As
if the current unclear economic policy context was not disconcerting
enough, the sudden emergence of a raging debate on the sale of public
assets has escalated one’s fears that easier things seem to appear more
attractive to the government. Yet, in public policy, it is wise to be
wary of the easiest options.
As a pro market economy advocate, I
inherently support any programme of government that will help roll back
the public sector from the economy because economic evidence shows this
to be almost always correct. However, lacking the sound economic
management and policy context as yet, I am presently opposed to what
sounds like a proposal for “distress option” sale of public stakes,
especially in NNPC and NLNG. But the government can proceed urgently
through the Bureau of Public Enterprises, BPE, to sell off those
cesspools of corruption in our petroleum sector otherwise known as
refineries. Their sale would in fact amount to fiscal savings beyond the
proceeds and should therefore be supported by all.
I am opposed to the sale of any
productive assets like the NLNG because there seems to be no clear
economic vision and rigorous analytics to serve as the anchor for such a
major policy thrust. We need well deliberated policies from our
government including the plans for revitalization of the programme of
privatization being run by BPE to properly situate public debate of
economic structural change agenda. After all, even in our country, there
is now proof that the economy can relatively respond to deliberate,
well thought and rigorous analysis of context and sound policy options
in resolving growth and development problems.
The evidence that backs this is that it
was a modest range of such sound economic policies that helped deliver
an average of 5-6 percent growth of our economy on a sustained basis
over a long period of nearly a decade and half. It was only recently at
the end of 2015 that growth dropped to below 3 percent.
True, the relatively impressive economic
growth rate did not resolve the major challenges of poverty,
unemployment and inequality. That 61 percent of our population is poor,
according to the Nigerian Bureau of Statistics (2011 Household Survey)
is indicative of how growth and poverty reduction can often times
disconnect. Also, according to NBS, unemployment rate stood at 10.5
percent at end of 2015 and grew to 13.3 percent by the second quarter of
2016, revealing that the economy is severely failing to absorb new
entrants into the labor market — especially the 2-2.5 million youths
that seek to do so annually.
With a high income inequality rate of .4
Gini-coefficient instead of a score closer to a perfect zero, the gap
between our top income earners and the majority bottom poor earners is
one of the highest in the world and is the reason why Nigeria stands at
number 26 out of 190 countries. So, yes again, there are very deep
challenges that growth did not yet resolve for Nigerians since the early
2000s when it became normal in the economy.
However, we can objectively admit that
if we had not grown steadily at those higher rates from 2003 – 2014, the
economy would not have expanded as significantly as it did in the
sixteen years of our 1999 cycle of democracy. The expansion of our GDP
offered more diverse opportunities in sectors like telecommunication,
agriculture and agri-business, entertainment and services.
In real human terms, a growing economy
provided more and newer opportunities for citizens than was the case
during the lost decades of the 80s and 90s known mostly for no, low or
negative growth. The concept of economic growth must therefore not be
derided nor dismissed as some usually do.
The fundamental anchor for Nigeria’s long period of economic growth
was, when starting since 2003, policy makers managed to achieve
macroeconomic stability through an effective mix of monetary, fiscal and
some measure of structural policies. Whereas not many citizens would
normally concern themselves with the rather arcane concepts that engage
the minds of economic and finance technocrats; yet, growth policies are
fundamental to economic progress of individuals, households, governments
and businesses. This is becoming obvious to Nigerians in the last
twelve months as more citizens now better see the relationship between
growth and the fact that some who once had a job no longer have one.
What then was the genesis of the loss of
economic growth? It came from the fact that we learned nothing from
previous mistakes in the manner of poor governance of resources,
especially oil earnings. Nigeria was once again extravagant during the
most recent five years of oil boom. That this happened even after the
country turned the corner in 2003 when it set up oil-based fiscal rules
on how best to save in plenty in order to prepare for the lean period,
is all the more disappointing. Regrettably, in the period between 2010
and 2014 when oil prices were exceptionally high and several other
oil-rich countries were accumulating reserves, Nigeria was acting out an
alternate reality. We were incongruously borrowing during plenty to
expand the consumption habits of all the levels and arms of government.
The parlous state of the Nigerian
economy on 29th May, 2015 should therefore have instructed an incisive
and urgent macroeconomic stabilization programme to realign price levels
in the economy. If a menu of sound monetary and fiscal policies that
the economy needed on May 29, 2015 had been provided, it would have sent
the right signal to players that there was no cause for alarm. Had the
government made quick and necessary adjustments that corresponded close
enough to the level of impact that a 40 percent sharp drop in government
oil revenue necessitated, the story would most likely be less negative
today.
There is a new level that our post 2014
oil-shocked economy must find for stability in order to stop tottering
reason and so we do need a string of policy responses that can enable
this happen quickly. Such responses would have helped the economy absorb
the shock, reassured investors and consumers, and thereby helped
reasonably retain investor confidence. But that did not happen. The
attendant fiscal pressure and the delayed right policy response were
severe enough that by the end of 2015, economic growth sharply declined
to 2.7 percent.
It was a major mistake that the economy
did not get the timely and right type of policies that could have helped
us avoid the calamitous collapse into negative growth in the last two
quarters of 2015 that finally led us into a recession. The signals of
statist economic policy preferences did in fact worsen matters and set
off the wave of uncertainty that dented investor confidence in the
economy. So, it is accurate to conclude that both the preceding and the
successor governments conspired by their actions and inactions to throw
the Nigerian economy into the deep rut from which it must be rescued to
avoid social implosion.
The record of the government for timely
and right action on the economy is however so far not encouraging. For
almost one year, the government delayed right action on the fuel subsidy
regime despite its aggravating impact on fiscal imbalance. Over the
same period it delayed the right action on exchange rate policy despite
its deleterious impact on foreign reserves, the value of the Naira and
the rate of inflation. The government finally retraced its steps on the
wrong petroleum subsidy regime and fixed exchange rate policies some
five and four months ago respectively.
But the design and implementation of
those policy changes were half hearted and therefore remain doubtful in
their fiscal and monetary impact. The reluctance to fully embrace tested
and sound policy options was what minimized the salubrious impact that
the two highlighted key policy changes would ordinarily have had on
stabilizing the economy.
With inflation- nay, stagflation- now at
high double digits of 18% , with the decline of foreign reserve from
$37.3 billion at end of 2014 to $25billion in September 2016, with an
“administrative-floating ” exchange rate regime that still creates
enormous opportunities for corruption and rent seeking arbitrage, with a
high interest rate that poses a stress for the financial sector because
of deteriorating bank asset quality as well as for limited access to
credit by the real sector, with a continuously declining aggregate
demand, with a shrinking gross domestic product, with 2016 budget
deficit level of $11billion that still has unclear sources of financing;
what more do we need before citizens stepped up a demand for the
government to retrace its steps from its string of unsound economic
policies?
All the sobering data are indicators of
hugely deteriorating macroeconomic indices. The more such indices
deteriorate, the harder it is for growth to resume. The macroeconomic
stability that poor choice of economic policy helped to unravel within
one year had itself taken many years of arduous work to achieve. When
therefore one hears the rather simplification of the economic recovery
antidote being espoused by the government as “we shall spend our way out
of recession”, it heightens anxiety. When one further hears that the
sale of assets- especially some productive ones – is being proposed as
key contribution to the Budget 2016 deficit financing options of the
government, the immediacy of opposing such intention becomes self
evident.
For Nigeria therefore, the most critical
challenge that needs resolving is how to convince the federal
government to urgently retrace its steps back to what it failed to do
since 29th May, 2015. First, it failed to launch a deep fiscal
consolidation program. Second, monetary policies failed to adjust to
reflect new realities. Third, the government failed to present the most
ambitious structural reforms ever that can materially improve the
productivity and competitiveness of all potential existing and new
sources of economic growth.
The third action could achieve the four
decade-long diversification goal and help build a resilient economy that
is insulated from the volatility of oil prices in the future. These
three broad actions were and still remain the key things mandatory for
the economy to regain the lost macroeconomic stability that will drive
growth recovery, move us to economic development and shared prosperity.
It is good economics to stimulate
economy through increased government spending in a time of recession.
So, there is a place for the stimulus spending proposed by the
government. However, the economic vision that will arrest the macro
imbalance in the short run must be deeper than the proposed plan to
“spend, spend and spend”. After all, if massive government spending were
to be the solution that can fix our economic failures, then they should
never have happened in the first place based on our public expenditure
record. Government spending has been the albatross of our economy. The
current administration has not communicated any persuasive basis for
assuming that it’s proposed spending will achieve a different set of
outcomes without being anchored first on sound economic policies.
The current language of “massive
spending” is therefore very unnerving because it is not accompanied with
a corresponding agenda for massive restructure of the behemoth and the
governance system that easily widens its mouth to gulp the largest scale
of public resources. By the way, whatever happened to the report of the
Presidential Committee on the Rationalisation and Restructuring of
Federal Government Parastatals, Commissions and Agencies which found
that the cost of governance in Nigeria is one of the highest in the
world? Did the report not recommend the scrapping of 102 statutory
agencies on which we continue to spend scarce resources? Where is the
fierce urgency required to implement this game changing report that can
help roll back one of the most unproductively expensive governance
architecture in the world?
I have a simple message: The Federal
government should do the right first things, first. Change should begin
with those who promised Change!
Oby Ezekwesili is a former vice
president of the World Bank and former minister of education of Nigeria.
She is currently a senior economic adviser of The Africa Economic
Development Policy Initiative. She tweets from @ObyEzeks.
The opinions expressed in this article are solely those of the author.
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