Nigeria: The IMF recipe
By Kofi Andoh
The debate on whether Nigeria should join other developing countries who go to the International Monetary Fund for a loan to solve their economic problems continues. This writer considers the pros and cons of the IMF issue.Like a flock of apostolic revivalists on the eve of Armageddon, Nigerians are now both excited and agonised over the recent economic developments in the country. Indeed, for a nation that had always prided itself on being wealthy, and upgraded its lifestyles and attitudes accordingly, the discomfiting realisation that they now have to go cap in hand, borrowing from the International Monetary Fund (IMF) to make ends meet, comes with a bit of rude shock and dismay.
The general attitude has much to do with the envisaged hardships (whether real or imagined) that the IMF loan conditions are likely to entail. This has robbed critics of a dispassionate consideration of the issues at stake. Which is quite understandable. It is just instructive. too much to call upon citizens who have since 1978 been forced to swallow overdoses of austerity programmes, to still tighten their belts to accommodate the additional hardships that the loan conditions are sure to bring.
However, it is also quite understandable that for the current downward trend to be stemmed, the country needs a massive infusion of liquid capital in order to redress the imbalance in its balance of payments position. The problem is the source and the conditions that would come with such aid. Hence, the current interesting debates on the merits and demerits of the $2.5 billion IMF loan.
To fully appreciate the current tone of the debates, a recount of the events that precipitated the current reverses in the country's economic fortunes
The major factor that contributed to the present economic situation was the 1981 oil glut, which necessitated a reduction in both the rate of production and export of crude oil. Its plight assumed alarming proportions when from an average daily production of 1.7 million barrels in March 1982 it plummeted to a daily average of 650,000 barrels in July of the same year. The impact of this was drastic. But while this easily explains the immediate causes, it does not fully explain the course of events which led the country so close to economic disaster.
The first cause appears to be the ambitious scope of government's development projects and the high level of its financial commitment. Whereas the imperative demands of raising the standard of living through development programmes ranging from welfarist activities to capital investments cannot be overlooked, it is also necessary, if the base of economic self-reliance is to be widened and strengthened, to initiate capital-intensive restructuring programmes.
In this, it appears the country's policy-makers were always robbed of a level-headed projection of the nation's resources by an atmosphere of sanguine optimism. As a result, projects were initiated without regard to current economic indicators.
Added to this was the Nigerian's propensity to consume and his apparently insatiable craving for imported goods. The government's attachment to an import-oriented policy, where imports ranged from tooth-picks to the latest models of Mercedes-Benz cars fuelled this craving and affected the development of local industries.
Furthermore, there were all the disadvantages of an externally-developed economy. A mono-economy, which lacked an honest transfer of resources to increase the productive capacity of the nation in such areas as agriculture and basic industries, exposed the country to the shocks and unpredictability of a world economy, totally dependent on the manipulations of the developed world.
Cracks began to show in 1978 but the first major attempt to check the downward trend was initiated by the erstwhile Shagari regime in 1982 when National Assembly passed an Enabling Bill, known as the Economic Stabilisation Act, to enable the president to put into motion immediate fiscal and allied measures to rescue the economy. In themselves, they were the traditional set of fiscal measures to regulate the flow and direction of economic activity in a free market economy. The set of measures were aimed at reducing the level of imports, plugging the loopholes in the foreign exchange conservation dragnet and a more efficient allocation of resources by a reduction of subsidy on petroleum products and an increase in the interest rate by two per cent.
In spite of these measures, the pattern remained the same and with no hope of respite, the country had to apply to the IMF for a $2.5 billion to tie itself up. Expectedly, the IMF had to issue its traditional demands for the granting of the loan. In Nigeria's case the demands ranged from devaluation and trade liberalisation to the removal of subsidies on petroleum products, amongst others.
The general tone of the debates indicates the Nigerian's fear and apprehension of the short-term hardships that the IMF conditions would induce if implemented. Critics have tended to cite the experiences of countries like Brazil, Mexico, Zaire, Ghana, Zambia, to mention a few, in their relations with the IMF. They have also pointed out the unfavourable aspects of the short-term orientation of IMF loans which are always at variance with the long-term development needs of Third World countries. No alternatives have, however, been suggested.
So the question re-echoes: Will the IMF loan rescue the nation from its present helpless situation? In the short- run, yes, if this means a round of temporary respite to prepare for another bout of hard times, as the instances of Brazil, Mexico, Ghana and Zaire bear out. The view that devaluation will have an adverse affect on local industries is quite untenable. Devaluation of the naira would lead to dearer imports and slash demand to a desirable level. In the final analysis, the high cost of imports would serve as an incentive for the development of local industries and usher in a new period of self-reliance.
Though there is no denying the fact that the removal of petroleum subsidy would lead to a general increase in fuel prices and transportation, this course of action will assign this resource a more economic value. Nigerian fuel prices are about a quarter of what is paid in Britain. The price to be paid here would be a general price increase. A reduction in subsidy on petroleum products in 1978 raised the inflationary level by 10%. The figure is not expected to be more than the current rate.
The general feeling is that the trade liberalisation called for by the IMF would make Nigeria a dumping ground for foreign goods. It is true that Nigeria is still import-dependent and for that matter this could affect the development of local industries.
Another IMF demand - a review of the interest rate will undoubtedly lead to an increase in the cost of raising credit. The implication is that this will affect the level of production, lead to scarcity and a rise in prices and put pressure on the inflationary rate. Increased production would be impossible under these conditions and massive redundancies are likely to result. This argument is valid but it loses sight of the long-term aim of the measures - confidence in the domestic capital market, encouragement of the domestic capital market to patronise and reinforce the banking system and a more efficient allocation of resources.
The general feeling is that the trade liberalisation called for by the IMF would make Nigeria a dumping ground for foreign goods! It is true that Nigeria is still import-dependent and for that matter this could affect the development of local industries. A selective import programme adequately tasked should be put in place.
It should be noted that the measures called for by the IMF do not assure an end to the country's economic problems. How they affect and influence the state of the Nigerian economy depends on several factors.
The most immediate has to do with the political will and discipline of the government. There is the urgent need to check the familiar trend of demand- depressive measures to rescue dwindling foreign exchange reserves (as the IMF conditions call for) and a burst of expansionist counter-measures to stimulate the economy as soon as the position shows signs of recovery. This has been the pattern for a very long time in Nigeria. Mr Yakubu Gowon, who had the best of times as the country's leader, left an empty treasury, after a bout of "squandermania". Retired General Olusegun Obasanjo faced the 1977/78 depression but weathered the storm to leave a handsome reserve of almost $6.5b by the end of 1980.
The Shagari regime, which inherited the last days of recovery, got carried away by the $5.6bn reserve and went on a spending spree. By 1982, the country was back to the hard times and a badly- implemented austerity programme failed to achieve the desired impact and the country found itself faced with a mounting debt problem, conservatively put at $18.5bn.
The next is the reaction of the domestic market. There is the demand for an improvement in the quality of locally- manufactured goods to compete with imported ones. Local industries should be protected and supply should be able to meet the internal demand, if no recourse is to be made to imports.
Above all, there is the urgent need for more discipline, accountability in the management of the probity, and economic affairs of the country. The third world's record here is one of gross economic mismanagement, misplaced priorities, inefficiency, bureaucratic bottlenecks and large-scale corruption.
In conclusion, it needs to be emphasised that the price to be exacted by the IMF would be enormous. In the short- term, a general increase in price can not be ruled out, but there is no way one can eat his cake and still have it back. Whilst the debates have been lively and levels interesting they are dominated more by emotive utterances rather than objective appraisals and analysis. They fall short on suggestions and alternatives. The major bone of contention is the issue of devaluation, which is still a dreaded word in Third World economies.
The government, thus, has no choice. Not that it had a choice anyway. After all why was Dr...
Antrak increases its stake in OT Africa Line
The Antrak Group which, together with Stena Line of Sweden and Cross Marine Services of Nigeria, formed a consortium in 1982 to purchase OT Africa Line (OTAL), has now increased its shareholding through the acquisition of Stena's minority interest.OTAL, the leading independent in the North Europe-West African trade, has specialised in providing a complete liner service, both southbound and northbound, utilising ro- ro/container vessels. During the period up until the end of 1984, three Stena vessels, Stena Ionia, Stena Carrier and Stena Hispania, were engaged for varying periods, completing some 12 West African voyages for OTAL.
However, during 1985, OTAL has altered significantly the profile of its fleet and the vessels now being employed are not consistent with those currently owned by Stena. For this reason, it was agreed that the Swedish company's continued participation in the consortium owning OTAL would not give particular advantage to either Stena or OTAL and, consequently. Antrak agreed to purchase Stena's shareholding.
Both Antrak and Cross Marine recognise and acknowledge the valued input over the past three years of Stena Line, a major force in ro-ro vessel ownership and operations. The present management of OTAL expects to continue its working relationship with Stena and is confident that all parties concerned will find areas of mutual interest in the future. This additional stake in OT Africa Line follows on from Antrak's decision to take a one-third share in FOSS, the well- established North Europe-Middle East container operator whose parent company, Salenivest AB, went into receivership earlier this year. Antrak is confident of its ability to successfully maintain and even improve upon the financial health of FOSS and OTA
