Dissecting FG’s Economic Intervention

With the current economic challenges exacerbating hardship in the country, Nume Ekeghe highlights analysts’ opinion on FG’s strategy aimed at alleviating the suffering of the people

Recently, President Bola Ahmed Tinubu addressed the nation on the federal government plans to ease the hardship that had been brought on individuals as well as corporates following the removal of fuel subsidies as well as the liberalisation of the foreign exchange market.

The resultant effect of the liberalisation of the foreign exchange market had seen the value of the naira plummet at the official window. This, combined with the removal of fuel subsidy, has led to lots of companies reporting losses in the second quarter of the year. In the first half of the year, 10 major companies recorded foreign exchange loss of N764 billion.

Addressing the nation, Tinubu affirmed that the recent policies of the government had been tough, and had a downside effect on the populace.

According to him, the preceding administration seeing the looming danger for the economy had made no provision in the 2023 Appropriations for subsidy after June this year and the, “removal of this once helpful device that had transformed into a millstone around the country’s neck had become inevitable.”

Tinubu added, “Also, the multiple exchange rate system that had been established became nothing but a highway of currency speculation. It diverted money that should have been used to create jobs, build factories and businesses for millions of people. Our national wealth was doled out on favourable terms to a handful of people who have been made filthy rich simply by moving money from one hand to another. This too was extremely unfair.

“I had promised to reform the economy for the long-term good by fighting the major imbalances that had plagued our economy. Ending the subsidy and the preferential exchange rate system were key to this fight. This fight is to define the fate and future of our nation. Much is in the balance.”

Tinunu said, “As we moved to fight the flaws in the economy, the people who grow rich from them, predictably, will fight back through every means necessary. Our economy is going through a tough patch and you are being hurt by it.

“The cost of fuel has gone up. Food and other prices have followed it. Households and businesses struggle. Things seem anxious and uncertain. I understand the hardship you face. I wish there were other ways. But there is not. 

“If there were, I would have taken that route as I came here to help not hurt the people and nation that I love. What I can offer in the immediate is to reduce the burden our current economic situation has imposed on all of us, most especially on businesses, the working class and the most vulnerable among us.”

Intervention moves

In response to the economic hardship, the government said it had made moves to ease the pressures that corporates were facing in the wake of the policies of the government. This, he added, has been done through several interventions that the government is providing.

But analysts contended that the interventions are similar to the ones that were introduced by the Central Bank of Nigeria (CBN) under the leadership of its suspended governor, Godwin Emefiele.

President Tinubu in his address had noted that the federal government is working closely with states and local governments to implement interventions that will cushion the pains of Nigerians across socio-economic brackets.

He had last month signed four Executive Orders in keeping with his electoral promise to address unfriendly fiscal policies and multiple taxes that are stifling the business environment. These Executive Orders on suspension and deferred commencement of some taxes are expected to provide the necessary buffers and headroom to businesses in the manufacturing sector to continue to thrive and expand.

To strengthen the manufacturing sector, increase its capacity to expand and create good-paying jobs, he said the government is going to spend N75 billion between July 2023 and March 2024. “Our objective is to fund 75 enterprises with great potential to kick-start a sustainable economic growth, accelerate structural transformation and improve productivity. Each of the 75 manufacturing enterprises will be able to access N1 billion credit at 9 per cent per annum with maximum of 60 months repayment for long-term loans and 12 months for working capital.

“Our administration recognises the importance of micro, small and medium-sized enterprises and the informal sector as drivers of growth. We are going to energise this very important sector with N125 billion. Out of the sum, we will spend N50 billion on Conditional Grant to 1 million nano businesses between now and March 2024. Our target is to give N50,000 each to 1,300 nano business owners in each of the 774 local governments across the country.

“Ultimately, this programme will further drive financial inclusion by onboarding beneficiaries into the formal banking system. In like manner, we will fund 100,000 MSMEs and start-ups with N75 billion. Under this scheme, each enterprise promoter will be able to get between N500,000 to N1million at 9 per cent interest per annum and a repayment period of 36 months, “he said.

“To further ensure that prices of food items remain affordable, we have had a multi-stakeholder engagement with various farmers’ associations and operators within the agricultural value chain. In the short and immediate terms, we will ensure staple foods are available and affordable. To this end, I have ordered the release of 200,000 metric tonnes of grains from strategic reserves to households across the 36 states and FCT to moderate prices. We are also providing 225,000 metric tonnes of fertilizer, seedlings and other inputs to farmers who are committed to our food security agenda.

“Our plan to support cultivation of 500,000 hectares of farmland and all-year-round farming practice remains on course. To be specific, N200 billion out of the N500 billion approved by the National Assembly. This expansive agricultural programme will be implemented targeting small-holder farmers and leveraging large-scale private sector players in the agric business with strong performance record.

“In this regard, the expertise of Development Finance Institutions, commercial banks and microfinance banks will be tapped into to develop a viable and an appropriate transaction structure for all stakeholders, ”he stated.

Analysts Express Apprehensions

However, analysts believe that the interventions may not be enough to cushion the negative impact the government policies are having on the populace. Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane in his presentation at the Lagos Business School, described the N500 billion palliative announced by President Tinubu on July 31 as an “inadequate dose” that is too little to be effective.

Pointing out that “Nigerians are suffering and angry,” with the misery index at 56.12 per cent and multidimensional poverty at 62.5 per cent, he said, “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.

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.”

On his part, Head of Ratings at Agusto & Co, Mr. Ayokunle Olubunmi said, “We should wait for the implementation because to me, a lot of them look like more of the same. Don’t forget that one of the main key features of the last Central Bank of Nigeria (CBN) governor is actually the huge amount of intervention funds.

“Giving grants is still more of the same policy. Unfortunately, the speech is actually not clear on how it would be different from the other ones such as the 100 for 100 policy and others. If the implementation is not different, you would be getting the same results. 

 “Now every bank is awash with intervention funds and even most corporations would be asking for intervention funds at 9 per cent. And when implementing, they should be careful not to crowd out taking loans from the banks because people are looking for intervention funds. The success of this initiative would be determined by implementation.”