This is the extract of a paper of the same title posted on SSRN (Social Science Research Network). You can download the full paper (in PDF format) here.
In the last decade the world economy has seen a twin glut in which a commodity glut depressed commodity prices and export values while a liquidity glut boosted equity values and capital flows, creating a new reality in which net capital flows surpassed net trade flows. The global Covid-19 pandemic is poised to further widen this divergence between global economic and financial paths. In this paper, we lay out what Nigeria could do to take advantage of such global liquidity and position itself favourably in a global post-pandemic environment in which most of the green shoots will be financial, as trade flows that were frozen by the pandemic will take a while to thaw. By taking the measures we suggest, Nigeria (and indeed Africa) could finally reduce its reliance on exports for the external liquidity inflows required for sustaining economic growth and stability and depend more on available global capital flows.
Nigerian economy had enjoyed good times fueled by sustained improvements in global commodity prices in the first fifteen years after returning to democratic rule in 1999 but had also seen bad times since that jolly ride ended abruptly in the second half of 2014 when commodity prices started weakening:
Windfalls from commodity price surges from 1999 to 2014 fueled a positive economic narrative in Nigeria:
- Economic expansion — growth accelerated so fast that Nigeria’s economy rose from the 52nd to 22nd in the world.
- Financial epansion — bank deposits, bonds, equity market capitalization, government revenue and spending surged.
- Stability — a strong exchange rate, single-digit inflation and interest rates.
- Reduction in misery — falling unemployment and poverty rates.
Shortfalls replaced windfalls since the crash of commodity prices in July 2014 and Nigeria’s economy has endured:
- Economic contraction — growth reversal, recession, and sluggish recovery to now rank 30th in the world.
- Financial contraction — as bank deposits, equity market, foreign exchange supply, and government revenue shrank.
- Instability — the naira lost two thirds of its value against the US dollar, inflation and interest rates jumped into double-digits.
- Growing misery — more unemployed, poor, and disenchanted.
The common thread between the two eras is the quantum of external liquidity at Nigeria’s disposal. External liquidity windfalls fuelled expansion and stability and external liquidity shortfalls inflicted contraction and instability, underscoring the fact that meeting adequate external liquidity threshold is the primary catalyst of stability and growth.
Nigeria had been in search of ways of stemming the economic decline before the Covid-19 pandemic forced the country, like most other countries across the world, into a lockdown that brought the economy to a halt since March 2020, and would most probably end at some point in May 2020, with 2170 confirmed cases and 68 deaths as of 1st of May, when Nigeria must push policies that could brighten the post-pandemic outlook. Unfolding global realities now gives Nigeria a chance to leverage its vast public assets to raise external liquidity thresholds enough to switch from contraction to expansion by adopting securitization privatization, liberalization, commercialization policies. Global liquidity glut has seen capital inflows to developing countries double in the last decade and Nigeria is well-placed to get a share of that.
This piece points out that despite negative external income shock, Nigeria remains asset-rich domestically. Nigeria’s history of oil booms combines favourably with her large population, over half of which are spread in hundreds of urban centers, to bequeath her with huge stocks of valuable public assets. While Nigeria’s economic, fiscal, and financial struggles resulting from the decline in income have been conspicuous in news headlines and policy discussions, the solutions that the value of assets owned by Nigeria could unleash have been less so. It is time to broaden the conversation to include the differences that the value buried in vast assets owned by Nigeria could bring to the narratives, evaluate the case for unlocking domestic and external liquidity from them and explore ways of doing so.
Doing these will change Nigeria’s economic, fiscal and financial narratives by unlocking liquidity needed to strengthen Naira, rejuvenate fiscal, financial, and foreign exchange streams, break dependence on volatile oil revenue and costly deficits, rebuild infrastructure, diversify and accelerate growth, eradicate poverty and unemployment, and lay foundations for shared prosperity. In general terms, we must ensure that our policies are well-aligned with unfolding global realities by repositioning to get a good share of the post-pandemic financial green shoots: we must push for large FDI/Remittances inflows as our main sources of external liquidity, and deploying those into transport and energy infrastructure to boost stability, growth, and trade.
More specifically, we must select the corporate assets we are willing to sell to equity investors to attract large Brownfield FDI inflows, the intangible assets we are willing to license to foreign investors to attract large Greenfield FDI inflows, the financial assets we can securitize to attract remittances, and the lands and built structures we can repurpose, redevelop and commercialize for lease/sale. We should stop waiting passively to give investors incentives after they arrive, as such investors never arrive. We should learn that it is up to us to strategically offer equity and other investment opportunities as follows:
- Securitize financial assets — issue foreign currency bonds based on JV equity stakes.
- Privatize corporate assets — sell up to 51 percent of all wholly-owned SOEs.
- Liberalize intangible assets — break government monopoly infrastructure sectors.
- Commercialize non-financial assets — optimize underutilized lands and buildings.
We must also articulate clear enough visions of our future by coming up with credible external liquidity and infrastructure roadmaps that our diaspora and foreign investors can invest in, like India, Saudi Arabia, and lately, Egypt do.