Why getting the economy right matters
Vice-president Yemi Osinbajo was in Washington last week to talk shop with US and World Bank officials on issues that matter to our country and the rest of the world. His takeaway from that trip will most likely be the brief lecture given him by the World Bank Group president, David Malpass, on the management of our stubborn national economy. Osinbajo was shopping for support from the World Bank on the vexed challenge that has defeated every president since our return to civil rule in 1999: fuel subsidy. Yes, that again.
Malpass thought the vice-president was looking for a solution in the wrong place because, as we say in this country, the solution is in his sokoto, not in Sokoto. The Dailytimes online publication captured the essence of his advice to the vice-president with this headline: “World Bank to Osinbajo: Go home, address your staggered exchange rates, over-bloated fuel subsidy.”
I hope the vice-president kept a straight face as he listened to him. As diplomatic talks go, that was not particularly diplomatic. It was brutal. You could not blame Malpass for telling the vice-president the truth that does not taste like sugar, this truth is often difficult to swallow because it is not sugar-coated. He told Osinbajo that “Nigeria’s economic challenges are more of internal than external.” Right. We should look for the solutions here not in Washington or London as we customarily do because we believe that experts in those cities hold the key to the remaking of Nigeria.
The World Bank boss drew the vice-president’s attention to two critical areas in the current management of the national economy. One was what he described as “staggered exchange rate” and the other was the fuel subsidy. An exchange regime that is more or less in free fall cannot but hurt the national economy.
Malpass made this point when he told the vice-president “…that a unified exchange rate will significantly improve the business enabling environment in Nigeria and attract foreign direct investment and reduce inflation.” A unified exchange rate has the potential of stabilising it too. Sounds so simple you wonder if the managers of our national economy ever gave some thoughts to this new but nasty problem with the national economy.
The staggered exchange is fuelling inflation. We are all groaning because we are being crushed by the increasing weight of inflation. Prices of local foods and other things are daily adjusted in obedience to the dictates of the exchange rate with the US dollar. The Naira keeps falling and prices of food items keep rising beyond the reach of the over 100 million of our people who live below the minimum of less $1.9 a day. This is clearly bad for the nation, its people, and its economy.
The more vexed and lingering issue is, of course, fuel subsidy. Its primary purpose at its conception was to make the citizens of an oil-producing nation pay less for fuel than say the citizens of Burkina Faso. That objective, noble in intention, has since been lost in the corrupt and incompetent management of the regime with the result that those it was intended to help bear the brunt of its mismanagement.
The World Bank and the IMF have cried themselves hoarse over the years. They have consistently and stoutly opposed fuel subsidy. Both institutions believe that the very corrupt fuel subsidy regime has done nothing but unnecessarily bled the economy. Ending it would free good money for the government to take on some critical challenges of a developing economy. They encouraged each of our presidents to summon the will to end it. But that will either refused to be summoned or it was and is lacking, as in none of them has had the balls to do so. And so, Nigeria “for the first time,” according to Malpass, “since its return to democracy and as the only major oil exporter, hasn’t been able to benefit from the windfall opportunity created by high global oil prices due to its rising petroleum subsidy.” Good money lost because the will lost its way in many a baban riga pocket.
Each one of our presidents knew that fuel subsidy was and is hurting the economy, but each one of them chose to skirt around the problem introducing populist but short-lived palliatives they deemed necessary to save the poor from being crushed by the periodic increments in the pump prices of our petroleum products. They were solutions that solved no problems; or rather, they were solutions that fouled and further corrupted the system – and left the country increasingly poorer and the oil cartels and their compradors in the NNPC and the public service increasingly richer.
President Muhammadu Buhari was a commissioner for petroleum resources in the Murtala/Obasanjo military regime. He must have watched the goings-on in the industry that he was familiar with and was persuaded that fuel subsidy was bad for the economy and must be removed. He said so and loudly too before he assumed office as president in 2015. Foolishly, I crowed.
It did not happen. Buhari is the minister of petroleum resources. The subsidy remains and has progressively encircled the jugular of the national economy, virtually throttling it. To be fair, fuel subsidy carries only part of the blame in the management of our national economy. It is, of course, a huge part of the problem. Buhari and his team of economic managers have shown no creative approach in reflating the economy and giving it a new lease of life. Under them, the economy went into recession twice. Its health has never been the kind of feel-good story you would write home to your mother.
A few months ago, Dr Iyorchia Ayu, national chairman of PDP, said the Buhari administration had run the economy aground. Not many of us who go to the local markets would disagree with his assessment. The economy is in a pretty bad shape buffeted as it is by ill-winds blowing from every direction – insecurity that has made local production of food impossible, the unchained corruption that everyone, including the foot soldiers of the anti-graft war, are too tired to talk about let alone fight it.
The economic management style of the federal government is deleterious to the health of the economy. The economy is managed essentially with loans. It makes the sickly economy sicklier. The director-general of the Debt Management Office, Mrs Patience Oniha, recently appeared before the house of representatives committee on finance on the 2023 – 2025 medium term expenditure framework and fiscal policy paper and confirmed again that the country’s debt profile as at March this year was N41.6 trillion. The federal government will increase the current debt level by borrowing N11 trillion to finance the 2023 budget.
The managers of the national economy are confronted by the twin problems of a shortfall in revenue and deficit budgeting. Loans are taken to bridge the shortfall in revenue – and they create their own serious problems. Oniha told the honourable members: “…let’s begin to look at revenues because as debt is growing, debt service is increasing.” Our debt servicing is not sustainable because a huge chunk of the revenue is ploughed into it, leaving the country with capital projects that remain on the drawing board for eternity. It is thus much worse than you ever thought.
In a country where political campaigns are issue-based, the economy should take the centre stage in the 2023 general elections. If we do not get the economy right, nothing will go right in the country. Insecurity will worsen; poverty will worsen, and life generally will be brutish for millions of our citizens who neither politicians nor the beneficiaries of political largesse. All those aspiring to the right to occupy Aso Rock Villa next year should see the economic challenge as it real challenge confronting our nation.
But I can see that the aspirants in the major and the mushroom political parties are walking down the traditional political path, dropping hints of glib promises to turn our country from a third world country into a first world in the time it takes to say politics. It is glib and false. Human management and development are processes that do not admit of magical abracadabra.
Our economic burden is rather too heavy and too complicated to yield to the usual glib promises by politicians to do the impossible when they do not even know what the possible is. We, the electorate, will be complicit in the continued ruination of our national economy and our national development if we allow ourselves to be sweet-talked once more into giving power to those swift of tongue but bereft of moral and intellectual capacity for the leadership of our dear, complex, and complicated nation.