Rewane: Tinubu’s July 31 N500bn Palliative too Inadequate, Nigeria Needs N10trn Palliative

Dike Onwuamaeze

The Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has described the N500 billion palliative announced by President Bola Ahmed Tinubu on July 31 as an “inadequate dose” that is too little to be effective.

Rewane made this description in a paper he presented at the Lagos Business School Breakfast on August 2, that was titled ‘The Nigerian Economy: A Tale of Two Cities’, in which he said that the country’s economy is characterised by a patronage system where closeness to corridors of power confers economic success.

He said: “The President, while addressing Nigerians on July 31st, announced a N500 billion Marshall Plan to resuscitate the economy and ease the financial burden on the people,” adding that the “total palliative amounts to N500 billion (0.25 per cent of GDP) is an inadequate dose” that is “not sufficient to cover the exchange rate losses incurred by companies.

“A material palliative should be at least N10 trillion (5.0 per cent of the GDP),” adding that 10 major companies recorded foreign exchange loss of N764 billion” in the first half of 2023 following the unification of the multiple exchange rates.

The breakdown of the palliative is as follows: manufacturing sector support: N75 billion; MSME support: N125 billion; 3,000 CNG buses: N100 billion; agric support: N200 billion; grains 200,000 metric tonnes (MTs) and fertiliser 225,000 MTs.

But a very pertinent question, according to him, is “how long will it take before the impact is felt?”

Likening the Nigerian economy to Charles Dickens’ ‘Tale of Two Cities’, Rewane said that it is marked by high income inequality where “10 per cent of the population enjoys 90 per cent of the national resources while 90 per cent of the population enjoys only 10 per cent of national resources.”

According to him, these two cities have “potential for crisis and social disorder” that could be compounded by the country’s inherent “regional, ethnic and sectarian divides.”

He added that “the Nigerian economy is patronage driven. Regime relationship determines economic success.” 

But the economist pointed out that “Nigerians are suffering and angry,” noting that the misery index is “56.12 per cent and multidimensional poverty is 62.5 per cent.”

He also said that three recent major policies of the federal government, which included currency redesign, petrol subsidy reduction and exchange rates unification only achieved moving “income from consumers (individuals) to the government.”

“Now, FAAC has gone up 148 per cent sharply due to exchange rate gains and subsidy reduction. But how are the states spending the money?” he asked.

Rewane noted that there has been a high level of exchange rate volatility since the foreign exchange market reforms as IEFX rate traded between the band of N696.37 per dollar and N862 per dollar in July, closing at an average rate of  N776.07 per dollar.

The corollary is that “Naira depreciated by 3.9 per cent to a low of N875 per dollar from N841/per dollar at the beginning of July,” representing average exchange rate of N764.05 per dollar in July.

This was “8.13 per cent lower than the average of N764.05 per dollar in June,” he said, noting that “Naira is undervalued by 6.26 per cent” as its “true value estimated at N720 per dollar.”

He expected the “level of volatility in the foreign exchange rate market to reduce as the right policies are implemented.”

Rewane, however, stated that the impact of the exchange rate reform has reduced consumers’ disposable income, brought about higher cost of airline tickets and imported commodities as he projected that aggregate level of consumption would decline.

The exchange reform, according to him, has also afflicted exchange rate computation for import duty, higher cost of imported raw material purchases, and huge loss for businesses with high foreign loans as well as limited capacity to pass cost to consumers due to price resistance.

But to the government, the reform meant higher oil revenue, increase in external debt and government purchases.

He further noted that the impact of the foreign exchange unification on corporate earnings would mean gains for some and losses for others.

According to him, financial institutions “gains today may become transaction loss tomorrow” because of “huge impairments due to provisions to reflect the new foreign exchange reality and revaluation gains for banks with long dollar investments partially offsetting foreign exchange losses.”

However, manufacturers would bear “net finance loss due to increased debt service cost on dollar denominated liabilities and huge finance expenses that would erode corporate profits.”

He also advised the federal government to carry out “full implementation of market and institutional reforms, which will lead to sustained economic growth in Nigeria and increased level of investment flows.”