Urges prudent use of excess crude account
From Emeka Anuforo, Abuja
"FOR Nigeria, the crisis is a huge challenge; but embedded in that challenge is an opportunity to reposition the economy in a way which would reduce its overwhelming dependence on oil and create a diversified springboard for steadier long-run growth and job creation once the crisis abates. This is the message I want to leave you with."
With these lines, World Bank Managing Director, and former Nigeria's Minister of Finance, Dr. Okonjo-Iweala, held her audience captivated at a thought-provoking lecture on "The Global Financial Crisis: Impact and Implications for Nigeria."
She spoke at the African University of Science and Technology, Abuja.
For her, even though it is not easy to predict when the crisis would end, it would require a one-two punch: shoring up the financial system to ensure credit flow even as fiscal policy is geared towards raising aggregate demand; Nigeria must take steps to diversify its economy and better regulate and supervision of banks and the broader financial system.
She described the oil price fall as the biggest component of the external shock that has hit Nigeria.
She stressed the need to engender confidence, in the public as well as investors in the real and financial sectors.
Recalling that government would draw upon the Excess Crude Account (ECA) for this year's budget and very likely the next year, she emphasised some principles that should guide the use of funds from the excess crude accounts.
Instead of using the fund for frivolous expenditure, she counselled that it should be used to fund the development of critical infrastructure for the economy to grow.
Her words: "First, this is the right time to use ECA money. The reason for setting up the ECA was precisely for a rainy day like, when oil prices fall below the average level one might expect prevail over time.
"Second, use ECA money wisely to spur long-run growth and diversification. Since oil revenues are the counterpart of the depletion of non-renewable asset, ECA funds should ideally be used in the creation of assets such as infrastructure investments, which could support long-run non-oil growth as well as economic diversification. This is where the composition of government spending comes into play."
According to her: "Dipping into the excess crude account for high rate of return on public investment projects - especially those which alleviate constraints to private investment in the non-oil sector - would be good for diversification while also providing a fiscal stimulus at this time of crisis."
She also wants Nigeria to look ahead on fiscal policy and budgetary management.
Beyond drawing from the ECA, she called on government to provide for the contingency that oil prices could be low in the year 2010 as well.
Her words: "This needs to be addressed transparently and decisively, by formulating a two-year fiscal plan to take into account the possibility that the ECA may need to be drawn upon in 2010 as well."
She stressed that much depends on how Nigeria responds to the impact of the global financial crisis, given her status as a regional player, which accounts for 60 per cent of West African GDP, and its aspirations of being an international player.
She added: "Nigeria has been hit by the global crisis. But Nigeria has significant strengths and must respond to the challenges it faces transparently and in a way that engenders confidence in the private sector community while at the same time repositioning its economy onto a more diversified growth path after the crisis subsides. This can definitely be done and I have no doubt that as a country, we shall rise to the occasion."
However, while Okonjo-Iweala was buoying the courage of her country, a global body, ActionAid has warned that the global recession will see African economies lose up to $49 billion by the end of this year.
According to research by the body, about $27 billion of this was a fall in aid, export earnings and income from richer recession-hit nations.
The lost income is equivalent to a 10 per cent pay cut for the continent, it added.
The report found that countries, which liberalised their markets, and were large enough to attract significant investment, would be most affected by the financial crisis.
South Africa would be among the hardest hit, as it was likely to see income from abroad plunge to around a fifth of the country's economic output.
"Although developing countries didn't make this crisis, it has become all too clear that they are in the firing line when it comes to suffering its worst effects," said ActionAid's head of policy, Claire Melamed.
"There is a real risk that development will start to go backwards in many countries as the money dries up and that the recession will lead to worsening poverty and terrible consequences for the men, women and children caught in its grip."
