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Economy | Nigeria Economy

Unlocking Liquidity in Nigeria - Ayo Teriba

Oct 14, 2019   •   by   •   Source: Dr. Ayo Teriba   •   eye-icon 2361 views

Abstract

 

It is surprising how Nigeria's impressively positive economic narrativefrom 1999 to 2014 has given way to an unflattering post-2014 narrative in whichthe economic terrain is about recession, inflation, unemployment, poverty,restiveness, and insecurity; the financial terrain is about foreign exchangerationing, devaluation, multiple exchange rates, low loan-deposit ratio, andhigh interest rates; while the fiscal terrain is about low revenue, low capitalspending, large deficits, high debt service, rising debt, and growing concernsabout solvency/bankruptcy. 

 

This paper sets out what Nigeria should do to get the economic,financial and fiscal narratives back to positive.


With huge windfalls from the commodity price surge from 1999 to 2014, Nigeriaenjoyed economic expansion- growth accelerated and commercial services, led bytelecommunications and information services, outgrew agriculture and oil- thatsaw Nigeria's rank rise phenomenally from the 52nd to 22nd economy in theworld; financial expansion- deepening of banks, bonds and equity markets, aswell as government revenue and spending; and stability- single digit inflationand interest rates, and a strong exchange rate; and, a marked reduction inmisery- falling unemployment and poverty rates.


With shortfalls replacing windfalls since the crash of commodity prices in July2014, Nigeria's economy has endured economic contraction- growth reversal,recession, and a sluggish recovery to now rank as the 30th economy in theworld; financial contraction- especially bank deposits, equity marketcapitalization, and foreign exchange supply, as well as government revenue andspending, and instability- the Naira lost about two thirds of its value againstthe US dollar, while inflation and interest rates jumped into double digits;with the growing misery reflected in growing number of the unemployed, thepoor, and the disenchanted.

This paper presents data that reveals that the common thread between the twoeras is the quantum of external liquidity at the country's disposal. Externalliquidity surge from windfalls fuelled the era of expansion and stability, justas external liquidity shortages from shortfalls inflicted contraction andinstability. We show that unfolding global realities now mean that Nigeriacould easily adopt policies that will raise our external liquidity thresholdsenough to switch from contraction to expansion. We show how global liquidityglut has seen a doubling of long-term capital inflows to developing countriesin the last decade and how Nigeria is very well-placed to get a fair share ofthat.


Despite the negative external income shock, the domestic reality is thatNigeria remains prodigiously asset rich. However, while Nigeria's economic andfinancial struggles resulting from the decline in income have been conspicuouslyprominent in economic news headlines, the value of assets owned by Nigeria andthe solutions the assets could unleash have been less so. This paper drawsattention to the hidden value in vast assets owned by Nigeria, makes a case forunlocking massive domestic and external liquidity required to arrest theeconomic and financial crisis from the assets, and articulates four alternativeways of doing this.


We show that Nigeria could adopt the following options to raise domestic andexternal liquidity thresholds:

  1. Securitize (not sell) equity holdings in NLNG and other oil and gas Joint Ventures to give Nigerians at home and in diaspora opportunities to invest in these assets and earn some of the dividends. 
  2. Privatize to attract brownfield FDI by converting all wholly owned corporate assets to securitizable Joint Ventures stakes in which government owns up to 49 percent by privatizing (yes, selling) the rest to allow foreign investors own minimum of 51 percent like the NLNG. 
  3. Liberalize to attract greenfield FDI by breaking government monopoly in all infrastructure sectors to encourage entry of foreign investors who could operate in parallel to the Joint Ventures. 
  4. Commercialize idle or under-utilized government owned lands and built structures by leasing (not selling) them, relocating uneconomic activities from prime locations and repurposing such locations for leasing to open new streams of lease/rental income into government coffers.


Doing these will change Nigeria's economic, fiscal and financial narratives byunlocking vast amounts of liquidity for Nigeria to strengthen the Naira,rejuvenate fiscal, financial and foreign exchange streams, accelerate growth,eradicate poverty and unemployment, rebuild infrastructure, diversify growth,and lay the foundations for shared prosperity. 

 

Leading developing countries, China, India inclusive, adopt differentcombinations of the four options to fuel their development. Nigeria's highpopulation, scattered in hundreds of densely populated cities, and the recentoil boom, combine to bequeath Nigeria with valuable but idle public assets thatthe country can unlock required liquidity from.

 

Download Paper from SSRN Here 

 

Related Articles & News by Ayo TERIBA

1.        Unlocking Liquidity Will Restore Growth and Stabilityfor Nigeria - Ayo Teriba - Jul 19, 2019

2.       Africa Economic Outlook - Ayo Teriba - May 31, 2019

3.       Nigeria Is Lagging Behind In The Race For GlobalLiquidity - Ayo Teriba - Oct 19, 2018

4.       Nigeria Must Give Top Priority to Managing itsLiquidity-Ayo Teriba - Jun 21, 2018

5.       Nigeria needs robust reserve buffers to managecyclical shocks - Ayo Teriba - Dec 15, 2017

6.       One-Day Conference on Nigeria's Economic Outlook byAyo Teriba holds June 15 - May 16, 2017

 

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Proshare Nigeria Pvt. Ltd.

 

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