By Oseloka H. Obaze
BEFORE crashing oil prices destabilized Nigeria’s rebased economy, the economy was already distressed due to mismanagement, policy vacillations and intrusive partisan politics. Hence, the economy President Muhammadu inherited, while perceptibly promising, was far from robust, despite the blustering by the Jonathan government, about Nigeria having Africa’s largest economy. Paradoxically, the change agenda touted by the incoming Buhari government were predicated on a gross underestimation of the laggardly scope of the economy and governance rut. So, the crash of global oil prices merely trip-wired and propelled the economy toward recession. Still, a blighted national economy is nothing new. Major economies have at different times faced grave economic challenges. The key to addressing such challenges is to determine the fault lines and necessary corrective measures including fiscal shock therapy and risks.
Ten months into the Buhari presidency, Nigeria remains challenged economically. Aside from Buhari’s espoused economic policies not manifesting fully, policy dissonance also intruded. As the economy wobbled toward a deleterious downturn, trenchant criticisms raged, compelling the government to resort to some inexplicable ad-hoc measures. Such disconnected measures proved confusing. Unhelpful policy reversals followed, making broad calls for a national economic conference inevitable. The welcome response was a two-day National Economic Council (NEC) retreat of the government held on 21-22 March 2014, on how to revamp Nigeria’s sinking economy. While the retreat’s seventy-one decisions are salutary, the revamping efforts risks defaulting to a false start, as policymakers seem ambivalent about addressing core challenges. This fact drives the notion of government being risk averse in tackling Nigeria’s tanking economy.
Some aspects of the outcome of the NEC retreat are bothersome as they are bereft of some classical stimulus tools recognized worldwide. Economic stimulus entails explicit fiscal measures and massive infusion of cash aimed at boosting economic growth. These include significant tax cuts -especially corporation and capital gains taxes — coupled with interest rate cuts and direct cash stimulus that benefit low income earners and the unemployed. Surprisingly, the catalog of corrective measures adopted by the NEC lacked clear unemployment benefits, even as empirical studies have proven that “direct government spending – through unemployment benefits, food stamps, work sharing or infrastructure spending- top the list” in higher returns on stimulus spending.
Government’s role remains that of regulator and partner in operating the Nigerian economy. The joint partner is Nigeria’s organized private sector (OPS), which has the wealth creation niche. It’s mind-boggling; therefore, that serious efforts to kick start Nigeria’s stalled economy was undertaken by the government to the exclusion of the OPS, organized labour and think-tanks. After all, the N350 billion meant to jumpstart the economy will be dedicated to offsetting arrears owed to contractors. Whereas President Buhari had underlined agriculture, power, manufacturing and housing, as four key areas, requiring urgent attention in order to revive the economy, the stimulus fund allotment plan does not tally with these priority areas and the disbursement plan remains ambiguous.
Relatedly, four policy actualities remain worrisome. First, President Buhari publicly declared twenty-seven of the nation’s thirty-six states as broke and unable to pay salaries. This leaves nine states even as it’s clear that half of these nine states are also struggling. Secondly, Nigeria’s economic downturn remains negatively aggressive. Recorded growth in first quarter of 2016 was stunted at 2.1 percent. Nigeria also experienced an arrested total growth of 2.8 percent in 2015 the slowest and lowest since 1999. A sad corollary is that the earning and purchasing power of Nigerians continue to dwindle. So, any meaningful “change” or economic revamp must address the plight of the national population.
Thirdly, predicating the stimulation of the economy on payment of arrears owed to contractors is fallacious. Even with the best of intentions- any contracting firm paid arrears owed by government will feel obligated to settle its bank loans and investors’ obligations first, before rehiring and recruiting new staff with a view to boosting the economy. Hence, that option seems predicated on altruism rather than being a policy option with clearly annotated deliverables.
Fourth, the recommended measures, while recognizing the States as federating units, employers of labour and the most distressed segment of the economy, failed to adopt options that are sufficiently catalytic to trigger the jump-starting distressed state economies. It is the States not the private sector industries that cannot pay salaries; and the 27 indebted States bailed out recently need instant and massive infusion of funds to begin their recovery process.
Despite the expressed desire to ensure that the stimulus money stimulates the economy there are no clear policy criteria or directives matching the disbursable funds to specific desirable outcomes. This leaves the funds open to turf fights amongst technocrats. It would seem sensible to have matched the envisaged stimulus funds to youth employment or vocational and industrial training programmes; thus putting the resources into private hands, guaranteeing expenses that will boost the economy, while cutting down the prevailing youth unemployment bulge. Although it was disclosed after-the-fact that government plans to inject N3 trillion TSA savings into the economy, it remains unclear why the N500 billion earmarked in the FY 2016 budget for social welfare was not tied directly to targeted stimulus projects. Similarly, the recommendation that State and Federal Governments must emphasize the patronage of “Made-in-Nigeria” seems vacuous, when government fiscal policies are not sufficiently compelling to make Nigerian consumers look inwards. Preferential consumption is a factor of affordability as much as choice.
Only the pressure of high cost of imported goods will induce Nigerian consumers to look more closely at more affordable Made-in-Nigeria goods. Meanwhile, the nexus between our fixed rate currency regime and our consumption of foreign goods remains stark, and compels devaluation.
The seventy-one policy decisions the NEC took are mainly exhortatory but five core areas would have served the nation well had they been fully amplified. First, as a catalytic stimuli, the government should have established a 24-month moratorium in which the counterpart funding statutorily required to access the Universal Basic Education Commission (UBEC) fund would be waived completely, thus allowing a complete draw down of the estimated “N58 billion that is currently un-accessed.” Such infusion would impact on salaries, employment and construction works in that sector.
nObaze, MD/CEO of Selonnes Consult, is a strategic public policy adviser, consultant and immediate past Secretary to the Anambra State Government.