Quick wins to stave off recession, is it doable?

Nigeria suffered negative GDP growth in Q1 2016 according to data released by Dr Yemi Kale and the good people at Nigeria Bureau of Statistics.

Unfortunately, and given the continued news about job cuts, backlog to salary payments, contractor debt and mobilisation, Nigeria seems headed for an official recession by the end of Q2 2016. Dolapo Oni wrote an article suggesting ideas on what the Nigerian government could potential do within one month to grow the economy by at least 0.01% in Q2 2016 in order to avoid an official recession and stave off its attendant issues.

Let me first say that if it is indeed possible to stave off recession with a month to go, then the government should do everything it can and take every step necessary to do this as Nigerians have already suffered enough.

However, I fear it may already be too late for anything to be done.

First, per Dolapo’s article, I don’t think quantitative easing or ‘printing new money’ is what Nigeria should do. Dr Nonso Obikili explains it here better than I ever could. Second, the article calls for government to pay outstanding debts to contractors on major infrastructure projects in construction and agriculture to stimulate job creation, pay outstanding MDA and security forces debts to power distribution companies and pay workers salaries to stimulate consumption demand and by extension the FMCG sectors. All of these are very good ideas.

My challenge is that the article not only assumes predictability of behaviour of recipient of these government disbursements but also the rationality of their behaviour. The problem is, it is difficult to predict how recipients will behave when they receive this cash. Also, what may be a rational behaviour in reaction to this cash receipt to Dolapo may be irrational to the recipients, that is, our definition of rationality differs and certainly our timescales differ. For example, whilst we may assume that some of the recipients will spend the cash on feeding and hence potentially stimulate agriculture, it doesn’t mean people will consume more (enough to bring economic activity above zero) in the month of June to stave off recession. Or we can assume that perhaps more beer will be consumed but will the breweries actually produce more or just ship what has already been produced but in warehouses? Could brewery reaction be to ship what they’ve already produced and not necessarily order more inputs down the value chain which is what is really needed to stave off recession?

The manufacturing sector has been in negative growth for more than a quarter and actually needs the government to relax its foreign currency restrictions so it can source its inputs more than government printing money. Most company’s plan their orders ahead, if they’ve been cutting jobs, we can safely assume they’ve been cutting their input orders. If this is the case, then can they really ramp up production or employment in such a short time for such a short demand cycle? Typically company management plan to increase their capital expenditure or investments when they have confidence of a sustained demand. Can sustainability be attached to the current demand cycle or the one that will potentially be stimulated by Dolapo’s measures? Further, how will power distribution companies likely treat this cash alert? Probably pay down debt. If they choose to invest it in capex, I can’t imagine it’ll be for short term investments. That will be tantamount to gross capital allocation indiscipline. In fact given the structural issues in the power sector, I doubt it is in the interest of the government to encourage short term investments over medium and long term ones.

Workers owed salaries once paid can simply hold the payment in savings out of fear of current economic condition. Some may change it to foreign currency again out of fear. Many more may use it to pay for foreign school fees or other things that do not lead to increase in local demand that will directly benefit or stimulate local production.

Finally given the ex-post nature of GDP estimation, that we staved off recession won’t be known for a couple of months, so end of August at the earliest. Meaning the confidence to be gained from the short term fix won’t be known until when we’re more than half way into Q3. For Dolapo’s suggestions to have maximum impact and achieve stated objective, the government won’t only need to disburse cash but also attempt to compel recipients of how the cash is to be spent and when too. Government may also need to consider whether it should focus the disbursement on sectors that have been growing like Transportation & Storage or Arts, Entertainment & Recreation or the ones that have dragged the economy into recession like Manufacturing, Construction, and Financial & Insurance. In making its decision, the government will need to ensure that it chooses the sector with the faster pass-through and the most durable in reaching underlying value-chain. The disbursement has to be very precisely targeted to achieve maximum pass-through. Dolapo’s ideas aren’t impossible, it just seems like more than a month’s job to me.

Quick wins to stave off recession, is it doable?

On Presidential Report Card

There’s a good democratic practice I’d really like to be introduced to our politics and if possible that the National Assembly makes mandatory through legislation. The practice I’m thinking of is an adaptation of the Prime Ministers Questions (PMQs) that is the norm in British politics. Whilst we don’t practice a parliamentary system of government, I have an adapted version to the presidential system we do practice in mind. Here it is: 

On an annual basis, the National Assembly should summon the President to its complex for a Presidential Accountability & Stewardship Debate (PASD). This annual event will serve as an opportunity for the President to give an account of his stewardship over the past year as well as offer citizens and their representatives the opportunity to ask the President questions directly. The PASD could be held annually on May 29.

The format of the PASD could start with a Presidential address for 30-45min, a 15mins break, followed by a moderated panel debate for an hour, another 15mins break and finally an open question session for 45mins to round up.

Presidential address – 30 -45mins

Break – 15mins

Moderated Panel Debate – 1hour

Break – 15mins

Open questions – 45mins

Currently the President delivers a speech on May 29 from the Presidential Villa. I think that should change and should be delivered at the NASS in front of the representatives of the people. This is symbolic and at least creates the perception that the President is reporting back to those he or she is responsible to – the highest office in the land – The Office of the Citizen.

I’d suggest that the moderated panel debate is composed of the President, Senate President, Speaker, Minority Leaders of the Senate and House of Rep, Attorney General and two representatives of two Civil Service Organisations.

It shouldn’t be compulsory for other Senators and Members of the House to attend the PASD. In fact Senators and Members of the House that are not principal officers should be actively discouraged to attend. Priority of attendance should be given to two representatives of every political party that is registered with INEC. With respect to identifying which civil service organisations (CSOs) are to be invited, the NASS on its website should, at least three months prior to the event, request applications from CSOs to participate in the PASD. Every CSO that applies to participate should then be included in an online poll (the poll could be open for two weeks) to determine which CSO will be part of the Moderated Panel Debate. CSOs should then solicit votes from members of the general public. The top two CSOs with the most votes will be ones that will join the Moderated Panel Debate. Two representatives from the top 20 CSOs from the online poll would then be invited as members of the audience that’ll get the opportunity to ask questions during the Open Questions session.

Besides taking questions from the audience within the debate hall, the Moderator of the event could also take questions from social media submitted by Nigerians.

My hope for the above is that Nigerians get the opportunity, at least once every year, to ask their President questions on stewardship of the mandate given at the general election. No question should be off topic during the PASD. This will ensure that whoever is President will have detailed knowledge of every aspect of their government or on issues plaguing the nation that their cabinet may have shielded the President from being aware of or that the President is wilfully avoiding for ‘emotional balance’.

On Presidential Report Card