ThinkBusiness Today - June 9th

TGIF.

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and welcome to ThinkBusiness Nigeria.

20 years after reforms

This period marks 20 years since Nigeria’s first attempt at reforms, presided over by President Olusegun Obasanjo. Between 2003 and 2007, Nigeria caried out extensive economic reforms. I went back to read the account by Ngozi Okonjo-Iweala (NOI) this week. See my thoughts in the “What I read this week”.

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Markets

• The benchmark NGX All-Share Index (ASI) pared 67.93 (-0.12%) points to close at 55,956.59, a 1-week gain of 0.27%, a 4-week gain of 7.18%, and an overall year-to-date gain of 9.18%. The downward trend was because of sell off in DANGCEM (-1.38%), STANBIC (-3.02%) and GLAXOSMITH (-5.30%).

• Oil prices fell US $3 a barrel on Thursday as demand weakness and report that the U.S. and Iran may be approaching a deal on oil exports outweighed expectations of tighter Saudi supply and a potential pause to U.S. interest rate hikes. Brent crude was down $2.15, or 3.14%, at $$74.53 a barrel having earlier dropped as much as $3. U.S. West Texas Intermediate crude fell by $2.40, or 3.3%, to $70.12. Meanwhile, the U.S. Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO) released this week that Oil prices will not average more than $80 per barrel in the second half of this year.

• Naira depreciated by 0.58 % closed at N469.5 / US $ I & E window on Thursday but at the street market, Naira appreciated slightly by 0.15% closed at N760.56 / US $.

• US natural gas futures fell by almost 2% to $2.28/MMBtu on Thursday, ending a four-day winning streak after EIA reported a slightly bigger-than-expected storage build last week.  

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National Headlines

• More “Japa” – This is another season (June – October) of Japa and it will come as no surprise that 52% of those surveyed by Philips Consulting – Talent Management Report – A New World Order: Shifting Paradigm in addressing the brain drain in Nigeria, plan to leave in the next 12 months. These are professionals in finance and insurance, professional services, IT / Telecoms, Education, Oil and Gas etc. There is no reward for guessing the main reasons – the push of rising socioeconomic insecurities (rising costs of living + deteriorating living conditions) at home, and the pull of a global demand for talent. As it has been in the last few years, Nigerian businesses in services and manufacturing sectors are finding it hard to retain talent. Employee retention has become the most pressing issue in board rooms. In the long term, the expectation is that the economy will benefit from remittances, and more importantly, transfer of “technology”.

Global Headlines

• Euro Zone Recession - The Euro zone entered a recession in Q1 2023, latest data shows. The 20-member bloc reported GDP decline of -0.1%, according to Eurostat’s revised estimates released Thursday. It had contracted by 0.1% in Q4 2022. Two consecutive quarterly decline in GDP growth means recession.

• Sports this weekend – It is weekend, so it is a good time to sit up and enjoy some of the best global sporting events this weekend. Oh yes, Manchester City will seek to complete the treble this weekend when they meet Inter Milan in the EUFA Champions League Final in Istanbul. If they beat Inter Milan, they will be the first club to complete the treble since Manchester United did in 1999. They have already won the English Premier League and the FA cup. It will also mean the completion of the trio of EUFA competitions – the Europa League Final won by Sevilla and the Europa Conference League won by West Ham United two days ago. In Tennis, the French Open, one of the four grand slams concludes this weekend. The men semi – finals are between Novak Djokovic and Carlos Alcaraz, and Casper Ruud and Alexander Zverev.

What I read this week

Title: Reforming the Unreformable – Lessons from Nigeria

Author: Ngozi Okonjo-Iweala

This is not a new book, but it is perhaps the most relevant book for Nigeria today. After sharing with you last week the India’s reform experience through “Why Growth Matters”, I thought it is most logical to follow up with this. I have had this book since 2012, a gift from the author, someone I consider one of Nigeria’s precious gifts.

There are so many reasons why it is fitting to read this book again this time. First, it is a major account of why, how, and the results of the set of economic reforms carried out between 2003 – 2007 during President Olusegun Obasanjo’s second term in office. Second, it provides great context of what happens when economic reforms are not sustained. Third, it is a reminder that reforms are never easy; they are complex and are not always successful. Fourth, and I think this is the most painful part, it shows that when reforms are not sustained, they will have to be repeated in more painful circumstances.

Oh yes, the economic management team, as explained in the book, was also determined to remove fuel subsidies at the time. NOI says in the book, “In late October 2004 …we all heard the announcement of an increase in gas prices at the pump. Demonstrations and marches on Abuja immediately ensued, led by labour (led by Adams Oshiomole)…The demonstrations went on for a few days and unfortunately turned violent…and six people were killed.” Then, the subsidy was just about US $1 billion. Now, the same Adams Oshiomole has helped to stop demonstrations by labour this time.

Reading the book again reminds me of the concrete and genuine progress this group of people made on reforms in Nigeria. Permit me to share some:

• Establishment of the debt management office (DM). We now have full record and dynamics of Nigeria’s debt.

• Oil price based fiscal rule (OPFR) and the Fiscal Responsibility Act of 2007, requiring that the country does not expend deficits of more than 3% of GDP over a three-year medium term.

• Medium Term Expenditure Framework (MTEF), and medium-term sector strategies (MTSS) and the annual fiscal strategy paper (FSS)

• Bureau of Public Enterprises (BPE)

• Bureau for Public Service Reforms (BPSR)

So, the question is that, following the success of the reforms and the institutions established, why did we fail to build on them since 2007? The answer is that there is a difference between the letter (law) of economic reforms and the spirit of reforms. Between 2003 and 2007, the team, though trying to establish the institutions of reforms, as mentioned above, they had the spirit of reform. Since 2007, and especially in the last eight years, there was no clue what reforms was about. Otherwise, how do you explain N22 trillion borrowed from the Central Bank of Nigeria (CBN) when there was MTEF, FSS, and the Fiscal Responsibility Act.

Finally, because the success of the first set of reforms have been squandered, especially by the disastrous last 8 years of President Buhari, President Tinubu must start all over again. As then, and now, as NOI said in the book, “our first order was to establish credibility, fairness, and social trust”.

I hope he succeeds, and I hope you take time out to read this book.