Nigeria budgets for inefficient monopolies – Wale Oluwo

Olawale Oluwo is a former Lagos State Commissioner for Energy and Mineral Resources who resigned his appointment at the tail end of the Lagos State Governor, Akinwumi Ambode tenure.

Oluwo, who was the speaker at the Afang Summit held recently in Lagos, a monthly gathering of men and women from all sectors of the economy organised by a Lagos based Investment Banker, Joseph Edgar, said among other things that the current Nigeria economy reality cannot drive the country to an enviable destination, that until the Nigerian government hands off sectors of the economy it has no business going into, the country will not move forward.

Nigeria economy

An economy will always be in equilibrium so, there is a role for money, there is a role for market and there is a role for regulation but no matter what we do, there will be consequences so, there are four major variables that we must always think; Inflation, Interest rate, Employment, and the Foreign exchange stability.

How do you do this? We need the combination of the physical and the monetary policies but we must understand the circle of boom, recession, burst, recovery, and boom again. Nobody in Nigeria is studying that trend and until you know that trend and the pattern before you can predict it and by predicting it, you can prepare for it and when it comes, you know the economic intervention that you need to make to bring it back to the recovery and then to boom, but we must manage the trade doors and by managing it, we must look at the three school thoughts, the Physicalist, the Monetarist led by Milton Friedman and the Supply-side. I like the supply side of it because the more supply you have, the more you are able to bring the price down.

What is the fundamental problem of the Nigerian economy?

I believe we made a faulty start economically as a country by adopting the British economy model; the British economy relies on government doing everything. You have the British telecom, British Rail, British Electricity, British Radio, and TV, among others, but the truth of the matter is that the government cannot run utilities better than the private sector so, if you compare America to the British model, you will see that why Britain has the BBC, America would not have a government-controlled media or have an American Railway, Airways and others but there is no way you can count 10 Airways or media in the world without at least three of them from America. What they call American Airways today is owned privately, that shows capitalism, free enterprise, and the private sector-led economy will always win.

I know the Chinese coming but I don’t believe in the model they are running and I know the time will come when those models may begin to crash.

Again, we may ask how Nigeria gets into murky water economically; we over centralize the economy. We created laws that empower government to provide all utilities and those laws restrict anybody or company from competing with the government utilities; the railway, electricity, media like the NTA, among others we wasted money on them because as we budget for these inefficient monopolies, they don’t make profit so, this makes us not to use our money well.

Nigeria started having money and we were very lousy about importing everything. So, these got us to a point where we needed reform and, I can say the best comprehensive reform that ever happened in Nigeria was under the Ibrahim Babangida government. 95 per cent of all the banks in Nigeria were owned by the government. Hotels were all owned by the government whether wholly or partially and 65 per cent of all the companies on the Nigerian stock exchange, then IBB implemented the reform but I also appreciate the constraint he passed through because, on one hand, he did not even understand those reforms he was implementing. I was part of the students union member that faulted him but I can tell you that it was out of ignorance because we didn’t know he was helping us until we left school.

IBB sold a lot of the government companies in sectors government should never have gone to in the first place but because of the resistance from the labour and the students’ union, his team could not sell what we call the commanding height of the economy which are the refineries, electricity sector, oil and gas, and the telecom sector. The next leader that carried out significant reform in Nigeria was Olusegun Obasanjo, so, it was under Obasanjo that we had the power sector reform act, the telecommunication sector was reformed, the banking sector and the insurance company witnessed a significant reform. He was able to create a pension fund, he was able to bring back the bond market, he was able to get a rating for Nigeria that put us in a position to be able to borrow money from the international market. “I think Obasanjo’s era was an era of reform and it was a good time for Nigeria. I look forward to another government like Obasanjo that will be reform-minded. Buhari has not done any reform.

Jonathan succeeded in Agricultural reform and he tried to complete the power reform of Obasanjo but they bungled it and sold it to the wrong people.

What is the way out of the Nigeria problem?

We do a lot of shortcuts in Nigeria. I don’t believe there is any shortcut out of the Nigerian economic problem because the Nigeria I see is a country where the electricity sector fails and all of us starts to buy generators, the water system fails and we starts to dig boreholes, the public education fails and a lot of us starts to build private schools, the security fails and we starts to have our own security, the health sector is the same.

We have 38 government in Nigeria, that’s, 36 states government, the Federal Capital Territory and the FG, I studied their budget for the past 10 years and I have never seen any state or FCT budget more than 50-55 per cent for recurrent expenditure, only the FG budget up to 85 per cent to recurrent expenditure, I don’t know why it is so but it has implication; as we budget up to 85 per cent for recurrent expenditure to run government, pay salaries and pay all sorts of nonsense subsidies we don’t have to do and we are benchmarking that against the revenue budget.

There is no time in the last ten years the federal government revenue has hit 80 per cent so, if we say 80 per cent is for recurrent, the day we meet 80 per cent of the revenue, the indication is that there is zero (0) per cent for capital expenditure and this is the reason the FG has not been able to fund any capital expenditure in almost ten years without borrowing, and this is not an economy, we can sustain it.

But why the FG is lousy when we share our earnings, it is the same FG that takes the lion share, the FG gets about 58 per cent and the states and local government shares the remaining. So, the FG that gets the 58 per cent is not using it to develop Nigeria, they use the money to pay salaries, pretending to be subsidizing all sorts of things. You can now begin to connect it to why Nigeria is not moving forward.

“We are in Cul-de-sac, there is a problem but how to come out of it is going to be difficult for two reasons; the recurrent expenditure cannot be reduced, the lack of political will to take on the vested interest who are feeding fat on subsidies because they provide the money for their election. So, why do we earn revenue as a nation and use it to subsidies petroleum products which we’ve been doing for more than 30 years, to give N5trillion to AMCON so that all the big men that took money from the banks can be asked to go and sin no more. We subsidies gas when we don’t have to, we subsidies electricity and that is why nobody is having the light but the most scandalous one is that we subsidies the foreign market and we’ve been doing that for up to 40 years.

Can we subside our way to economic development? It’s not going to happen.

So, what is the way forward?

There is a complete disconnect between the real sectors of the economy that should grow and employ people and the real sector that should give them the resources to achieve that. These real sectors are manufacturing, telecom, electricity companies, the Agric and others. There is only one or two Agric company on the Nigerian stock exchange today, how do you connect that? And the bank will not give money to any serious entrepreneur because the structure of the monetary system we run is such that, while economists tell us that for you to make a good return, you must take risk but in Nigeria, if you are a rich person and you can create factory that can employ 1000 people but you don’t want to take risk, you will go and buy Federal Government instrument like the Treasury Bills and the Govern Bonds and go to bed, they will give you 16 per cent interest because you don’t want to take risk but you are not helping the economy by not taking risk. In America, it is 0.5% and it came to 0.25% during the recession, by not taking a risk.

By the pension law, 100 per cent of a pension firm money can be put into the FG instrument.

When I was leaving the pension industry in 2015, on the aggregate, 85 per cent of a pension firm money was in FG instrument so, we give all our pension money to the FG, we give 15 per cent of the earning to the FG and that FG uses the money to run government, pay salaries, subsidizes, so, as we are today, Nigeria is not going anywhere economically.

The worst thing that we should not be doing that we continue to do is the fact that of all factors of production, the most important factor is the human capital which Nigeria is not investing in. Nigeria is not doing the right thing right, not getting the three most important sectors in any economy which is the energy, infrastructure and the Agric, if we do not get those three right and we now add that to not investing in human, it’s a disaster waiting to happen.

So, we are running a voodoo economy that is going nowhere. So, my suggestion is that Nigeria must stop subsidy except in the Agric sector because it doesn’t take any country anywhere, it rather destroys the economy. Economy management by intervention must stop.

The top-down approach that everything has to come from the Federal Govern is not going to work, what can work is bottom-up. I as a person will never serve the Federal government of Nigeria at the executive level, it’s a waste of time, we are not going to achieve anything. Let anybody that has anything to offer go and work at their state level because it is when all the states do well and they are working, that is when Nigeria is working.