The Soludo Article and the Economic Response of the FG and the APC.
Background
Charles Soludo has set in motion a tsunami of sorts. His recent article has forced both the APC and the federal government to deal with and explain how they intend to mange and finance their respective promises to the Nigerian electorate. The responses are now in.
To set the scene, the Nigerian government derives over 85% of its funding from the sale of oil on the world market. The Oil and Gas sector accounts for less than 15% of Nigeria's current GDP. The price of oil has fallen to about $51 a barrel at the time of writing. Additionally, Nigeria has practically lost its main exporting market (the U.S) and is yet to fully replace it with an alternate demand driven export market. Nigeria has many ships stuck at its ports that are full of oil exports but without a buyer in sight! Nigeria therefore has a gaping hole in its finances due to falling oil prices, a disappearing export market and a lax tax and waiver regime. Nigeria's debt burden in 2015 at the current 2015 budget levels was placed at 20% of the 2015 budget. The 2015 budget was based on a $65 dollar a barrel price point (which has since become fanciful). Chances are the debt burden will grow significantly once the budget uses a more realistic oil price peg level.
Furthermore, Nigeria is at war. It has had to embark on a combat modernization programme of the armed forces in the middle of a war. Nigeria is no longer fighting the rag tag army President Jonathan met. Boko Haram has evolved (under President Jonathan's leadership) from a rag tag army to a sophisticated fighting force capable of fighting Nigeria and Cameroon (both aided by Chad and Niger) at the same time and hold its ground.
Issues
What is clear is that the Nigerian government has a sever funding/ revenue problem. At the current time it does not have an issue with the economy. The economy (its GDP) is still growing (albeit) at lower rates of 4-5% a year. My position (as contained in my previous write ups) is that the measures being taken to address a government deficit revenue issue will cause a wider GDP /economy issue in the near future. Both parties are embarking on campaign promises that has failed to take into account the revenue challenge that would be faced by the government that is sworn in this May of 2015.
APC's response
Dr Fayemi's response on behalf of APC indicated that the APC wants to build a national railway, interstate roads, ports, establish another government structure to manage its public works programmes and new generation of domestic oil refinerie(s). Additionally, it wants to increase spending on middle level technical manpower and create six government bodies for regional development. In short, an explosion of government spending in a period of declining revenue and stubborn fixed government costs. It claims this is achievable by stopping wastage and reducing corruption. It has not said what the yearly corruption and wastage figures in Nigeria amounts to nor the costs of its added expenditure would come to. What we do know is that the an APC government would be working with drastically less revenues than the present government has been working with.
The key is for APC to tell us how it would finance these additional government spending in view of Nigeria's declining revenue base, its stubborn costs structure of recurrent expenditure, mandatory debt servicing and war costs. The wastage and corruption fall back responses are both intellectually lazy and unrealistic (especially when viewed against the need for political patronage and the political space that any government will have to play within). Whatever savings are made, it will be insufficient to address the revenue challenge. The question for Dr Fayemi is a basic one. Would APC borrow more money to meet its existing responsibility and the added responsibilities inherent in the list stated above or will it raise more taxes on businesses and individuals or would it embark on large scale retrenchment of government workers and the consolidation of federal government ministries and parastatals or all, some or none of the above? In view of the fiscal measures to be pursued by an APC government, would it put pressure on the CBN to reduce interest rates and its current restrictive monetary policy or would it ensure the current CBN driven monetary policy continue? These answers will help Nigerians reconcile its stated objective of helping to reduce unemployment whilst remaining fiscally prudent. What is clear is that the APC has a lot of work to do and needs a lot of advice from experts. It is definitely not yet the credible alternative to the Federal government on matters of the economy. It may (in the absence of further information) be an equivalent alternative to the Federal government in any case.
The Federal Government response
A Paul Nwabuikwu speaking on behalf of the Finance Minister /Federal government provided a response of sorts. In order to avoid being sidetracked by the personal and professional denigration of Mr Soludo (as a person and as a former CBN governor), I have opted to concentrate on the Federal government's stated objective in addressing an essentially revenue challenge for the Federal government. We know that Okonjo Iweala had previously indicated that more taxes will be leveled on luxury items used by the very rich. We also know that federal government workers will no longer be going on overseas courses. Both suggestions will make miniscule impact on the revenue challenge facing the Federal Government. Mr Nwabuikwu finally managed to inform us that the federal government intends “to keep borrowing modest at a level sufficient to help us weather the present situation”. He makes no mention as to what “modest” means. If the recent article by Bloomberg is to be believed, the gaps in government funding when one considers the current tax objectives of the federal government, its funding obligations and the massive reduction of revenue accruing to the federal government, then the borrowing to be embarked upon by the Federal government under Jonathan/Iweala is going to have to be anything but “modest”!!!
We can therefore be rest assured that the debt levels both currently and in the future (by the time the Federal government headed by Mr Jonathan has had its way) would in fact significantly reduce the policy space of the federal government (to borrow a phrase from Mr Soludo).
Clarifications
Some aspects of Mr Nwabuikwu's article will need to concisely corrected. The present government met a diversified economy in 2007 and before 2010. Agriculture, Oil and Gas, Services, Manufacturing, telecommunications, nollywood and banking have been major parts of the Nigerian economy before President Jonathan became President. Nigeria actually overtook South Africa and Egypt and became Africa's biggest economy in 2010 (though the rebased figures actually allowed us to be aware of this last year) per world bank figures. https://www.google.com/?gws_rd=ssl#q=GDP++Nigeria
Granted inflation is lower over the last 5 years. That however is a feature of CBN driven monetary policy of higher interest rates, Dollar sales (as a method of controlling adverse exchange rate movements) and massive restriction of money supply. This was essential to counteract the inflation inducing massive budget deficits embarked upon by the current finance minister, increased borrowing under the same finance minister and the lax tax and waiver regime overseen by the current finance minister that puts extra inflationary pressure on the Nigerian economy. We note that the government have finally acknowledged the great work done by Sanusi as CBN government. We also note that Iweala attempted to reassure a jittery international community that Miss Alade (who was an integral part of the Sanusi policy team) would remain at the CBN to oversee matters following Sanusi's suspension. http://saharareporters.com/2014/02/20/nigerias-finance-minister-okonjo-iweala-endorses-cbn-gov-sanusi%E2%80%99s-removal-says-it-will
The same finance minister then influenced the appointment of an accomplished commercial banking figure with no monetary expertise whatsoever as the new CBN governor over the head of the more experienced monetary policy expert in the person of Miss Alade (whom Iweala confirmed was an intergral part of the policy formulation team of Sanusi that worked so well for Nigeria at the CBN).
On the issue of the ECA, the current litigation by the governors does not translate to a definitive decision by the Supreme Court. After all, the litigation by Sanusi challenging his suspension as CBN governor never led to his reinstatement by the federal government. I therefore find it trite to suggest litigation by some governors challenging FG induced savings as a valid explanation of the poor savings record of the federal government.
On the issue of debt, yes it is true that the finance minister now and during 2003 through 2006 are the same. However, the policies of both periods are different. That government monetized government assets in order to reduce government spending, reduced debt, borrowed less, saved more and had a prudent fiscal policy. The current government has higher budgets, greater budget deficits, increased borrowings, reduced savings and bad fiscal management.
Mr Soludo informs us that Mr Obasanjo was his own co-ordinating Minister of the economy whilst Miss Okonji Iweala is the co-ordinating minister for Mr Jonathan. This government therefore show cases Miss Iweala's true instincts as she has less fetters under Jonathan and more extensive powers. Obasanjo drove his own government policies. Iweala simply executed and implemented Obasanjo's vision under Obasanjo's ever present oversight.
Micro policies
On the flip side, I commend the FG on its policies geared towards inducing more small business operations. I had written on this issue previously. I am glad many of the points made by me mirrors the policies now being applied in a more expansive and fleshed out way. http://saharareporters.com/2014/03/21/immigration-tragedy-and-way-forward-dele-awogbeoba
I am, however, curious to know what Mr Nwabuikwu would consider an “affordable rate” of lending to small and mid sized enterprises by the new Development Bank of Nigeria.
Conclusion
Many thanks to Mr Soludo for starting the ball rolling. I also commend Mr Fayemi and the APC for rising to the bait. On what has been disclosed so far, I am not sure it makes good strategic sense to fight on the economy. At best, it will equal the FG on competence (or the lack of it). It may want to focus on security and corruption at least until it has in place a credible economic team. The FG will do well to avoid sounding petulant and the address issues squarely. After all it has overseen a massive increase in GDP per capita, Gross National Income and GDP growth (low in percentage figures (as it has averaged 4-5% since 2010) but high in absolute numbers (369 billion in 2010- 521 billion in 2013)). https://www.google.com/?gws_rd=ssl#q=GDP+NIGERIA
It therefore does have some significant achievements as well as significant lapses on matters of the economy.
Dele Awogbeoba
Lagos Nigeria
[email protected] and on twitter at @DeleAwogbeoba
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