N500bn intervention, mere 0.5% of GDP unlikely to impact lives -Rewane

With economic indicators looking dire, Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited has warned that the taunted N500 billion intervention plan which is a mere half per cent of the country’s Gross Domestic Product (GDP) could not possibly make any material impact on the lives of an already embattled populace.

He recalled that the reverse was the case in America. “The US Marshal Plan itself in 1948 was a big one, involving intervention that was in excess of 10 per cent of the US GDP. The recent N500 billion interventions announced by the President are good sound bites, but they only come to less than half a per cent of the GDP ($477 billion), and they are unlikely to make a material impact on the lives of Nigerians” he said.

Rewane during the Lagos Business School (LBS) breakfast session advised that, the new administration needs to prioritize investment in institutional infrastructure (which is more durable) over physical infrastructure. Effectiveness has become inevitable for all reforms and social safety nets to work. The policy transmission mechanism has to be strengthened, and the time lag for impact must be shortened.

“It was as if policymakers were trapped in a classic prisoners’ dilemma, where “you’re damned if you do and probably more damned if you don’t”. If you go for policy reform, you risk facing a furious backlash from the public; if you do nothing, the economy sinks further into the doldrums.

“The new administration made policy pronouncements in the belief that policy statements lead to instant economic outcomes. However, in reality, all economists know that there are lags, which are usually underestimated by politicians”, said Rewane.

Nigeria’s economy is already plagued by record-high inflation (22.8 per cent as of June 2023), sluggish growth (2.31 per cent in Q1’23), bloated debt (N49.9 trillion in the first quarter of 2023), and a currency crisis (N890/$).

Two petrol price increases in one month were more than the public could bear. The corporates are also counting their losses, with five companies posting over N700 billion in exchange rate translation losses. However, these losses are one-offs; after this difficult patch, there is a silver lining. With a populace that is fatigued and reeling from adverse economic conditions, the policy changes could easily become a recipe for chaos.