Saving the Naira, freeing the economy from total dependence on oil revenue

1
462

By CLEMENT T. OFUANI, FCA

MON, NOVEMBER 14 2016-Anybody who follows Henry Olujimi Boyo’s Vanguard newspaper weekly column ‘Rational Perspectives’ under the pseudonym, Les Leba which he signs off with ‘Save the Naira, Save Nigerians’ would be familiar with the passion he has shown over the years for saving the Naira in relation to the US dollar and the clear and present danger of the dollarization of the Nigerian economy which speaks to our topic today. However, the way my topic is structured seems to reinforce a lot of common misconceptions about the relationship between foreign exchange management, the nation’s foreign reserve, economic development and the structure of Nigeria’s fiscal system. It is my intention to interrogate these misconceptions in the course of this speech and hopefully, provide some clarifications on them.

Let me start by sharing a story that my elder brother told me of an encounter between a school teacher and an illiterate market woman at a village market early this year that would serve to elucidate one of the misconceptions which we can all recognize. The school teacher walked into the trader’s shop to buy bitter leaf only to find out that the price of her usual quantity had doubled from the last time she bought it, which must have been a few weeks earlier and she inquired of the trader the reason for the increase. The trader looked at her like she was a visitor from another planet as she explained that it was because of dollar. Seemingly intrigued, the teacher asked her what the dollar had to do with bitter leaf, which she harvests from behind her house and merely washes with water for sale. Thinking she had got the trader, she was stunned by the illiterate trader’s response. The trader calmly explained that the proceeds from the sale of the bitter leaf would enable her recover the cost of the okada that brought her to the market which fare had increased because of dollar-inspired increase in fuel price and in addition, she has to pay for her other needs that are imported, which prices have all increased because of dollar. You can imagine the shock on the face of the schoolteacher as she received this Macroeconomics 101 lesson from an illiterate, who had, in this encounter, revalidated the classic definition of economics as ‘common sense that is not common.’

How many of us have not been guilty of the simplistic understanding of foreign exchange as the teacher? I can assure you that practically all of us have been guilty including Governor Adams Oshiomhole who was reported to have wondered aloud some time ago, what dollar exchange rate had to do with the akara seller in his village. Indeed, the illiterate trader who faces the daily challenges of balancing appropriate pricing of her product with her productivity has a more realistic and practical experience on the subject than many of our theorizing elites.

The main lesson from this encounter is that stable exchange rate is primarily desirable because of the direct correlation between exchange rate and inflation particularly for an import dependent nation. This is even more critical when the nation tends to import more than it exports. However, devaluing or depreciating a currency, in and of itself can present some positive economic benefits for an economy and therefore should not be viewed in isolation, as an undesirable occurrence.  In effect, we must make a clear distinction between concerns over a one-time depreciation of the Naira and the problem of unstable and rapidly falling Naira, as the latter experience creates acute uncertainties that make investment planning difficult while destroying the critical characteristic of the currency as a store of wealth.

FREEING THE ECONOMY FROM TOTAL DEPENDENCE ON OIL REVENUE

The second part of the topic for this speech, ‘Freeing the economy from total dependence on Oil Revenue’ when taken together with the first part ‘Saving the Naira’ gives an impression that the latter will result in the former. It also accentuates another general misconception of national economic management that expects a single line of action or policy to deliver our nation from its many economic challenges. The truth is found more in the analogy I gave my two children that ‘you need good formal education (life school) to excel in the school of life but these are different schools. While formal education presents problems in courses or modules such as Maths 101 for Basic Numeracy, GS 101 for Use of English, Acc 101 for Principles of Accounting and so on, these are mere ingredients to make the meals in the school of life. A sound knowledge of the ingredients enables one to combine them to solve life’s problems. In other words, life’s challenges do not come in the form of course questions.

Therefore, to discuss saving the Naira and freeing the economy from total dependence on oil, we have to go back into our national history, for there is an Igbo proverb that says that ‘if one misses his way in the forest, the best way forward is to retrace one’s steps to where the person started missing his way and not by foolishly plodding on.’

Between 1960 and 1985, our nation operated a fixed exchange rate system in which the rate was determined by fiat rather than by the interplay of market forces of demand and supply. The rate of our national currency at independence was fixed, first to the British Pounds and then later, included the US dollar in 1968 which was at that time, fixed to gold.

On January 1, 1973, Nigeria introduced the Naira and Kobo as her new currency with an exchange rate fixed at N2 to one Nigerian Pound and held in relation to the US Dollar.  Due however to the impact of the US Dollar devaluation in 1973, the Naira exchange rate mechanism was altered and fixed in relation to a basket of currencies of seven of Nigeria’s major trading partners.

Owing to the fact that the exchange rate was fixed, movement in the other currencies were adjusted for, using Nigeria’s foreign reserve to stabilize the exchange rate and the post 1973 oil boom provided a robust reserve base that helped to achieve that.

Despite fundamental shifts in the character and structure of the Nigerian economy with agriculture losing out as a major foreign exchange earner and with excessive reliance increasingly placed on petro-dollars to fund the reserve account, the government still maintained the fixed rate, which further created the illusion that the economy was strong and that the Naira was also as strong. The truth was that, though, between 1973 and 1977, the Naira value could have remained strong on the strength of the reserves, that robust reserve concealed a fundamental weakness in the overall economy and that is, its vulnerability arising from its near total dependence on a single commodity for foreign exchange earnings and the bulk of government’s fiscal revenue. Incidentally, the nation had no control over the pricing of this commodity.

Consequently, as oil price declined around 1978 and the foreign reserve was rapidly depleted by the unsustainable fixed exchange rate, the military government of General Olusegun Obasanjo sought assistance to manage Nigeria’s balance of payment by taking what was then regarded as a ‘jumbo loan’ of $1 billion from the International Capital Market. The administration further introduced austerity measures in an attempt to restrain the massive national import bills.

Unfortunately, these steps lacked disciplined economic foundations. The civilian government of President Shehu Shagari which succeeded General Obasanjo’s regime had ambitious development plans implemented by both the Federal Government and the 19 States of the federation that further escalated the growing appetite for imports. Significant uncontrolled foreign borrowings were undertaken for projects of doubtful feasibility, which were in some cases, not even executed despite being drawn down, thus worsening the nation’s debt burden and debt sustainability.

The combined assault of Prime Minister Margaret Thatcher and President Ronald Reagan on OPEC from 1979/1980 led to a sharp drop in oil price at a time that the new civilian government of President Shagari needed it most to boost the nation’s foreign reserve and support their ambitious development programs. Consequently, our nation faced another burst in the cyclical boom – burst oil economy.

In all of these, the fixed exchange rate was still maintained as a policy with no regards to economic and market fundamentals. In response to balance of payment difficulties resulting from the above policies, the civilian government passed the Economic Stabilization Act of 1982, which sought to control the nation’s excessive imports using bureaucratic instruments.

The bureaucratic tools deployed included the use of import licensing system, foreign exchange controls such as restrictions on certain remittances and reduction of travel allowances. This was in addition to the Exchange Control (Anti Sabotage) Decree of 1977 and the comprehensive Import Supervision Scheme (CISS) introduced in 1979 for pre-shipment inspection of goods being imported into Nigeria.

With exchange rate still officially fixed or controlled without reference to market fundamentals, the various measures instituted to ration the scarce commodity merely resulted in widespread malpractices which exposed the inefficiencies of the foreign exchange management mechanism and the inappropriateness of policy and legislative responses.

In the meantime, inflation had soared to well over 30% and shortages of goods began to manifest in the market which were wrongly attributed to hoarding and profiteering. On December 31st 1983, the government of President Shagari was overthrown and replaced by a new military regime headed by Major General Muhammadu Buhari. The new government believed that the economic challenges facing the nation were solely the result of corrupt practices, which of course had been exacerbated by the exchange rationing policies. Rather than effect a wholesale review of the efficacy of the subsisting policies and legislations, the government tightened control even further including utilizing countertrade for the nation’s international trade. At that point, credit lines to Nigerian businesses had all but been withdrawn and factories were shutting down due to lack of access to raw materials and spare parts. Mass retrenchment of labour followed, compounding the unemployment situation. The economy simply accelerated from bad to worse.

Let me quickly take us back a little to an issue that has a direct and critical bearing to this discussion. I have already mentioned that inflation had soared to double digits, completely eviscerating wages and savings.

Following the return of civilian rule, the Nigerian Labour Congress (NLC) embarked on a nationwide strike in May 1981, to press for a minimum wage which was negotiated and passed as the National Minimum Wage Act of 1981. A minimum wage of N125 a month was thus legislated for the country. At that time, the US Dollar equivalent was about $205 at the prevailing rate of N0.61:$1. It is very important to remember this event because it is clear that in negotiating this minimum wage, NLC focused on monthly salary rather than hourly wage which is supposed to act as protection for unskilled labour and which would have been easier to adjust in the future. This should also have provided a real national minimum benchmark for higher skilled labour. One can see that in nominal terms and without adjusting for inflation, the Naira equivalent of the 1981 minimum wage in 2016 using the exchange rate as at October 21 of N305:US$1 is N62,525. The difference between this nominal minimum wage and the current N18,000 minimum wage represents the minimum mispricing of labour which holds dire consequences for national economic management and productivity and, which is, in some ways, at the root of the pervasive corrupt practices in the economy.

On August 27, 1985, with the economy almost totally comatose, Major General Buhari was overthrown and replaced by Major General Ibrahim Babangida who was named military president. The president took the bold step of assembling a government of highly respected and sound intellectuals who assisted him in diagnosing the critical ailments of the economy.

The Babangida government recognized that the regimented approach of the nation to economic management and government’s direct involvement in nearly all economic activities had been primarily responsible for the lack of growth, pervasive inefficiency and bureaucratic abuses. They therefore decided to free the economy by embarking on far reaching reforms involving deregulation, liberalization and privatization and commercialization of State owned enterprises encapsulated in the Structural Adjustment Programme (SAP).

When the full programme kicked off, the fixed exchange regime was one of the casualties as the foreign exchange rate was thrown to the forces of demand and supply though moderated by the Central Bank of Nigeria. The Naira was immediately depreciated to trade at N2.02:$1 in the second half of 1985 from N0.90:$1 while in the parallel market, it traded at N3.90:$1. Several market variants have been tried at different times ever since, but essentially, the underlying principle was to attempt to find an exchange rate that responded to market fundamentals, though bureaucratic rules from time to time created gaps that led to the existence of a parallel foreign exchange market with premiums above the official rate.

Following the liberalization of the economy, the Naira continued a downward slide against the US dollar despite remarkable growth witnessed in the economy thereafter. The existence of a parallel market with marginal volume of dollar transactions continued to provide massive incentive for sharp practices such as round-tripping and arbitraging which was primarily made possible because of the colossal documentations required for the official market that were absent from the parallel market.

With the rapid depreciation of the Naira, inflation soared and the minimum wage or salary earlier enacted became meaningless. While capital and other factor inputs adjusted to the foreign exchange devaluation, labour remained virtually static, thus, bearing the full brunt of the liberalization. To compensate for this, governments, over the period, applied price controls on various goods and services including, petroleum products, electricity tariff, school fees, public sector health care and even house rent. These were services provided largely by State – Owned Enterprises. However, these public-sector enterprises were unable to recover operating costs from their internal revenues because of the tariffs imposed by government. The same governments were also unable to fund them appropriately. Invariably, the unfunded subsidies inherent in the price control regime resulted in declining quality of services and in some cases, in complete failure of the infrastructures. Typical examples include the crude oil refineries, the Nigerian railways and education and health facilities across the country.

In the education sector for instance, following unsuccessful agitations over salaries and poor teaching and learning infrastructure, university lecturers started voting with their feet in an unprecedented exodus that was aptly described as brain drain from our nation. Being a very critical segment of the population opposed to military rule, the governments appeared only too happy to see their backs but this would come to haunt the nation ferociously in a few years. It must be borne in mind that it was not just university lecturers that emigrated, other professionals trained at massively subsidised costs by the nation also emigrated. The ensuing massive wave of emigration cost the nation highly enterprising and innovative youths who sought greener pasture abroad. This avoidable denudation of vital human resource has been a major contributor to our increased dependence on imports of both goods and services which also contribute significantly to the downward pressure on the Naira in relation to the US Dollar. In fact, the Vanguard Newspaper of February 10, 2016 reported that the Chairman, Senate Committee on Tertiary Institutions and Tertiary Education Trust Fund disclosed that Nigeria spends $2 billion annually on school fees abroad. Along with demand for foreign medicals, these account for significant pressure on the Naira. Of course, it should also be noted that the forex spent on school fees abroad for just a few Nigerian students is far in excess of the Federal Government’s 2016 total budget of N369 billion ($1.21 billion using N305:$1) for education for all Nigerians.

Now, at every stage in the implementation of the SAP and associated liberalisation of the economy, Nigerians, led by organized labour resisted both military rule and the economic programmes because of the high level of painful social costs on the citizens. Clearly, the policies resulted in growth, where the economy had previously stagnated. However, even though, there was massive increase in investments and innovations in various economic sectors, translating these gains to improved well-being of the generality of the people was and has remained a major challenge for successive governments since President Babangida. A typical side-effect of the economic reform programme was the rising inequality in the country with its social and security implications. These social costs, whose incidence weighed more heavily on the most vulnerable in the society prevented the full liberalization of the economy as governments maintained huge subsidies in various sectors in spite of clear evidence of inefficiencies and widespread abuses. Yet, each failure to implement the liberalization policy delayed the inevitable at greater costs to the entire economy.

For instance, in 2012, the government of President Goodluck Jonathan realised that it was suicidal to continue the massive subsidy on petroleum products and attempted to end it but the subsequent mass protests by organized labour and opposition political parties forced the government to back down on the policy and the economy had to bleed profusely for another four years before the government of President Muhammadu Buhari faced up to the reality in 2016 at incredible social costs that we are all struggling to adjust to, at the moment.

Furthermore, instead of tackling the mispricing of labour head on, because of its implications on productivity, successive governments continued to expand public sector employment while holding down remunerations and as we have witnessed in the last one year, several governments were failing in the payment of their workers’ salaries altogether. Governments also created the impression that they can micromanage all the economic problems of citizens by getting involved in even highly personal issues such as funding and organising mass weddings and providing matrimonial mats for the production of another generation of dependants.

On the subject of freeing the economy from total dependence on oil revenue, it is necessary to elucidate on another major misconception about the Nigerian economy. The economy is not and should not be confused to mean the same thing as public sector revenue. The typical primary measure of the size of an economy is the Gross Domestic Product (GDP). The structure of the GDP shows the level of diversification of the economy. With an efficient tax collection system, there should be a strong correlation between public revenue and the GDP. In other words, increasing GDP should lead to increasing public revenue from tax collection. In our case, according to a release “Highlights of Nigeria’s GDP Rebasing Exercise Released” posted by Reuben Abati on April 4, 2014, Nigeria’s revised GDP for 2013, was stated as N80.2 trillion (or US$509.9 billion). This was an increase of about 89% based on the old GDP estimates for 2013 which was N42.4 trillion (or US$269.5 billion). Commenting further, he noted that the new results show that the Nigerian economy is more diversified than previously reported. The new GDP shows that, agriculture accounts for 22% of GDP, while the services sector increased to 51% of GDP. The services sector covers activities such as: transportation, information and communications, arts and entertainment, financial and insurance services, real estate, public administration, education and health services. The rebased numbers for some other important sectors in the economy show that oil & gas is 15.9%, manufacturing (6.7%), telecoms (8.7%), and Nollywood (1.2%).

It is very clear from the results of the rebasing of the Nigerian economy in 2013, that Nigeria’s economy cannot be described as a monoculture economy, which implies dependence on a single product. However, this error has persisted because various reports over the years have indicated that oil and gas sector which is 15.9% of the GDP accounts for over 70% of the national fiscal revenue and about 90% of the foreign exchange earnings directly controlled by the government. The pertinent question that arises is why the other sectors, which make up 84% of the GDP contribute so insignificantly to the national fiscal revenue and foreign exchange inflow. In my view, the answer would lie somewhere in the inappropriate political and economic structures of the country which are the props for the nation’s weak institutions.

While the oil and gas sector is structured through the licencing regime to track revenues into the Federation Account from licence fees, signature bonuses, equity oil sales, royalties and petroleum profit tax, the non-oil sector is not so well structured, hence revenues from solid minerals for instance are not easily tracked to the Federation Account which is why no derivation revenue is paid to solid mineral bearing States in spite the clear Constitutional provision. On the other hand, the existence of a parallel foreign exchange market with a premium over the official market results in foreign exchange inflows outside the nation’s foreign reserve system and are therefore not available for balance of payment management and remains a very attractive option for private sector flows and diaspora remittances especially when the rate divergence is huge.

Now, this point is crucial to note because, in some ways, the return to a fixed exchange rate and foreign exchange rationing system by the current administration from May 29, 2015 coupled with superfluous bureaucratic documentation and frighteningly negative international image of a ‘fantastically corrupt country’ combined to undermine confidence in the Nigerian economy and accelerate the rate and frequency of depreciation of the Naira in relation to other foreign currencies in the past one year with concomitant economic instability. In effect, the Nigerian foreign reserve was hit by double jeopardy of declining foreign exchange inflow from oil and gas on the one hand and outright loss of foreign direct investment and migration of remittances to the parallel market due to defective monetary policies. The consequence has been the steepest decline of naira in many decades with all its adverse effects.

 

 CURRENCY DEPRECIATION AND DEVALUATION

For an economist, currency depreciation and currency devaluation mean different things but shorn of technicality, they can be used interchangeably which is what I have done in this speech. Like I said earlier, currency depreciation can present positive economic opportunities. Armed with this knowledge, discerning minds were flummoxed when the APC Presidential candidate in the 2015 election promised to make the naira equivalent to the dollar. The question is, given our economic history and circumstance, is parity of naira with the dollar an ideal economic objective? In the late ‘70s and early ‘80s, Nigerians wondered why the groundnut pyramids disappeared and Nigeria fell behind in cocoa, rubber and palm production. We blamed it on the curse of oil without exploring the fundamental economic reasons.

With a fixed exchange rate supported by oil-fed reserves which over time could not support the fixed value, the producers of these agricultural commodities were effectively subsidizing our consumption of imports. In 1985 for instance, the average price of cocoa per metric tonne in the international market was $1,900. A cocoa farmer who exported 100 metric tonnes of cocoa in the first half of 1985 earned $190,000 which the CBN purchased at N0.9 : $1 for N171,000. But if that farmer exported the same 100 metric tonnes in the second half of 1985, following liberalization, he earned the same $190,000 but received N383,800 from the CBN using the prevailing rate of N2.02 : $1 or, if he chose the parallel market, N741,000 using the prevailing rate of N3.90 : $1. It is obvious that the devaluation made the cocoa farmer richer within Nigeria’s domestic economy. Evidently therefore, the return of farmers to their farms in the years following the implementation of SAP and the corresponding expansion in production was a response to appropriate macroeconomic environment and this validates the postulation that appropriate economic stimuli are more effective in achieving desired results than sloganeering such as “Green Revolution”, “Operation Feed the Nation” and “economic diversification mantra”.

The above observation about agricultural output expansion in the wake of SAP implementation was validated by a study by Nse-Nelson, F. A.  (2015) The study considered the performance of two export crops – cocoa and palm kernel – during the regulated period and the deregulated period. The findings showed that the growth rate of cocoa export went up from 3.25% per annum in the regulated period to 6.07% per annum in the deregulated period while growth rate for palm kernel which had plummeted to -4.59% in the regulated period increased to 21.77% in the deregulated period.

The study concluded that the liberalization policy adopted in the deregulated period which included exchange rate policy, introduction of appropriate pricing policy, abolition of Marketing Boards and other export promotion incentives resulted in the boost in the exportation of the two crops during the period.

It is noteworthy that the United States Government has often accused China of deliberately undervaluing its currency in order to promote Chinese exports to the US while discouraging US exports to China. Clearly, the preoccupation of our economic managers should not be with achieving parity between the naira and the dollar but with boosting Nigerian exports to increase the incomes of domestic producers and smartly discouraging imports with appropriate fiscal strategies to conserve the value of our currency supported by sensible foreign exchange rules. To achieve the former, requires a thorough understanding of the factors inhibiting our production competitiveness (the biggest being epileptic power supply and high cost of diesel etc.) and taking actions to eliminate them. It is therefore obvious from the foregoing that the economic challenges of increasing unemployment, rising poverty and inequality, contracting GDP etcetera cannot be reversed by an arbitrary fixing of an unsustainable Naira exchange rate. Rather, an appropriate exchange rate would result from a combination of smart political and economic policy choices that induce confidence in our economy, create political stability and enhance investments in infrastructure and human capital development.

WAY FORWARD

POLITICAL REFORMS WITH PHILOSOPHICAL FOUNDATION

2,000 years ago, at the time of the birth of Jesus Christ, the Roman Empire was able to conduct a census of its population and document her citizens without the aid of modern technology for travels and record keeping, yet 21st century Nigeria cannot obtain an accurate census of its population and cannot properly document her citizens both for the purposes of national planning, national security and for raising taxes. This is not by any chance an error but a clear deliberate design by some groups in the country for pure economic and political gains for their regions. In advocating for political reform, I believe that certain fundamental questions will be raised and resolved such as whether we truly need 36 states and 774 local Government areas fed from the Federation Account to efficiently manage Nigeria in what Senator Ike Ekweremadu has dubbed “Feeding Bottle Federalism”. The question is pertinent because the political structure we are operating that allocates superior legislative seats on the basis of number of arbitrarily created local government areas and to higher populations coupled with the use of such indices as “equality of State/Government” and the population figures for the distribution of national revenues, provide the pillars that support our grossly faulty political governance system and politics.  While it is true that Nigeria’s population is large, the exact figure is largely manipulated and exaggerated. In arriving at this conclusion, I am supported by the former Chairman of the National Population Commission (NPC), Chief Festus Odimegwu, who, in an interview aired on Channels Television, blamed the woes of the country on the enthronement of falsehood. According to him, ‘Nigeria will not go anywhere until equity, truth and justice are applied to the conduct of public service.’ His proof was that there was an instance when the Independent National Electoral Commission, INEC demanded a record of localities from the NPC, the organization charged with correct demographic data for the country but such record could not be found, an indication and evidence, according to him that “there was no census in 2006 and in earlier years, since the records mark the first stage in the census process”.

Going back in history, information from a publication by The Citizen Ng states that “the first post-independence census in 1962 showed that Nigeria had a population of 45.26 million people with the south having 23.25 million and the north 22.01 million people.  The distribution of population between the south and the north altered the existing record of the 1952/53 census (conducted by the British colonialists) which gave 54 per cent of the country’s population to the north.  In spite of the fact that the 1962 figures were in conformity with the global pattern that population movement has always been from the arid to the forested regions of the world, the Prime Minister, Alhaji Abubakar Tafawa-Balewa, whose party was the senior partner in the federal coalition government, rejected the outcome.  He went further to fire J.J. Warren, the British representative who was in charge of the census. The recount that took place in 1963 came up with a figure of 60.5 million people.  Even the census officials were said to have been alarmed by the result.  A final figure of 56.66 million was arrived at after a lot of juggling.  The population of the north was put at 29.8 million and that of the south at 25.6 million.  In spite of the stiff opposition, the result was taken as the official population figure of the country.  The next census after this was conducted in 1973 under the military administration of General Yakubu Gowon.  It was another fiasco.  The initial figure of 83 million initially presented to the Nigerian public was later scaled down to 79.8 million.”

The question that one may ask is, what have these got to do with saving the naira and freeing our economy from overdependence on oil? My answer is that until we get the political foundations right, we will not be able to create the enabling environment to build a flourishing economy based on sound economic policies. It was President Bill Clinton that once told our nation that the wealth of a country does not consist in what lies beneath its earth but what is up in the heads of its people. If Nigeria is not an attractive place for its citizens to live in, how can it attract other nationals with great economic potentials to migrate to? Imagine if a Mark Zuckerberg were a Nigerian and founded Facebook here in Nigeria, one does not need to be an economist to predict that the US Dollars generated by Facebook and attendant tax revenue to the government will have done more in strengthening the Naira and saving us from dependence on oil than the production from all our oil wells.

Political reforms with sound philosophical foundations will also entail the transfer of more powers, freedoms and responsibilities to subnational governments and to individual citizens leading to more efficient economic decisions at all levels to the benefit of our nation as a whole. This is because a decision maker who bears the consequences of his decisions makes better decisions than one who is able to shift the consequences to other parties. The advanced western democracies benefitted from this by building their political and economic structures around sound economic philosophies espoused by Adam Smith in his book “The Wealth of Nations” published in 1776 that extolled free market based on price as an efficient allocator of resources and on John Locke’s “Treatise on Governments” that espouses democracy as the best basis for organizing society where sovereignty rests ultimately with the people in such a manner that citizens are able to determine whether they are better off in an organized society or in the state of nature.

As I reflected on this, I recall the statement made at the Delta State Economic and Investment Summit on August 26, 2016 by the Minister of State for Petroleum, Dr. Ibe Kachikwu that prior to the removal of fuel subsidy in 2016, the nation’s documented consumption of premium motor spirit was 50 million litres a day but this fell to 34 million after, thereby reducing the nation’s foreign exchange demand for the product by over 33 percent. This savings resulting from a combination of elimination of corrupt practices and more efficient consumption, achieved more for the nation in the fight against corruption than all the anti-corruption agencies put together, yet the only weapon used was price adjustment and the invisible hand of the market did the rest. Unfortunately, these great benefits were lost to the economy as a result of the government’s insistence on using a fixed exchange rate system during the same period thus subsidizing foreign exchange for some economic agents.

LABOUR

This brings us to another key element in resolving our national economic conundrum which has to do with our reward system. Reward must be appropriate and must be linked to productivity. The national minimum wage or minimum salary of N18,000 per month is worse than poverty wage because it is unrealistic. This is even made more complex by the fact that the public sector – our biggest employers of labour – cannot, at this moment, meet their salary payment obligations under the current minimum wage regime. It would therefore, appear insane to advocate an increase, but renegotiating an appropriate minimum wage is critical to addressing such issues as poor work ethics and corruption, bloated public sector workforce and redistribution of labour to other sectors of the economy especially to the private sector where it would be made more accountable and productive. In addition, labour will be given back the responsibility for determining what to spend its income on. In effect, the advocacy is that appropriate minimum wage must go hand in hand with removal of unsustainable and inefficient subsidies in various sectors of the economy including tertiary education so that the institutions can increase the quantum of investments and quality of service that will help reverse the trend of massive outflow of brains and of dollars for school fees abroad. Of course, higher wages will significantly increase government’s fiscal revenues in the form of taxes.

Let me make it clear that this is not going to be easy. Nobody says it will ever be. But it is absolutely necessary that we pay labour appropriate wage. It is when this is done that we can insist on obtaining from labour the kind of productivity that is commensurate with the remuneration. This is going to be an incredibly difficult adjustment arising from the fact that we lost the opportunity more than 30 years ago to legislate a national minimum wage linked to hourly productivity.

Thereafter, we should also begin to focus on how to attract quality human resources, including migrants and how to attract back our own children that have gone to develop other economies with their acquired skills. It should be noted at this point that the robustness of the American economy lies in its enduring capacity to attract migrants who have immensely contributed to the growth of the American economy and even its polity. While America and Canada are busy repositioning themselves to attract the best brains in the world as immigrants, our system here appears to be comfortable with losing our best brains who emigrate to further develop other economies of the world.

With a restructured political arrangement that creates a more stable and equitable political system providing greater freedoms to subnational governments to assume responsibilities for their affairs, and with more appropriate wage structure in place, a critical foundation would have been laid for more focused economic development. The nation can then advance to focusing on investments in critical infrastructure that will make our economy more competitive.

INFRASTRUCTURE

I will only speak on three critical infrastructures that are key enablers of economic growth and competitiveness. Electricity, transportation and information communication technology (ICT) particularly broad band internet access. The Electricity Power Reform Act was passed in 2005 but it was not until 2012 that the full privatization of the unbundled electricity companies was completed though with transmission still retained by the public sector. It was expected that the environment was now set for massive investments in the sector to solve the national epileptic power supply crisis but the sector is still beset by disruptions in gas supply as a result of poor political choices and general resistance to tariff notwithstanding the fact that appropriate tariff is key to resolving critical investment decisions.

With respect to transportation, the nation is saddled with an inefficient road haulage system comprising dilapidated roads and rickety vehicles for her commerce with limited attention to 21st century rail system that can dramatically reduce the cost of goods. Funding of road construction and repairs has mainly been from annual appropriations with all the associated inefficiencies and abuses. It is time to rethink the transport infrastructure delivery system by imposing market discipline on it, thus ensuring that proper project management systems are utilized from conception, to designs, studies and appropriate financing mechanism that guarantee timely implementation and delivery. It will then become obvious that infrastructure does not require 100 percent public sector funding to be delivered. In addition, private sector investment imposes greater efficiency in the investment process ensuring feasibility, viability and sustainability.  To achieve this requires urgent legislative reforms as in the power sector to allow private sector participation in the delivery and management of the infrastructure. Mercifully, the Nigerian Railway Bill that will modernise the Nigerian Railway Act, 1955 is now receiving the attention of the National Assembly. This will allow railway infrastructure to be built with appropriate technology and along routes that facilitate the movement of goods from production point to market and moderating passenger fare tariff with freight fares. For you members of ASACCIMA, this bill should have been passed like yesterday because it will make your businesses more competitive and profitable.

On ICT, the successful liberalization of the telecommunication sector has proved to Nigerians beyond a shadow of doubt how ICT can boost economic growth and productivity but we still have a long way to go in ensuring greater integration of the ordinary Nigerian to the global village.  Increasing internet penetration through investments in broad band superhighway across the country and across our communities should be a very urgent priority of government and private sector involvement in the investment remains the key to success.

In concluding, let me share with you a poignant message that I saw in the social media as I was writing this speech. It was a British politician contributing to a debate on the debt crisis in Europe. He basically said that politicians and governments have failed to learn a simple rule of economic management, which every wise person practices, which is, to work hard and spend less money than you earn so as to have savings for the future. He considered it immoral that politicians of indebted countries who had consistently spent more money on unsustainable lifestyles than they raised or could ever raise in taxes should expect tax payers of the creditor nations to pay for their rascality. In Nigeria, every community in every state requires all the good things of life, which is quite legitimate. The problem is that there is never any concern for how the good things will be paid for. The general belief being that somehow, this entity called government has an inexhaustible source of funding. The good days of high oil prices have for far too long helped to mask the calamity that awaited us but finally, it appears that our profligacy has caught up with us and so, we must thrash around to find a way to save the Naira, so that the groove can continue. It is time for us to change our whole political and economic management approach of finger pointing, resentments and blame games to a focused discussion that addresses all the foundational issues which have prevented our economy from realizing its full potentials. Unfortunately, there are only hard choices before us and we must make them now.

CLEMENT T. OFUANI, FCA is DG, Delta State Capital Territory development agency, Asaba.

REFERENCES

Anochie, U.C. & Duru, E.E. (2015), STABILIZATION MEASURES AND MANAGEMENT OF THE ECONOMY: THE CASE OF NIGERIA, International Journal of Development and Economic Sustainability Vol. 3, No. 3.

Carollo, Salvatore (2012), UNDERSTANDING OIL PRICES: A GUIDE TO WHAT DRIVES THE PRICE OF OIL IN TODAY’S MARKETS, John Wiley & Sons Ltd.

Fapetu, O. & Oloyede, J.A. (2014), FOREIGN EXCHANGE MANAGEMENT AND THE NIGERIAN ECONOMIC GROWTH (1960 -2012), European Journal of Business and Innovation Research, Vol. 2, No. 2

Nse-Nelson, F. A.  (2015) ANALYSIS OF TREND AND GROWTH RATES OF COCOA AND PALM KERNEL EXPORTS IN NIGERIA (1970 – 2007), Nigerian Journal of Agriculture, Food & Environment, March, 2015

Okolie, O.R. (2014), EXTERNAL DEBT CRISIS, DEBT RELIEF AND ECONOMIC GROWTH: LESSONS FROM NIGERIA, European Journal of Business and Management (Online) Vol. 6, No. 33

Sanusi, J.O., EXCHANGE RATE MECHANISM: THE CURRENT NIGERIAN EXPERIENCE, Speech delivered to the Nigerian – British Chamber of Commerce, February 24, 2004

1 COMMENT

  1. The Director-General of the Delta State Capital Dev Agency, Chief Clement Ofuani who is a financial guru has really spoken well, even though there might be other things to add. Be that as it may, we are not oblivious of the fact that bad leadership is the bane of the economic emancipation of the country.
    For the past 56 years of Nigeria’s match to nationhood, the impoverished people have cried out their voice for credible leaders who have the wisdom to address the growing challenges militating against our development as a nation. We have been awaiting that socio-political Messiah endowed with the right attitude, vision, skill, passion and commitment to make things work and transform Nigeria to a beautiful paradise. Leaders who will not compromise their integrity and convert government institutions into a private estate; leader who shall not regard elective office as a lead-way to amass wealth overnight and become emergency billionaires. We need sincere leaders, not artful looters.
    Over the years, millions of our people across the federation face possible extinction, emanating from bad leadership associated with insecurity, poverty and penury. The importance of good leadership in developing and building an egalitarian society cannot therefore be overemphasized.
    Professor Anya O. Anya, Past President of Nigeria Academy of Science at a conference organised by the Nduka Otonti Foundation in conjunction with the Nigeria Academy of Education, said: “Bad leadership and the collapse of our value system are major factors inhabiting our national development.”
    The Don noted that “existing agencies of government created to address the collapse of our value system have failed to achieve the objective.”
    Contributing, Mrs Funke Fadugba, former Chairman of Lagos State Chapter of the Nigeria Union of Journalist NUJ, adduced that lack of sincerity of purpose on the part of our leaders at all levels of government is responsible for societal decay and underdevelopment.
    According to Alhaji Maitama Sule, former minister in the first republic, “During the pro-independence era in Nigeria, we have the resources and we have good leaders. People were proud to be Nigerians. The leaders were patriotic, responsible, reliable and kindhearted.”
    Today, the reverse has no doubt become the case resulting to infrastructural decay. Prices of foodstuff and other food items have escalated beyond the reach of the common man, fuel is on the increase, while the Naira has gone far below the dollar to the extent that Ghana and other African country currencies have become stronger than the Naira.

LEAVE A REPLY