Former Governor of the Central Bank of Nigerian, (CBN) Prof Chukwuma Soludo yesterday urged the President Mohammadu Buhari- led administration to dismantle all forms of subsidy in the oil and gas sector to allow for the implementation of free market enterprise.
Soludo who spoke on the theme “Can a New Buharinomics Save Nigeria’, at a forum organised by Realnews Magazine said that countries like India, China, Russia were fast learners who are trying to beat everyone to the ‘game’. According to him the fuel subsidy which the nigerian government has been funding with tax payers money when it was clear the benefit was going to a neglegible few in the economy has turned out to be a fraud which the Buhari regime must discontinue if it must make real progress.
He said “We must pragmatically play this ‘game’.
Our goal in this lecture is not to outline the elements of the “new” Buharinomics. We expect PMB and his new cabinet, especially the team on the economy, to unveil it soon. Thereafter, we can join the debate. Our central argument so far is that it has to be ‘new and bold’, and surely dismantling several of the policy concoctions that are badly hurting the economy now should be the starting point.
There are a few issues I would however wish to draw the attention of the team as they craft the ‘new’ agenda. In thinking about the competitiveness of an economy, I use an architectural framework that organises the issues around the meta-level; meso-macro level; and micro level.”
Soludo noted that the castle of the new Buharinomics cannot be built in the air, regretting however that the ground on which the government was hoping to construct a100 storey building of hope was shaky and shifting.
He said “Nigeria is at war with itself, and is currently on the ‘High Alert’ list of Failed/Fragile States. When the Funds for Peace (US) first published its ‘Failed States Index’ in 2005, Nigeria was ranked 54 out 76 countries and Nigerians screamed to high heavens to condemn the ranking. Every year since then, our ranking has deteriorated and in 2015, Nigeria has been ranked 14 out of 178 countries (the first 13 are: 1. South Sudan; 2. Somalia; 3. Central African Rep.; 4. Sudan; 5. Congo DR; 6. Chad; 7. Yemen; 8. Syria; 9. Afghanistan; 10. Guinea; 11. Haiti; 12. Iraq; 13. Pakistan). As one studies the 12 clusters of variables used in constructing the index, we are challenged to ponder the outlook for the sustainability of change. Surprisingly, this ignoble status of Nigeria as a ‘High Alert’ failed state (bequeathed by PDP) does not even feature in our public discourse.”
The former CBN boss observed that no sustainable economic progress can happen in a context where the North East economy was grossly degraded in a matter of months, while the South East has been desolate with kidnappers holding sway and most of the elite largely in ‘exile’, and now a resurgent movement for Biafra.
He said the calls for Oduduwa country; increasing tension between the Fulani herdsmen and their ‘hosts’; the resurgence of Biafra; among other challenges point to the fact that these are something the leadership can no longer ignore.
He regretted that despite the fact that oil boom bought us some apparent peace of the graveyard yet Nigeria”s yearly ranking has continued to deteriorate.
Soludo said “Nigeria’s unitary federalism with its perverse fiscal federalism is designed to share and consume primary resource rents. Easy money from oil kept the parasitic elite together The perverse incentives embedded in our constitution penalize hard work and enterprise. A national economy cannot be competitive if its constituent parts are not competitive.”
B: Macro-meso level issues:
Let me raise a few issues to consider in the design of the ‘new’ Buharinomics.
i)Efficient and competitive market economy with a human soul (or what Komolafe calls ‘social conscience’). Nigeria has come a long way in developing a market economy and still has a long way to go. If it is not broken, don’t mend it! President Obasanjo once narrated his conversation with the late Prime Minister of Singapore. He asked the late Li Kuan Yew to explain the Singapore’s miracle to him. According to Obasanjo, Li Kuan Yew told him there was no miracle: all they did was that they got a few things right and kept doing them for an extended period of time. There is a lesson to learn here. The ‘new’ Buharinomics must resist the temptation of most new governments to think that their mandate is to discredit and replace everything they met. Reducing uncertainties and cost of doing business as well as maintaining macroeconomic stability remain critical first steps. We must avoid ‘state overload’. In a regime of weak institutions, entrusting the bureaucracy with excessive discretion to pick winners is a breeding ground for corruption and crony capitalism. From Nigeria’s political economy and experience so far, it needs to become a slogan that “government in business is bad business”!
ii)Fix the broken public finance: This is the elephant in the room. I don’t envy our new Minister of Finance who must fix the public treasury. As I listen around, I can hear a sonorous song by all the governments in response to the current crisis and its popular refrain is: ‘give us more money to spend’! Given the short-term electoral cycle, it is evident that most governments want to avoid the painful adjustments required to put back their public finance on a path of sustainability because that could offend voters and make them unpopular. Everyone is relying on increased taxation and borrowing. But the previous government loaded the public finance with an overload of debt at a time of unprecedented oil boom. The leg-room for more debt is there but definitely not much. The PMB team must not treat this oil price shock as temporary and believe it can borrow its way out of it. We must plan for the long haul and also keep an eye on the balance sheet of the central bank and commercial banks vis-à-vis public debt. I worry more about the crowding out of the private sector as governments compete with it for debt.
The APC/PMB government must establish its reputation on public finance. Is it going to be the tax, borrow and spend party or a wealth creator? How does it intend to reorganize government to free up resources? How does it intend to negotiate or deal with the vested interests in preserving the status quo, especially the national assembly? State government debt is a time bomb for the nation. The new team must take a serious look at the Fiscal Responsibility Act— it needs serious review and tightening otherwise ‘state bailout’ will become a permanent feature of our public finance.
I have read a lot of wonderful proposals about a welfare system— conditional cash transfers, unemployment benefits, social investment, etc. Great ideas! Do we need it? Yes we do. Can we afford it at this point in time? I am not sure. I have just a few words of caution. First, we must avoid the pitfalls of the Western welfare system that has become a trap for many (created generations of indolent, entitlement-dependent, non-working households). Government must avoid institutionalizing the “dash” culture (a culture where people expect something for nothing).
Once you start, a welfare system is not easily reversible. While we struggle to wean Nigeria off the oil rent, we should not replace it with another entitlement culture. Second, we must do the math properly and avoid the Jonathan’s open air announcement of wage increases before anyone tried to crunch the numbers. The result was that for five years, the total recurrent expenditure exceeded total government revenue. Every penny of capital spending was borrowed. Can APC/PMB reverse the trend and ensure a recurrent expenditure of no more than 80% of total REVENUE, or alternatively a recurrent of no more than 50-60% of total budget? Where is the statistics to use for this welfare payment? We know how states manipulate the school enrolment figures to get more money from Abuja. There is work to do before you roll out, please.
We recognise the dilemma. There is pressure to fulfil campaign promises (which are largely untenable and could bankrupt the country) versus trying to pick the pieces and put them back on a sustainable path. In my article in January, I stated that none of the two parties would deliver on their promises given the state of our public finance— except of course it wants to be suicidal in tipping us off the fiscal cliff. The APC/PMB team needs to weigh this carefully. But let us be honest: how many Nigerians voted for PMB because of the APC manifesto?
My reading is that the last presidential election was more a referendum on President Jonathan’s tenure and a little bit about Buhari’s moral force as well as the powerful coalition (under a two party system) that propelled APC to power. It is time to go on a retreat: roll your sleeves and with your laptops, and start crunching the numbers. So far, they don’t add up, but your mandate is to make them add up. Already, you have done a good job of convincing the public that you met a ‘total rot’, and so we can understand if you tell us you can’t deliver on those promises (although many of us knew from the beginning). Just come clean and move the country forward. After all, even during the oil boom, the PDP never delivered on its election manifesto as well (compare the various glossy election-time manifestoes with the actual programmes implemented). Someday, we shall get there but for now, you need to get us out of the crisis. The critical first step now is to regain the lost momentum on growth, and then crunch the numbers on the ‘social spending’ befo
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