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What is a recession and is there way out?

Posted on: February 6th, 2017 by The Moderator 3 Comments

The Octagon: Welcome to the Octagon Room. Thank you for accepting our invitation. Let’s begin with some introductions before going into the discussion. Can everyone let us know who they are and share a bit about what they do ?

Gbane: I am Ojogbane Okolo. I live in Liverpool England, and I work in the Banking Industry.

Muyiwa: Hi all,  my name is Muyiwa Oni,  I’m an equity research analyst with standard bank

Seju: Hello everyone, Seju Mike – Financial Analyst & Creative Entrepreneur.

Seun: I am Oluseun Onigbinde, Lead Partner, BudgIT.

Wilson: My name is Wilson Erumebor – Economist. Research & Policy Analyst. I work with Nigerian Economic Summit Group.

Rijo: My name is Rijo Shekari, chartered accountant and financial analyst

Tola: I am Tola Onayemi, I provide technical advisory assistance on industry, trade and investment within the economic team of the Vice President

The Octagon : In september 2016 the National Bureau of Statistics (NBS) reported that the nation was still firmly gripped by recession. It published that in the last Gross Domestic Product (GDP) report for Q3, 2016  Nigeria’s GDP contracted in the negative in third quarter of 2016. In response to this, the Minister of Finance, Mrs. Kemi Adeosun, on Wednesday admitted that Nigeria was in its worst possible time with the GDP but went ahead to say there is a strategic plan that will take us out of the recession and make it as short as possible.

The president in his independence day speech further shared with the general public the challenges saying. “Economies behaviour is cyclical. All countries face ups and downs. Our own recession has been brought about by a critical shortage of foreign exchange. Oil price dropped from an average of hundred USD per barrel over the last decade to an average of forty USD per barrel this year and last… But this is only temporary. Historically about half our dollar export earnings go to importation of petroleum and food products! Nothing was saved for the rainy days during the periods of prosperity. We are now reaping the whirlwinds of corruption, recklessness and impunity.”

In line with earlier claims by the minister of finance, he goes on further to mention that plans are being made to diversify the economy and shift from a dependence on oil and also focus on developing infrastructure.

With seemingly no visible change in sight, the average Nigerian has gotten increasingly panicky and wonders if government can truly handle this challenge.The former CBN Governor Lamido Sanusi in a session today stated the recent moves by Government to salvage the situation was a wrong move. He says that borrowing was bad because Nigeria’s foreign exchange rates lacked credibility and the federal government should embrace private sector investments as a way out of its recession.The monarch said oil revenue cannot bring the country out of its present economic downturn.

What does it truly mean when we say Nigeria is in recession? How much of this problem is oil based? Is the way out of this the solely the responsibility of the government?

Gbane : Well as defined by in your quote from the NBS recession is two consecutive quarters of economic contraction. Now the main metric of economic growth is the GDP which is the measure of the value of all goods and services in country ( Nigerian this case) within a given time frame. From all the news and facts on ground I can say that Nigeria is in recession.

Rijo: Recession has to do with a decline in economic activities, with symptoms ranging from increase in the rate of inflation, businesses closing.

Wilson: A few years ago, the Nigerian economy grew by about 7% per annum and many believed this growth was “jobless growth” and non-inclusive. This year we are experiencing negative growth rates. If at 7%, growth seemed to be “jobless growth”, what happens we experience negative growth? For me, recession means that the life of the average Nigerian has become a bit tougher than it was last year.

Gbane: Wilson, you are absolutely right, and there are grounds for the belief that our 7% growth was  a jobless growth. it is simply because it driven mainly by the price of crude oil. we all know that the oil exploration industry is not labour intensive and as such not a big employer of labour so while the value of a high price of crude oil meant a higher GDP it did not translate to high employment. In answering the 2nd question, I will say that Oil has a lot but not everything to do with it. You see we had low oil prices under Obasanjo but we didn’t have a recession under him…i personally believe that the reason for that was the liberalization of the telecom sector among other steps taken back then. We what we see now as stated by many people is a statist approach to the economic headwinds caused by low crude oil price. We sadly have a president that does not believe in free markets and we have a CBN governor ready to kowtow.

Seju: No I don’t believe deliverance from the recession is the sole responsibility of the government.  The government is just one piece of the collective puzzle. In my opinion recovery is primarily driven by entrepreneurial responses to the change in the availability of capital. People and businesses need to innovate and find more creative ways to manage the now even scarcer resources.

Muyiwa: Oil is clearly a big part of the problem given that it is a key FX contributor. In terms of the role of government ill say it is critical.

Wilson: How much of this problem is oil based? Well, the recent economic crisis has made it clear that the fundamental strength of the economy or the lack of it, hinges on movement of crude oil price. The decline in crude oil price affected government revenues which limited the ability government to meet its financial obligations (including payment of salaries). It triggered an FX crisis, arising from limited dollar inflows, lower external reserves and huge outflows via imports. I do not think crude oil is the problem. It is our over-reliance on crude oil for revenue and FX that is the problem. Secondly, Nigeria has a weak productive sector. The manufacturing sector currently accounts for 9% of GDP and this has to be improved. We currently import of 50% of manufactured and processed goods while non-oil export accounts for less than 20% of export earnings. Nigeria’s low non-oil export capacity and continued dependence on imports was never going to be sustainable for the economy. So if you look at the Kenya economy,  the level of FX reserves and import cover has historical been materially lower than ours  but they have managed to keep the currency relatively stable. The central bank has been able to maintain credibility and keep investors interested in the economy.

Seju: Yes Oil is a major part of the problem. Relying primarily on one major export is ALWAYS a problem in the long run for any countries economic growth. Diversification as a key infusion into Nigeria’s export culture is the ultimate key. For example some of Nigeria’s most successful exports in recent times have originated in our creative spaces – retargeting our resources to building these businesses in these spaces and focusing on increased consumption of home grown goods by improving the infrastructure that allows us produce said goods (thereby also improving the quality of said goods)…this is a possible path to recovery.

Gbane: The way out for me is Government first and foremost realising that a statist approach to economics has always led to ruins. We need people who can influence the president and make him a believer in market economics. (Ok less jargon) – The Govt should simply make being an entrepreneur as easy as possible: A few steps will be to:

  1. stop trying to reduce prices of goods and services by fiat as it is being mooted and done at the moment(we shouldn’t even be having this conversation).
  2. Improve the easy of setting up a business(it takes about 3-10 mins to register a company here in the uk).
  3. We currently have a FX regime that has 5 different exchanges and SLS mentioned this as well. A foreign investor will find it difficult to invest his/her hard earned currency when there is a CBN rate, there is an interbank rate there is parallel market rate and to be fair this has always been the case, it didn’t start with this government. We need one exchange rate that inspire the confidence in all the market players. Now the Naira might suffer a sharp downward pressure but eventually things will stabilize. I also appreciate that it not palatable politically but it has to be done.

Seun: These are my thoughts –

  1. Over-dependence on oil revenues will keep putting us in recession. Our history of boom and bust since 1973 has always been linked to oil. From boom of 1973, oil bust in 1981 & 86, rise in 1991 and so on. We will continue this cycle until our exports are diversified and we fix our revenue challenge linked to inability to take taxes off a huge population (highly poor).
  1. Lack of fiscal buffers: oil price surge has always tricked Nigeria and our leaders fall for it with Udoji bazar, 2010 salary increase.. our ability not to rein on our import volumes during price booms, continually depleted our reserves. We just don’t save.
  1. Lack of focus: immediately, Buhari won, there was a market bounce. It was an expectation but delaying Ministers by six months did not show captive understanding of the emergency. Confidence was eroded. We still don’t have a clear cut stimulus plan.
  1. Interference with CBN: we all knew the path of Emefile to the CBN. A compromise after whistle blowing by Lamido Sanusi. Buhari “command and control” approach accelerated Nigeria’s run into recession. If he was more open in the early days to devaluation, we might not face our current FX woes.
  1. In 2015, Nigeria did not spend on capital projects, shutting off public contracting for one year. Jonathan was caught up in elections and Buhari had wasted six months to shopping for Ministers. In a country where public finance matters, that put critical sectors in recessions.

Tola: I’d answer in series of points. So that some things I intend to point out are clear.

  1. Technically, a recession is two consecutive negative growth trend in a country’s economy
  1. The figures by the NBS confirm we are in a recession
  1. We should pay mind to the latest Q3 2017 NBS statistics that point out that the non oil economy is out of a recession and at 0.3% growth. Solid minerals grew to 5% and agriculture to 7%.
  1. According to Q3 NBS figures, financial sector also grew by 2.85%. Inflation though still high at 18.3% on a year on year basis levelled out on a month on month basis to as low as 1.70% in September. Ratio of investment to GDP also improved rising by 7.6%
  2. There is a major difference between a recession and a cash (or credit crunch). Both are currently going on within the Nigerian economy and people are mixing the effects. A recession is negative growth, a cash crunch is not enough money to meet all operational needs. Now, the oil price means reduced income for government who is a major spender both for employment and even general spending within the economy. So because government isn’t spending as much not as much trickling down is occuring, and everyone says recession but it’s mostly just reduced government spending leading to less money for people who depend on it in the long term

Wilson: Getting out of recession is a collective responsibility, but I strongly believe that the government must play the important role of providing a clear direction for the economy in terms of policies, plans and programs. We must rejig investor’s confidence (local and foreign) on the economy

The Octagon: Based on your comments , What other things affect this asides oil and how free markets assist in solving this.

Tola: How much is this oil based? Well as a major oil revenue earner, oil price decline was the trigger of an even more incipient problem -that of non diversification. However, oil is as much the cause as one can say sugar causes diabetes. In that while type 2 diabetes is mostly hereditary, sugar can lead to weigh gain and increase chances of developing the disease. Oil is Nigeria’s main revenue and when there is no oil capital, and little diversification, a negative growth in the economy is the most natural. Is getting out of a recession mainly the responsibility of the government. Well, No, that’s why the l stated the Q3 NBS stats first, which should the non oil sector was technically not in a recession, mainly because of a joint effort of government and private enterprise.

Gbane: Right, it is the approach of the current govt that has not helped for example when you create a distortion in the Forex market by offering a select few players in the private sector $1=199 while the street value or black market value is twice that amount..you are already creating and uneven playing field to smes that need access to this funds. We all know that smes are the life of any serious economy…in the uk for example we have about 300k smes that hire about 5-20 people..just do the math and you will see what i mean. Also when people are able to make 100% profit by arbitrage they are not going to be incentivized to use the funds for productive purposes.

The Government has to lead the way. The Government has to deliberately put in place polices that will encourage people to produce more. we are not seeing that at the moment, even if the non oil sector is out recession the question is how can it be encouraged to grow.

Tola: Now, both are triggered by the decline in oil prices which reduced government revenue. But because a recession has a bigger global implication, govt tend to invest more in sorting out – hence devoting more resources towards such efforts, and even spending less as it would in its normal course do spending. Now, for the man on the street, the immediate effect He feels is a cash crunch. It’s a cycle of trickle down cash inadequacy (coined term). The contractor doesn’t get a contract, and doesn’t employ the labourer, who doesn’t eat food on site, which means that the food seller doesn’t sell, and doesn’t buy a bag of rice, and means the rice importer has so much rice not sold. So it’s a chain, all everyone knows is it’s hard. The cause here is mainly the cash crunch not really the immediate recessionary effects of negative growth. So both are connected, but the immediate impact felt by a everyday persons is that of a cash crunch.

I totally agree. Govt has a vital role to play but the private sector has an even bigger role.

Wilson: Absolutely. The 2016Q3 GDP data showed that compared to 2016Q2, the economy grew by 9%. This suggest that on a quarterly basis, activities improved significantly. At least, that is what the data shows.

Tola: Now let me be controversial, and say a very unpopular opinion. The truth is most businesses in the private sector are scarce to invest because in the past, we have benefitted from very simplistic business profit systems. Banks do not do any real intermediating for SMEs but focus on guaranteed business. People who focus on doing government contracts rather than real credible mass manufacturing. Just plain easy business with large Return on investments.

I say this because even for foreign investments, this is one of the best times to come in. If you really want to invest in infrastructure or expensive investment, because of the currency issues, you are paying half the price because of FX advantages (for a foreign business). But most of the foreign investments that have come to Nigeria in the past are majorly focused around not long term sustainable growth but quick ROI and exit. That’s why capital flight was so easy as the earliest signs of trouble. We can’t continue as an economy this way. We need deepened investments in real sectors. Agribusinesses, telecoms, mining, manufacturing, ICT. Deepened investment that creates real value and adds back to the economic growth. I strongly think that we need to start to think of nationalism as a core value for our business. Can we move past just plain profit to actually investing in Nigeria’s potential.

Wilson: But you would agree with me that the government (working with private sector) must take the lead and set the direction for the economy. Private sector investments is all about cost, benefits and risks. If the environment makes it risky for businesses to survive, why would people invest? The government should not leave economic planning in the hands of the private sector but the government MUST take the lead, working with the private sector.

Gbane: With all due respect sir as a foreign investor I will not come into a country that has multiple exchange rates. A country where the presidents view and CBN governor’s seem to be almost the same which is control so the sake of it. why should i invest my hard earned money when CBN is going to determine how much the value of currency is?

Tola: Well, that only applies if you are a portfolio investor. But if it’s direct investment in say a factory or a plant – this are usually investment s that take between 5 to 10 years and many times even more. The FX plays to your benefit actually, because you have double the currently strength in Nigeria presently.

Wilson: Look at ease of doing business ranking. Nigeria is not doing well at all. Why can’t we simplify the business processes, make it easy for people to start businesses, register property, reduce tax bottlenecks and so many other reforms?

Tola: I totally agree with you. I am always first to say Government has a great work to do. Communicating better. Predictable policy. Frameworks that work etc. But I’m saying even the measures put in place would crash if no support accompanies it. We had years of an oil boom, and when we all claim Nigeria was the next China. How much of other sector growth happened during that time? Was it commensurate to what other similar economies got?

Rijo: Private sector has a major role to play but the government must create an enabling environment, on devoid of too much and unnecessary uncertainty.

Gbane: Let me just use ICT for example. If not for the outcry on social media Nigerians would have been paying more to access data today. This Government seems to fixated on price pegging. This is dangerous on the long run sir. in Agriculture, Forex ICT in all these sectors you hear Government officials talk about pricing. The NCC has no business determining pricing. it is to regulate quality of service and breach of contracts.

Tola: I agree. And from the statements of the entire government. It is a priority. The president approved the establishment of a presidential enabling business environment council (PEBEC) all focus on the ease of doing business. But let me point out, that the world bank ranking indicators aren’t entirely skewed to reflect every issue a Nigerian SMEs faces. Hence the govt has stated that its  focus on serious business ease. So for instance, even the world bank recognised improvements in the CAC system for registering companies and even generally electronic payment to government as well as reduction in costs, as well as even the collateral registry.

Seju: True but part of the problem with foreign investment is the monies aren’t primarily directed to production. Investors come in with the intention of accessing our markets. They import and we spend and this only exacerbates the FX problem.  Not enough foreign investment is spent on putting in place sustainable production infrastructure. Let’s produce the same goofs they would like us to buy and then levarage the experience learning from them to start creating our own brands that can compete on the international scene. China did this…we can too.

Tola: I couldn’t agree more. Which is why private sector who are usually the counterparts to this transaction types must begin to help play their bit by focusing on such value chain that pays the country in the long term.

Gbane: No sir. In investments price of purchase is everything…why should one pay 50% more due to distortions in the Forex that is avoidable. The fact that is long is the more reason why I wont invest, and thats why like you said earlier all we have in as foreign investors are speculators. But the Government that must lead the way has shown that they can be trusted for long term plan. Let me give you an example: live in England and many large companies and banks(I work with one of them) are angry with the uncertainty over direction of brexit talks.

Tola: Like I said previously, that’s a portfolio investment type scenario. Let me use clear examples to Marshall my point. If you want to build a 100 billion naira factory today in Nigeria, that is an FDI investment. If you are a foreign company, that means that due when you would have spent about 500 million dollars some 18 months back. Today you would need about 208 million dollars. THAT PAYS another foreign investor. So you actually pay less in dollars if you are a foreign direct investor.

Gbane: Look..maybe due to the number of my years of living here I have become a bit of a cynic, but if we want to become like China we are going to have to make things a whole lot simpler for EVERYBODY not just Dangote. If we want to unleash the animal spirit of entrepreneurship in Nigerians SIMPLY make registration easier, Digitize taxation and create a one stop shop for SME Funding. see if we will not grow in leaps and bounds!

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The rise of social entrepreneurship and its role in solving challenges in Nigerian communities

Posted on: October 17th, 2016 by The Moderator No Comments

The Octagon: Welcome To The Octagon.

We appreciate you taking time out to Join this Chat Session which will end in 1 Hour. We have two moderators in the room who will only offer guidance where necessary. Please feel free to openly share your thoughts and experiences.

Let’s begin with some introductions before going into the discussion. Can everyone let us know who they are and share a bit about what they do ?

Inioluwa: Hi guys.. I’m IniOluwa Odekunle, Founder of PLANEN TEKAD a volunteer driven social enterprise. I am passionate about community building and ensuring children have the opportunity fulfill their true destinies.

Venya: Hello everyone. I am Ven Lannap founder and Lead of Bo Sita MADE, a youth developmental organization that is passionate about fighting sex trafficking…and the Founder and Director of Before & After School Academy a 3in1Child Care Centre: Creche, Pre-School and, After-School School of Performing Arts.

Buki: Hello Everyone my name is Olubukola Olukuewu, friends call me Buki. I’m a Sustainability enthusiast in its entirety. I believe in building lives and society

Uju: Hello everyone, my name is Obianuju Asika, a crusader, PR manager ad lifestyle lover. I believe strongly in community development and adding value to the society.

Bankole: Hi, my name is Bankole Ojo-Medubi. I’m an architect, carpenter and executive director at Westwood Works. But for the purpose of this conversation, I’m the COO for Fashion For Charity, an organization that uses the power of fashion, entertainment and the visual arts to help vulnerable people.

The Octagon: Over the last few years there has been an explosion of social entrepreneurship which have unfolded against the backdrop of increasing world crisis. Unlike the typical charities and non-profit organisations, social entrepreneurs develop innovative business models that blend traditional business with solutions that address societal problems.  It is believed that charities exist to redistribute income from the haves to the have-nots while social entrepreneurship’s role in social value creation is to be a change agent through innovation. One of the main arguments for social entrepreneurship has been that it does not rely 100% on seeking donations and its workforce are remunerated.

Regardless of the disparity between the two, Africa in the last 10 years has experienced an increase in societal challenges, been more aware that its people are poor and is in need of long term solutions.

What would you regard as the key cause for some of the societal challenges faced in Nigeria? What are the top challenges Social enterprises and charities face in Nigeria?

Ini: I believe the key cause of societal challenges in Nigeria is the mindset

Buki: Nigeria as is common with developing countries is fraught with a lot of societal challenges; some of which I believe is caused by the quality of leaders we have had over time. It’s a vicious circle cause citizens become leaders and leaders become citize. It’s a common situation in Africa. But I believe we are on a journey out of this by God’s grace. Secondly I believe charities lack the support that they should get from Govt, Corporates and HNI. From my readings, societies that have their social enterprises and charities working have support from these entities. They have support structures like enabling policies which we lack here in Nigeria. Policies which are not being put in place and might probably be rejected because of lack of trust in our leadership and lack of accountability by leadership. This we saw when one of the senators tried to pass a CSR bill.

Uju: People today don’t ‘trust’ the term charity anymore and you won’t blame them. Most organisations use these as a money making scheme, to increase their profit margin per say. The introduction of the social enterprise makes value adding more believable because of its transparency and accountability. For the challenges faced, The economy today is harsh, I mean I live in Minna and it is difficult for them to survive – what is the government doing? So its a mixture of politics, governance and the economic situation. Our support system is weak.

Bankole: At the very root, everyone has experienced failed systems in Nigeria. So there is a massive distrust of the concept of the “common good”.

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Marriage and The Bread Winner

Posted on: August 8th, 2016 by The Moderator 4 Comments

Welcome to The Octagon.

The Octagon: We appreciate your taking time out to join this chat session which is one of the first of many conversations to go on www.theoctagon.com.ng. This session will end at 5pm. We have two moderators in the room who will only offer guidance where necessary. Please feel free to openly share your thoughts and experiences. Let’s begin with some introductions before going into the discussion. Can everyone let us know who they are and share a bit about what they do? Thank you

Tolu: Hi everyone My name is Tolu. I’m married with 2 beautiful kids. I’ve been married for 3 years + but dated for 14 years on and off before marriage. I’m a Marketing Director for 2 F ‘n’ B brands and I love talking about relationships.

Alex: My name is Alexander Umole, I am married for 10 years with my wife Sola. We have 2 lovely girls. I work as minister/pastor with a church in Florida.

Uju: Hello everyone, Uju Okoye here. Public health physician in the US. Community advocate and entrepreneur. Always seeking ways to partner up and empower. Married for 6 years to Obi with one amazing child.

Kelo: Hi everyone my name is Kelo and I’m married, no kids yet. I run an online youth culture publication, an online fashion store amongst other things.

Joshua: Good evening. My name is Josh. Speaker and consultant based in the UK. I trust y’all are doing great.

The Octagon: We can begin and then the others will join in. According to a Research study, on the average, a larger percentage of adults said they agreed it’s generally better for a marriage if the husband earns more money than his wife. Their argument is usually related to issues of respect, egos, either party having to ask for funds, the kids feeling one party is ‘richer’ than the other, etc.  Do you think it’s important who earns more? What’s a family man to do to keep his marriage strong when she earns more? And how can a breadwinner wife best keep the love alive?

Alex: Someone said humorously that it takes finance to run romance. I agree that money is crucial to relationships.

Tolu: The male Ego is the bigger question. Another factor is up bringing of each person. Everyone has their expectations of what a marriage should be and that’s why couples need to discuss before getting married. Money is a not the issues its dealing with the money issues that the problem.

Uju: True. But in some cases, say if the man is in a field that is naturally lower paying. For example he may enjoy working with teenagers in impoverished communities, and she is in a naturally higher paying field. The problem may be behind the mine” thinking and not thinking “ours”. I think people set themselves up with expectations by looking outwardly instead of inwardly. Stop the comparisons to others, culture or otherwise.

Kelo: I think this boils down to our cultural “orientation” and the setting in which we were raised. I’m Igbo and the norm is that the man takes care of his wife and the wife is the one who he has chosen to “eat” his wealth.  So if the man fails to live up to this provider role society has created for him, he’s seen to be slacking.

Uju: Kelo, I am Igbo as well, and that same attitude sets ppl up to fail. I can’t imagine how stressed out that would make any man, struggling to step out into a field that he is passionate about, if it’s not as lucrative for a period of time.

Kelo: I agree with you Uju, I’m just creating the context

Alex: But in a marital situation the question of cultural orientation is key.

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