Economy: Undo Buhari’s sealed failure (1)

THE makers of the coup d’etat of December 31, 1983 offered as casus belli “the great predicament and uncertainty which an inept and corrupt leadership has imposed on our beloved nation for the past four years… Our economy has been hopelessly mismanaged; we have become a debtor and beggar nation.” Then General Muhammadu Buhari’s 20 months in office in 1984/85 (some 40 per cent of a presidential term) were enough for him to turn the ebbing economic tide, but he failed. As it groped to salvage the economy, his administration emblematised Andrew to muster the country against brain drain and economic emigration. But the economy sank deeper while both phenomena gathered strength and have continued to swell till the present day. Nigerians are among the African emigrants drowning in the Mediterranean Sea and suffering xenophobic attacks in South Africa.

However, since President Muhammadu Buhari has made it public that the main reason for seeking to return to office is to tackle official corruption, it is fair to assume that he failed to deal decisively with the scourge before his ouster 30 years ago because he was unable at the time to identify the corruption queen in the ant colony that bred and still breeds the myriad termites or forms of corruption eating up the country’s socio-economic fabric. Deeply concerned about the persistent poor state of the economy, two economists identified and subsequently publicly unveiled the corruption queen in an article carried by The Guardian of October 18, 2001 under the caption, “CBN’s long-throat and prostrate economy.” The corruption queen takes the form of wrongly substituted excessive fiscal deficits by the Presidency for inchoate revenue, which public sector dollar receipts represent in our naira-denominated economy.

Standing on the unquestionable finding, this writer gave the then Jonathan administration open advice through this newspaper under the caption, “Economy: Undo Jonathan’s sealed failure, Nos. 1 and 2 on November 3 & 4, 2011, and Nos. 3 and 4 (sub-editorially altered to 1 and 2) on April 14 & 15, 2014”. Let us agree that economic success is the desired objective. (Economic success is defined here as growing GDP per capita at least commensurately with economic peers.) Economic success has eluded successive federal administrations since the short-lived oil boom economy peaked in 1977/78 as just deserts for the unjustified substitution of excessive fiscal deficits for otherwise well-crafted annual budgets. Well-crafted budgets, upon implementation, ordinarily promote economic success. However, Nigeria’s economy has been severely stunted as it currently lags far behind its peers in the 1970s such as Malaysia and Singapore.

How did successive federal administrations end up substituting gratuitously excessive fiscal deficits in annual budgets that were on the surface well drawn up and geared toward ensuring economic success? A bit of history: Because of generally unsatisfactory economic conditions in the world’s leading economies, the Bretton Woods system of fixed exchange rates was discontinued in 1971. Then followed a period of experimentation with different exchange rate fixing methods. By 1978 (the year the oil boom in Nigeria began to lose steam), the dirty or managed exchange rate fixing system had gained favour among the world’s major economies. However, Nigeria’s then military order charted a different course and handed down the enduring practice requiring substitution of naira funds furnished by the apex bank for public sector dollar receipts.

As made explicit in the CBN Press Release published on March 1, 2013, under the legacy rule, allocations of foreign exchange accruals from the Federation Account (FA) are literally withheld by the CBN and in their place the apex bank substitutes freshly printed naira amounts (using the official but artificial exchange rate) for disbursement to the tiers of government for the financing of their budgets. (The legacy practice or rule may be better termed apes-obey rule for its longevity owing perhaps to the unquestioning disposition of the generality of the people: neither does the practice, upon a little scrutiny, pass economic muster as a currency exchange rule nor has it produced satisfactory economic results.) In short, the fiscal and monetary authorities since the demise of the Bretton Woods system have sold the myth that the FA dollar allocations withheld by the CBN are the equivalent of the substituted freshly printed naira funds furnished by the CBN.

Is the presumption by the fiscal and monetary authorities right? How much economic progress has the legacy rule brought about? For 40 years beginning in 1974, FA oil export proceeds on paper every year accounted for over 50 per cent of the budgets of the tiers of government. The oil receipts were combined with robust non-oil revenue plus deficit spending that was kept within the acceptable limit of 3.0 per cent of GDP. Such budgetary regimen over a few years (talk less over four decades) would give rise to a conducive production environment marked by inflation falling in the 0-3 per cent bracket, lending rates in the mid-single digit bracket and a strong realistically valued currency. As a result, the economy would attract significant volumes of foreign exchange by investors to complement what it generates for its development needs. Economic pundits saw that potential in the 1970s and postulated that oil export-powered sustainable development could earn Nigeria First World economic status by 2000.

The anticipated rapid and sustainable development did not materialise. According to Tradingeconomics 2012 indicators, GDP per capita of Malaysia and Singapore stood at US$6,765 and US$33,988 respectively. Nigeria’s rebased GDP put the corresponding figure at US$2,689. The Jonathan administration exulted that the economy ranked the 26th largest economy in the world. But a momentary and wishful exchange of the scores puts in perspective how far behind Nigeria has lagged since the 1970s. If Nigeria had attained Singapore’s GDP per capita, the resulting GDP of $5.7 trillion would have made Nigeria the world’s fourth largest economy in 2012 ahead of Germany’s GDP of $3.4 trillion. On the other hand, if Nigeria had coasted to Malaysia’s GDP per capita, Nigeria’s acquired GDP of $1.14 trillion would have ranked the country the world’s 15th largest economy slightly ahead of South Korea’s GDP of $1.13 trillion that year. And South Korea happened to belong in Nigeria’s broad economic peer group in the 1970s. Without doubt, successive Nigerian leaders, dead or living, would be (or have been) desirous of the fantasized images that could have occurred.

• To be continued tomorrow
• Mr. Ojomaikre is a Visiting member of The Guardian Editorial Board. Email: [email protected]