Nigeria must strengthen its reserve buffers to insulate its economy from cyclical shocks that tend to adversely affect its economic indicators and the general wellbeing of the citizens.
Economist Dr Ayo Teriba made this assertion at the Q4, 2017 Economic Associates one-day Nigerian economic outlook forum at the Raddisson Blu Hotel, Lagos.
Dr Teriba noted that the economic recovery from recession in 2017 has been more cyclical than policy-driven. This meant that the improved conditions of the international crude oil price (Over $60 per barrel) and oil production (Over 2ml barrels per day), facilitated Nigeria’s current growth.
He raised the concern that in another scenario of a weak international crude oil price regime, the economy will be under pressure due to the lack of reserve buffers at the moment
Teriba gave a comparison of Saudi Arabia who with a reserve of over $400bl was able to manage the shocks of the crude oil price decline from late 2014, while Nigeria struggled in the same experience because of a reserve of under $40bl.
The economist said “Nigeria’s economy needs to live above cyclical swings in the global commodity market,” stating that depressing commodity prices has thrown commodity based economies into a tailspin.
Speaking further, Dr Teriba stressed that “The drop in commodity prices is an economic challenge beyond governments and policies. The shift from hydrocarbons will collapse the demand for Oil in the long term.” He warned that the current over $60 international crude oil price surge was temporary, hence the need for a robust fiscal policy plan from the government.
To boost its reserve buffers, Teriba suggested a strategic privatization plan that details key assets in the country, that government can concede some part of its total holdings like power transmission and rail, opening up for a new inflow of investments into the economy.
He urged Nigeria to learn from the Saudi Arabia model, where the Oil-rich kingdom has rolled out a $200bl privatization plan covering 16 key sectors of the economy, focused on attracting new investments.
The CEO of Economic Associates Dr Ayo Teriba also harped on the need for a country-risk management approach in Nigeria, considering the challenge the nation has over the decades in managing its resources and windfalls.
For Teriba “Nigeria needs to understand how to deal with the twin gluts of commodity and liquidity, and must be proactive in managing the transition from the period of windfalls to shortfalls.”
According to him “Shortfalls without liquidity buffers explain recession, devaluation and inflation. Consequently, Nigeria needs to create potential capital inflows that could mitigate the shortfalls.”