Sale of government assets not remedy to recession, says university don

Dr. OKEY OYAMA OVAT is the head of department of Economics, University of Calabar. In this interview with BRIDGET CHIEDU ONOCHIE, he opposed calls that government should sell off some national assets, to address the challenges of economic recession. He suggested that the way out is for the government to design economic policies that will motivate investment.

On the call for government to sell off national assets
For me as an individual, I do not subscribe to the selling of government owned assets for government to raise funds, to address the economic challenge of recession, as proposed by Aliko Dangote. This is because; government has a responsibility to ensure that the welfare of the citizenry is maximized.

It might have been argued that privatisation of public enterprises has the merits of improving the efficiency of such enterprises, free such enterprises from unnecessary political interference and improve their profit making ability, as well as, raising funds for the government from the sale. Selling of government owned assets is not the remedy to the current economic recession in Nigeria. We should rather look at what caused the recession and from the causes, we will then proffer solutions to the problem.

Implications of selling of government owned assets
When there is privatization – transfer of government owned enterprises to the private sector, we should bear in mind that the major aim of the private sector is to maximize profit. This could be achieved by selling goods or rendering services at higher prices and exploit consumers. This will further aggravate the sufferings of Nigerians. In this respect, to my mind, it is better for such enterprises to be owned and managed by the government for the sake of public interest. One of the main features of recession is mass unemployment as evidenced in Nigeria. One way of pulling an economy out of recession is to reduce unemployment to the barest minimum.

The private sector cannot reduce unemployment rate in Nigeria to the barest minimum. This is because employing more means rising wage bill and higher wage bill implies reduction in profit level, which the private sector cannot condone. To this end, sale of government owned assets to the private sector for the government to raise money will not solve the problem of recession. After all, Nigeria has been earning so much revenue from oil in the time past and such monies were not prudently and judiciously managed. Is it the one from the sale of government assets that would be judiciously managed to perform the magic of eliminating recession in Nigeria? With the capitalist tendency of the private sector for profit maximization, mass unemployment will still persist in Nigeria and recession will still surge if not aggravating to depression. Again, an evaluation of the performances of most of the privatised enterprises in the past leaves a sour taste in the mouth. Most of them have performed abysmally. That is the reason I am opposed to transfer of public owned assets to the private sector. Some critics of privatisation are of the view that it is an indirect way of empowering some well-placed individuals at the expense of public interest.

Reasons Nigeria finds itself in economic recession:
One of the reasons Nigeria finds itself in this economic situation called recession is cut in government revenue. If we can go down memory lane, before Independence in the 1950s and after Independence – the early 1960s, agriculture was the mainstay of the Nigerian economy. Nigeria generated a lot of foreign exchange from agriculture until the discovery of oil. There after, agriculture was relegated to the background. For example, the percentage contribution of agriculture to GDP in 1964 stood at 60.96 per cent and dropped to 39.17 in 1997. By April this year (2016) it stood at 24.18 per cent. To my mind, Nigeria would have continued to harness the agricultural resources for which she has comparative advantage alongside oil production. But that was not the case. She abandoned agriculture and concentrated on oil. Now that oil prices are falling in the international market, there is a drastic drop in government revenue.

Another reason why we are in this recession is because of the import dependency of Nigeria. Nigerians are so import dependent. We import virtually everything. Anything imported is seen as being the best compared to what is produced in the domestic economy and a reasonable percentage of revenue generated in the domestic economy is spent on import. It means that we spend a greater part of our national income on imports.

The way out of recession
I recommend a policy mix. We have to employ both monetary and fiscal policies. Monetary policy from the angle of the monetary authority (Central Bank of Nigeria), should embark on a policy of easy money. This means a situation where government has to increase money supply. When money supply is increased by the CBN, it will help to reduce interest rate – the lending rate at which investors borrow to invest. This is because if interest rate is reduced, and alongside with marginal efficiency of capital it will go a long way to increase investment demand and as investment increases, aggregate demand will also increase and as the aggregate demand increases, employment will increase, output will increase and national income will also increase. If employment increases, unemployment associated with the recession will be drastically reduced.

Looking at it from the fiscal policy perspective, because government at the moment is in dire need of money to discharge its responsibilities – to pay salaries and provide the essentials that government is supposed to provide in terms of welfare needs of the people, it has raised the taxes so high and this increase in taxes has made some foreign investors to relocate to other countries. So, what government should do from the fiscal policy angle is to reduce taxes.

When taxes, such as personal income tax excise duties etc. are reduced, investors will now pay less tax, which translate to a reduction in their cost of production. Investment demand will increase, employment will increase and output and national income will increase. Aggregate demand will also increase, as individuals will now have more disposable income at their disposal. If this happens, this talk about mass unemployment in Nigeria will be drastically reduced and by extension, through the multiplier effect, the problem of recession would be taken care of.