Development economist and public commentator, Odilim Enwegbara, believes a global recession as a result of a trade war between America and China poses no threat to Nigeria’s economy. He also suggests that the Federal Government should devalue the local currency to make more revenue:
The World Bank just revised its growth forecast for the Nigerian economy to 2.1 percent in 2019. What indicators is the bank looking at in cutting its growth forecast?
The bank is looking at the political situation. Two, foreign and domestic investors are migrating from the equities market to the bond market.
If an economy is not growing, people will take their money from the equities market to the bond market. Why? Because the equities market is not viable.
The bond market can give them guarantee, safety of their bond and also reasonable returns. Nigerian economy has focused more on bond investors and as a result has crowded out investors in the equities market.
So, the World Bank is looking at these indicators. People don’t have confidence in the economy.
Other reasons are the fall out of the political situation, the level of insecurity and when to look the debt to GDP ratio, debt servicing to GDP ratio is reaching a dangerous level.
So, these are the things they consider. Nigeria’s economy is actually not growing.
And also, there is the fear that if we continue this way, and not let the private sector to participate in infrastructure development, there is the possibility of the debt to GDP ratio getting to 100 per cent.
That means the means to debt serving to the revenue ratio will be unmanageable. Of course, we know the country has borrowed for consumption, the country is on its way to another recession.
The World Bank is looking at indicators and things you and I don’t look at, as average watchers of the economy.
No private and investor will go and build refineries in Katsina because they will consider the market and access to raw materials. But that’s what the Federal Government wants to do
There are fears the trade war between the United States and China could trigger a global recession. How real are these fears?
Let me tell you something, the fact of the matter is that it will have little effect on developing economies. There are some gaps in America that China is taking advantage of.
And there are gaps in the Chinese economy America is taking advantage of. The American economy is an invention, innovation driven economy.
It is high-value oriented. The Chinese economy is a manufacturing one, I will use the word, high-manufacturing economy.
It is increasingly high value added. The problem with the American economy is the monetary policy mechanism allows the value of the dollar to be determined by the market, which should not be the case because the dollar is the de facto reserve currency.
So, they cannot ordinarily try to lower the value of the dollar because lowering the value will affect the price to all the commodities that are sold in the currency.
And of course, it will create problems for the global economy in terms of those countries that are dependent on commodities like oil and the rest.
Now the Chinese currency is constantly being devalued so that made-in-China is competitive anywhere in the world. So, America is trying to address that by making sure that American goods are as competitive as made in China.
This they are doing by imposing tariffs on good imported from China. The tariff difference is used to make American goods at least be competitive in America.
For developing countries like Nigeria, it will have little or no effect. Why? What will happen is that China will be looking for other markets to dumps its goods. When China has to dump its goods, it is forced to lower the prices of its goods.
The effect is that countries like Nigeria, in order to survive will need to impose tariffs on goods imported from China.
Now, WTO is no longer effective for countries like Nigeria. If America can walk away, from WTO conditions, then if countries like Nigeria impose tariffs, nobody will penalize us protecting goods made in our country.
We are already seeing a drop in oil prices because the fears of a global recession. Should the government be looking at an even larger budget deficit in 2019?
The Nigeria government, like every government before it, has failed to diversify the economy away from oil. And you cannot do that if you do not limit importation.
Be that as it may, at the end of the day, if we have to increase our oil revenue and give states and local governments more money, we have to allow the naira take its market value, which means we should allow the naira to exchange for 500/$.
There will be more money going to the federation account. The federal government will have more money to spend given that the minimum wage has increased to N30,000.
I will want Federal Government to reduce its domestic debt and look towards China and other countries to reduce it from the present level. Of course, I am against government borrowing for so called infrastructure.
Ordinarily, government should allow the private sector to take up the bulk of infrastructure investment. If private sector is allowed to invest in infrastructure it will make better choices.
For example, no private and investor will go and build refineries in Katsina because they will consider the market and access to raw materials. But that’s what the Federal Government wants to do!
I am against the CBN artificially propping up the naira. It encourages importation and doesn’t let us look inward
The last time there was a significant drop in oil prices, our foreign reserves were depleted, and it forced the country to devalue the naira. What short term measures can the CBN take to prevent this from happening again?
You are asking the wrong question. I am against the CBN artificially propping up the naira. It encourages importation and doesn’t let us look inward.
Why is it that America and China are fighting currency wars? Because if you allow your currency to be strong, it encourages importation against local production.
So, for me I want to see the naira take its market value, not CBN artificially and unnecessarily strengthening the naira to promote the local consumption of imported goods.