Unlocking Liquidity in Nigeria

13 Pages Posted: 9 Oct 2019

Date Written: September 16, 2019

Abstract

It is surprising how Nigeria’s impressively positive economic narrative from 1999 to 2014 has given way to an unflattering post-2014 narrative in which the economic terrain is about recession, inflation, unemployment, poverty, restiveness, and insecurity; the financial terrain is about foreign exchange rationing, devaluation, multiple exchange rates, low loan-deposit ratio, and high interest rates; while the fiscal terrain is about low revenue, low capital spending, large deficits, high debt service, rising debt, and growing concerns about 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, Nigeria enjoyed economic expansion-growth accelerated and commercial services, led by telecommunications and information services, outgrew agriculture and oil - that saw Nigeria’s rank rise phenomenally from the 52nd to 22nd economy in the world; financial expansion-deepening of banks, bonds and equity markets, as well as government revenue and spending; and stability - single digit inflation and interest rates, and a strong exchange rate; and, a marked reduction in misery - falling unemployment and poverty rates.

With shortfalls replacing windfalls since the crash of commodity prices in July 2014, Nigeria’s economy has endured economic contraction - growth reversal, recession, and a sluggish recovery to now rank as the 30th economy in the world; financial contraction - especially bank deposits, equity market capitalization, and foreign exchange supply, as well as government revenue and spending, and instability - the Naira lost about two thirds of its value against the US dollar, while inflation and interest rates jumped into double digits; with the growing misery reflected in growing number of the unemployed, the poor, and the disenchanted.

This paper presents data that reveals that the common thread between the two eras is the quantum of external liquidity at the country’s disposal. External liquidity surge from windfalls fuelled the era of expansion and stability, just as external liquidity shortages from shortfalls inflicted contraction and instability. We show that unfolding global realities now mean that Nigeria could easily adopt policies that will raise our external liquidity thresholds enough to switch from contraction to expansion. We show how global liquidity glut has seen a doubling of long-term capital inflows to developing countries in the last decade and how Nigeria is very well-placed to get a fair share of that.

Despite the negative external income shock, the domestic reality is that Nigeria remains prodigiously asset rich. However, while Nigeria’s economic and financial struggles resulting from the decline in income have been conspicuously prominent in economic news headlines, the value of assets owned by Nigeria and the solutions the assets could unleash have been less so. This paper draws attention to the hidden value in vast assets owned by Nigeria, makes a case for unlocking massive domestic and external liquidity required to arrest the economic and financial crisis from the assets, and articulates four alternative ways of doing this.

We show that Nigeria could adopt the following options to raise domestic and external liquidity thresholds:
(i.) 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.
(ii.) 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.
(iii.) 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.
(iv.) 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 by unlocking 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 different combinations of the four options to fuel their development. Nigeria’s high population, scattered in hundreds of densely populated cities, and the recent oil boom, combine to bequeath Nigeria with valuable but idle public assets that the country can unlock required liquidity from.

Keywords: Nigeria, Oil Price, Naira, Devaluation, Growth, Recession, Fiscal Stress, Solvency, Public Assets, Land, Buildings, Securitization, Commercialization, Privatization, Liberalization, Liquidity Thresholds, Forex, Foreign Reserves, Global Liquidity Glut, Foreign Direct Investment, Diaspora Remittances

JEL Classification: F21, F24, F31, F32, F63, N17

Suggested Citation

Teriba, Ayo, Unlocking Liquidity in Nigeria (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3454652 or http://dx.doi.org/10.2139/ssrn.3454652

Ayo Teriba (Contact Author)

Economic Associates ( email )

1st Floor Lindev Plaza, 16 Amodu Ojikutu Street
PO Box 70909
Victoria Island Lagos
Nigeria
+234 1 461 0802 (Phone)
+234 1 461 0805 (Fax)

HOME PAGE: http://www.econassociates.com

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