recession ridden economy is depression, and historically, many things can go wrong when a country is depression. It is worthy to mention quickly that one of the most polar tugs of depression is the general lack or decline of international salable rates.

The Nigerian economic recession did not arise from lack of spending, or attitude to spend, it did not arise from stringent budgetary policies under Buhari - which are over-stated given the current deficit with most West African States -, and it did not arise from low crude oil prices. These are the hallmarks of Buhari's economic policies, and are contributing factors to the recession, they are hardly ever the central issue forcing the slow-go movement. The major problem is lack of leads in Nigerian economy with its markets dominated by 80% of Bank stocks. For here and perhaps elsewhere, there is a concern that need to matched to the current situation, that if the nations plans to raise 120 billion naira from local institutions, it is best perhaps to regard such effort as a cash call from the Banks. The second issue is the administrative poverty of Federal Service jobs - not just Service Jobs at federal level but lack of service and utility based jobs at very local government levels when the problem is felt the most.

We shall begin by generally speaking on recession, that for over half a century, the ideal solution to recession is increasing the quantity of money to the banks, that is, the Central Banks or Federal Reserve in terms like this will likely assume a central role in financial health and stability of its institutions by injecting more money to the banks. A stable bank increases investor confidence, a spooked investor confidence is usually the result of zero leads in any economy or the consequence of slow to zero flow/momentum in its market which is what Nigeria under President Mohammadu Buhari is suffering from. This will mean expansion of his government and in this case, expansion is advised through its fiscal budget with emphasis on local government communities, a defensive economic policies while expanding than expansion through defense stocks.

But for Nigerian economy which has been in depression for almost twenty years, this recession is partly based on liquidity of cash but not necessarily a matter of spending or aggregate demand. As such we are not dealing with consumption at all, for that, the expansion of government through spending or through creation of new money which is what the Government is looking to do is not the solution the president is looking for and possibly an academic exercise. He will be looking to raise more money from Banks or private institutions between this year and next if he toeing this line of solution and part of the money is what we hope an increase in crude oil prices can do for the economy.

A bank can create money out of nothing by providing a loan – either to individuals or in this case – to the country at large, but its performance in a recession ridden depressed economy such as Nigeria is hardly a reflection of the country’s GDP and banks fractional demands or reserve ratio may not retain the cash-flow requirement to keep up it's operation. For that the 120 billion Naira if it can be raised is a draw-down that is not central to the deep challenges of the 2016 Nigerian economic recession and the end result is a failure of the longer term solution. The challenge falls on the Nigerian banks who may be experiencing their issues of liquidity and to a practiced eye, there is an economic remedy of housing numbers and affordable housing for struggling millions of Nigerians experiencing sprawling demographic.

Core housing numbers hardly make effective CPI index, hardly add to the nation's overall GDP - at least for 2016 - but represents a frontier that can remedy some job situation while at the same time providing a cushion for the problems of inter-bank lending and rates between banks, which may or may not encourage investment. Above all, banks do not take orders from the government since they are in the business to make money, as such investment in housing as a temporary economic relief is not the politics of labor but the pragmatics of housing the most available in economic hit state such as Lagos and Abuja. In this regard, we can argue that the deregulation of service jobs is important, that the creation and resurrection of pension funds for Nigerians over 80 years is vital. If there are no social programs such as Welfare and Social Security, the recession is warning to possible crisis. In all, the combination of of private sector and government sector under Buhari is not a misplaced strategy and therefore a conventional monetary and economic policy.

There are few ways that the banks can raise money – at least five (1) New deposits (C.D.O) (2) Profits from Forex – that is currency “invariable to value” (3) through the ‘sell’ of additional “stock to investors” (4) through borrowing from the Central Banks or the FEDs or CBN from Treasury (5) through IRA accounts and the other is what happens when there is a movement from checking to savings and savings to checking. The 120 Billion will not represent a national creation of money from loans, for at least we can see that the problem of distribution is apparently lack of permanent money in the country and the condition for economic failure is endemic. Secondly, an increase in Government spending – for instance on houses hardly reflect the gap between the institution, the public and the Central Bank and for that the quantity of money is not a possible motivation or a pause of the receding market, it will not alter the cascading of the nation's provision that it is at least 20 years in the making. What emphasis in housing can however do is motivate scarce use of time for profit and labor employment on short term, and long term, it persuades the exercise of house and home management - that is, with new houses and new homes comes the necessity to buy furniture for the house and other amenities which we need. With such effort, consumption is improved and markets can recover its momentum.

One other remedy is perhaps through acquisition of debt which can be transferred from government spending to investment, or debt to investment by charting new frontiers for the government – that is new production possibility frontier (PPF) can replace budgetary requirement forcing the money into frontiers that generate income – at least on paper. One of such will be a crude oil frontier, an increase in quota ay require building new refineries and threading new markets, may however serve as an exercise that might necessarily jolt the market in a perceived direction.

 In essence Nigeria has no real leads its total economy, no transition of its local markets has taken place and the economy is continues shedding because it is cornered by the bigger companies. A tough stress to strain balance is how Nigeria local market can accommodate the rate of foreign direct investment. It is not strange that the top new companies in Nigeria are new and foreign, that the applicable market rate is closer to the international market to which Nigeria with cheap and lousy monetary policies has no exit strategy. In essence there is inflation in Nigeria that is finally hitting home after years of lurching in the dark under the grappling force of China markets. Chinese export banter and latterly – Vietnam is the reaching reason why Nigeria like many African countries has not felt the full brunt of their toxic and bad economic policy. But with China over-stressed and experiencing reduction in production, the outcomes are felt all-over the country.

The other way that Nigeria has escaped the liquidity problems they are having is through government spending. Under President Goodluck Jonathan, there was spare capacity from crude-oil which he used to shuffle the demands of a struggling country but perhaps the not best kept secret. Yet in terms like this, we see how much Nigerian economy is a satellite to U.S market, for crude oil prices have not been this low in U.S – who is pushing its alternative to energy - leaving many oil rich economies of the world struggling to make ends meet. And those like Nigeria without effective study of its market and without game plan during times of plenty, was destined to be a currency waste basket. Nigeria should not be a satellite for U.S or U.K for that matter, for in these countries, the seeds of that nations are mainly worker class and have no real genuine contention for national treasury. Nigeria has no penetration in West Africa let alone Africa, has no presence in U.S and U.K other than ferried and missing accounts. It cannot survive on its own with salable interest parity with countries such as South Africa, or Ghana for argument sake. The country is expanding beyond it's means and President Buhari is not unaware of it.