Olajide Olutuyi, Co-Founder/ CEO, Top-Olax Energy Limited
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Subjects of Interest
- Frontier and Emerging Markets
- Private Sector Development
- Sustainable Development
Covid-19 lays bare Nigeria’s economic and social fabrics 19 May 2020
The Covid-19 pandemic has further exposed the fundamental weaknesses in Nigeria’s socio-economic fabric. While it is still too early to determine how much havoc the pandemic would wreak in terms of the actual contraction in Gross Domestic Product (GDP) growth and job losses in 2020, the country has already been hit by a double whammy of the coronavirus disease outbreak and oil price crash.
At the end of April, the price of Brent crude, the global benchmark, hovered around the average cost of oil production per barrel in Nigeria. Demand for oil has been effectively crippled by the pandemic, which has affected countries all over the world. In March, Mele Kyari, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), acknowledged that as much as 50 cargoes of Nigerian crude had not found buyers. This situation further underscores the long-debated risk of the Nigerian government's overdependence on oil for most of its foreign exchange earnings.
Every country that has developed learnt from its past woes. Nigeria must learn from its, as well, and be committed to finding solutions to the challenges this pandemic has laid bare. The government’s abysmal responses to the pandemic have also exposed the serious inadequacies in the country’s social protection systems. The poor and most vulnerable in society have been left to suffer the brunt of the economic impact of Covid-19.
This article would discuss two angles to this dismal situation that demonstrate the reason the government is unprepared and hamstrung. One is the perennial lack of savings by federal and state governments that has now left them without the fiscal capacity to respond swiftly and effectively. The second aspect is the lack of valid social security identification for Nigerian citizens. As a result, there is no measurable and transparent way of channeling even the purported social interventions the federal government says it has rolled out.
The government said it approved a Covid-19 intervention fund to the tune of N500 billion ($1.4 billion) as fiscal stimulus to support healthcare facilities, provide relief for taxpayers, and incentivize employers to retain and recruit staff during the downturn. The government also reduced the price of petrol from N125 to N123.5 per litre. President Muhammadu Buhari also ordered an increase of the social register by one million households to 3.6 million to help cushion the effect of the lockdown.
Many countries have said they would do whatever it takes to protect their economies and vulnerable populations against the health and economic impacts of Covid-19. Governments in those countries are able to make such claims not only because their economies are several times the size of Nigeria's, but they are also able to respond more aggressively due to their stronger fiscal positions and more diversified and dynamic economies.
Following the outbreak of Covid-19, the United Kingdom doled out 27 billion pounds to support businesses and another seven billion pounds was provided as social safety net for vulnerable people. The government is also deferring value added tax (VAT) payments for the second quarter of 2020 until the end of the financial year. According to the International Monetary Fund’s (IMF) Covid-19 Policy Tracker, the UK government is paying 80 per cent of the earnings of self-employed workers, while also deferring the income tax payments of the self-employed by six months.
The United States fiscal response includes an estimated USD 2.3 trillion (about 11 per cent of GDP), which includes USD 250 billion that is being given as unemployment benefits. Canada responded with a CAD 193 billion (about 8.4 per cent of GDP), out of which the government will pay a taxable benefit of $2,000 each for up to four months to people who are out of work as a result of Covid-19. But Nigeria's Covid-19 fiscal stimulus is the equivalent of 0.4 per cent of GDP.
Aid directly targeting individuals and businesses in the US has been made possible and easier to distribute because of a functional national database in the form of the Social Security Number (SSN) for US citizens and the Employer Identification Number (EIN) for US businesses. Almost every legal resident of the United States has an SSN, which was initiated in 1935. In Canada, the Social Insurance Number (SIN), created in 1964, administers several government programmes for individuals, while the Business Number (BN) is assigned to businesses and corporations. These unique identifiers are useful for the purposes of tax payment, pension contributions, obtaining credit, opening a bank account and utilising government benefits.
The Nigerian government said it is disbursing its social intervention to individuals using disparate identifiers. According to the Minister of Humanitarian Affairs, Disaster Management and Social Development, Sadia Umar-Farouk, the federal government is using Biometric Verification Number (BVN) and mobile phone numbers from which it would identify people that buy airtime in the N100 and N200 threshold.
In my article published in the July 2019 edition of this publication, I stated that, “Nigeria is faced with the dilemma of providing unique identification (ID) for every Nigerian residing in the country and abroad.” In the article, titled “Promoting Intrapreneurship in Nigeria’s Public sector,” I proposed that this dilemma can be addressed by consolidating the existing databases such as the BVN, the voter registration database, biometric data of mobile phone users, among others. Several attempts by the government to harmonise these databases with the National Identification Number (NIN) managed by the Nigerian Identity Management Commission (NIMC) have not yielded the intended results.
I have seen Nigerians with different addresses and dates of birth on their various means of identification. In a recent statement by a leader of the ruling All Progressives Congress (APC), Asiwaju Bola Tinubu, the BVN is the only thing closer to a credible database for any form of social security administration in the country. Although it was introduced in 2014, there were only 41,729,896 BVN issued as at 26 April, 2020, according to records from the Nigerian Inter-bank Settlement System (NIBSS).
Considering the fact that so many poor people have no bank accounts, the BVN system will exclude the country’s poorest and most vulnerable people. Moreover, data from the World Poverty Clock shows there are currently over 95 million people living in extreme poverty in Nigeria. The number of people the president has ordered to be included in the social registry account for less than four per cent of the country's extreme poor.
Disbursement of aid to the country's large informal sector, where more than 80 per cent of the people work, will also pose a major impediment due to lack of data on such people, many of whom are petty traders and artisans. Sadly, this is the same sector that contributes 65 per cent of Nigeria's GDP, according to the IMF.
Post-Covid-19, the government should, as a matter of urgency, put the machinery in motion to establish a social security identification database for the country’s citizens as well as a database for businesses, including those in the informal sector. There is no better time than now.
To mitigate the severe impact of the pandemic on vulnerable groups and to safeguard their livelihoods, the European Union gave a grant of N21 billion ($50 million) to the Nigerian government last month. The IMF has also approved a $3.4 billion loan to the country as emergency financial assistance to tackle the economic shocks of Covid-19. While these funds would be helpful to the country in the absence of savings, this is also another reason the government must ensure better planning to avoid being caught unprepared during future economic shocks.
In a paper tiled, “What’s the Point of Rainy Day Funds?,” Research Professor at the University of Chicago’s Harris School of Public Policy, Justin Marlowe, discussed how the notion of saving for rainy days helped American state governments plug budget deficits in the aftermath of the Great Recession. “Among the states, rainy day funds have been the best (and in some cases the only) tool available to blunt the Great Recession’s fiscal destruction,” he wrote in the paper published in Governing. Marlowe said most states saved up to 5-10 per cent of annual expenditures during the good years.
In another article I previously wrote in this publication, I made the case for why it was important for Nigerian states to establish sovereign wealth funds. I proposed that it was reasonable for the states to save between 10-20 per cent of their monthly revenues, which come from the federation account and their Internally Generated Revenues (IGRs). This would provide buffers to draw from to implement their budgets in periods of economic stress.
The chickens have come home to roost in 2020. Unfortunately, the hapless masses are suffering the most for the governments’ oversights and incompetence.