5 Policies/Happenings Shaping The Nigerian Economy in 2020
Governments run the world. Government policies are the fulcrum for economic development or otherwise. Businesses and citizens are either beneficiaries or victims of government policies.
The new year has seen a rush of polices across the country by governments at federal and state levels. Some of these policies make citizens worry about whether the government thinks through and examine all possible effect before seeking to implement policies.
Here are 5 policies/happening already shaping the economy in 2020:
Lagos Ibadan Rail Project
The much talked about and anticipated Lagos-Ibadan railway project is now scheduled for completion sometime in April 2020. The extension of the completion date from the initially scheduled February 2020 deadline is due to the need to extend the starting point from Ebute-Metta to the seaports in Apapa.
There is also the need to deal with urban renewal, building new flyovers, overhead bridges, underpasses, pipes, sewage, stealing of their equipment.
The locomotives for the project have already begun to arrive.
The impact of the railway would be massive. It would create jobs (already creating), make possible faster connection between the biggest cities in the south-west of the country and kick start socio-economic development in countless communities.
This railway project, like others across the country, is a huge plus for this administration and of great benefit to the citizens.
Impact: Connection, growth and job creation
The Coronavirus Scourge
Coronavirus has now affected tens of thousands with hundreds dead. One of its bigger impacts is on the global economy. Oil is the lifeblood of the global economy. China is the biggest market in this economy.
The spread of the coronavirus meant that the Chinese Lunar New Year holiday was extended in much of China with travel restrictions in place. As a result, factories, offices and shops remain shut.
China, the world’s biggest crude oil importer, has been the main driver of global energy demand growth in recent years. it usually consumes about 14 million barrels a day. With the coronavirus, the country needs a lot less oil to power machinery, fuel vehicles, and keep the lights on.
So naturally, a decline in China’s demand would send world oil prices tumbling. Lower oil prices have a massive implication for an oil-dependent economy like Nigeria.
There is, however, positive news on the horizon. Reports indicate that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, a group known as OPEC+, are talking of cutting output to keep the prices up.
Impact: Fear, Uncertainty and a budget shortfall
Commercial motorcycle operators (popularly called Okada) and Tricycles (Keke) have been banned in Lagos. The ban covers all major business districts and bridges across the nation’s commercial nerve centre.
The Lagos State Government claimed that the ban was necessitated by growing safety concerns. Authorities insist that okadas and kekes are disorderliness, accidents prone, and responsible for thousands of deaths yearly.
This ban looks like one of those policies implemented without critical thoughts about the actual impact. It is causing widespread disruption across the commercial capital with long queues at major bus stops, higher fares and a disproportionately large number of people having to trek (walk long distances) to their destination.
Thousands of jobs have been lost. Think of the thousands of okada and keke riders and their dependents now left holding an empty bowl. Then consider the people who bought the rides and handed to the riders on hire-purchase. How do they reconcile or share? It is murky territory.
Some of the quarrels can go on for years.
Strangely, traffic jams appear to have increased rather than reduce since the ban. So, can we say okadas and kekes are not the only reason for the traffic jams? Many feel that the decision is largely elitist and targeted at the poor. Another pain point is the government’s failure to provide alternatives before the implementation commenced.
There are those who wonder why hailing apps services providers, like Max, Gokada and Opay were also banned. Over the weekend Opay and Gokada staged a peaceful protest against the ban.
One bike hailing company, Gokada, has laid off about 80 percent of its staff. According to reports, the layoffs took place two days after the enforcement.
Impact: large scale job loss, massive public suffering and humongous manhour waste
The federal government has increased value-added tax (VAT). It is now 7.5 percent from 5 percent. This is a massive 50 percent increase for no justifiable reason except the government’s desire to generate revenue. This is one policy that definitely didn’t consider the impact on the cost of living.
The new VAT policy is part of the Finance Act 2019 which became operational February 1, 2020. A new VAT threshold was also introduced at the same time for NGN 25million annual sales.
In addition, sales of electronic services to Nigerian consumers by non-resident companies will be liable to VAT. An income withholding tax will be imposed on foreign companies for professional and consulting services provided to Nigerians.
This new VAT has Nigeria frustrated. The argument is that the increase is ill-timed. The economy has stalled, business finance is scarce and people are struggling to survive.
The worst part is that the issue of VAT increment will be a burden that will be transferred to the end-users who are the consumers; it is the common man who will bear the brunt. There are cases of unemployment and quite a number of challenges that are affecting the common Nigerians.
The new VAT will compound the already bad situation.
While the VAT increase is not popular. Businesses have quickly adjusted. Newspaper organisations have announced new adverts rates, telecommunications services providers have informer their customers of the new VAT regime and generally, costs of items have been affected.
Inflation figure conservatively put at 9 percent is expected to gallop in the coming months.
Impact: Higher costs of goods, lower value and Inflation
Lending and Saving Interests Gap
Another major concern is the widening gap between lending rates and interests. With interest on savings and fixed deposits as low as 1.25 percent and lending rates are as high as 17 percent. This is a massive disincentive to save.
Another sour point. Yields on treasury bills in the secondary market have fallen to between 2 percent and 5 percent. It is insane to reflect that just under a year ago, the yield on these securities was as high as 11 percent.
What is the implication of this sort of thing? Well, the banks, with the active support of the regulator, have created a sure-fire way to make money for themselves.
The strategy is simple really. Banks collect money from customers and offer this capital to borrowers in high lending rates to make more money for the bank from the customers’ deposit whereas the interest rates on the savings have continued to drop.
The depositors get next to nothing for their funds.
Today, it would appear that banks and bankers are making banking unattractive for the banked and impossible for the unbanked. This new normal is unsustainable.
Impact: Deflation, GDP Slow growth and Businesses unable to access much-needed funds.
Elvis Eromosele, a Corporate Communication professional and public affairs analyst lives in Lagos.