This Opinion was first published in BusinessDay, 24th March,2015
Ashiwaju Bola Tinubu has critiqued the Federal Government’s policy of pegging national expenditure to the actual amount of forex earned. He points out that because Nigeria has the sovereign right to issue unlimited quantities of its own currency, government expenditure should be governed, not by the supply of foreign exchange earned by Nigeria , but by the need to create jobs, and increase economic activity in the country.
He accepts that the ‘currency photocopy’ policy runs the risk of currency devaluation as well as inflation but concludes that those side effects will be well worth the benefits of job creation and economic growth. He concludes by saying ‘When I speak of a common sense revolution, this is what I mean.’
Since his policy recommendation, oil revenues and Naira values have continued to plummet and with budget projections lying in shreds, this policy might well be the only recourse of any government that occupies Aso Rock with effect from May 2015. It is therefore important to engage with those ideas.
The idea of sovereign states ‘overissuing’ their own currency is not new, whether in Nigeria or abroad. The dictatorship of General Babangida massively devalued the Nigerian currency. The conservative British Government of Cameron pursued the policy which found its apogee in Mugabe’s Zimbabwe . The Britons called their electronic variant, ‘quantitative easing’. The Zimbabweans were stuck with more analogue and undeodorised terms.
What is important is that within the context of a well-run administration, it is a valuable fiscal tool that can achieve the ends of domestic growth by fostering economic activity. The emphasis is of course on ‘well-run administration’. On its own, ‘expansionary deficit, but non-debt, spending at the federal level’ has its place in the policy arsenal of a forward-looking government.
Yet, in countries with endemic corruption, mismanagement and cronyism, ‘economic growth’ does not necessarily equal ‘development’. This is the elephant in the room that is not addressed by the Ashiwaju’s opinion. Nothing makes a stronger point of this than the Zimbabwean experience, extreme though that is. The inflation was so bad that by the time the local currency was proscribed in favour of foreign currencies in 2009, 100 trillion zim dollar currency notes were in circulation and a citizen could starve if he had only a billion zim dollars in his pocket.
The Zimbabwean government’s current position is that a local currency can only be contemplated when the industrial output of the country improves. The Zimbabwe case is therefore a textbook illustration How Not to Spend One’s Way to Economic Health.
Yet, our macro-economic conditions are different and it will be paranoid to compare the Nigerian economy to 2009 Zimbabwe , for the present. Still, we cannot wish away the Jemide Presidential Monitoring Committee on the Niger Delta Development Commission (NDDC) which reported that 46% of the 609 contracts awarded in three core delta states had been officially abandoned, with the NDDC refusing to recover its funds from the contractors either independently or with the aid of the anti-graft agencies.
To make matters worse, of the balance 54%, most of the water projects were no longer functional, meaning that the resources expended on them were wasted. We cannot wish away the Kotangora Panel which in 1993, reported 4,000 abandoned Federal projects which had cost Nigeria N300 billion. Nearly twenty years later, the Bunu Presidential Projects Assessment Committee (PPAC) reported 11,886 ongoing and abandoned projects which had cost close to N8 trillion.
These abandoned projects represent hundreds of thousands of abandoned jobs and prosperity, hijacked from the working classes by the light-fingered and incompetent contractors and government administrators. With this track record, any infrastructure projects provoked by the deficit budgeting proposed by the Ashiwaju will only guarantee that twenty years down the line the list of abandoned contracts would have swollen to 30,000 – with corresponding improvements to the fortunes of delinquent contractors and their cohorts in government.
On the other side of the tracks however, what is guaranteed to the man on the street is – not necessarily development, but – an economic boom he can observe from a distance, with jobs as imaginary as those in the largely abandoned Ajaokuta Steel Mills. That, and the beast of inflation waiting at the supermarket door.
Even when trillion naira projects are completed they have little or no multiplier effect on the economy because they are often ill-conceived and irrelevant, having been awarded by people more interested in the rogue benefits of ‘awarding contracts’ than in serving the people. Billion naira silo projects stand empty. Gas power stations are built without the requisite gas pipeline that will enable them to function.
River ports are dredged and built without the road or rail networks to service them. Currency values depend not only on the amount of notes in circulation, relative to goods and services, but in the public – and international – perception of their value, which influence trading behaviour.
Such a perception is affected by the published policy on which it is ordered, with a policy of frugally constraining expenditure to income likely to influence more Naira confidence and put an upward pressure on the currency’s value. Older Nigerians will remember a season when the naira was twice the value of the dollar. When the naira went into freefall, they will also recall the ‘Essential Commodity’ (Essenco) era, when too much naira went chasing after too few goods and queues of the common man stretched outside empty supermarkets.
The historical reasons for the devaluation of the naira does not bear autopsy in this response, what is important is that before we adopt another cycle of ‘structural adjustment’ we need to appraise our administrative ability to adroitly manage such a policy. The main question is of course whether the positive dividends of deficit budgeting will actually come down to the masses, or be abducted much higher up the feeding chain.
The primary beneficiaries will be the contractors to government whose contract books will continue to grow despite the fact that less funds are coming into the treasury. The Ashiwaju favours ‘public works infrastructural projects’ which will employ people and which are needed as a prerequisite for economic growth.
But major infrastructural contracts involve a lot more than salaries with substantial forex requirements (unless they are in the mould of Governor Fayose’s recent N1.2billion award to local carpenters), and whether the benefits trickle down depends on the levels of corruption in the system.
Every time for instance a delinquent contractor absconds or a corrupt governor abducts a billion naira from his budget, that is another tranche of provisioning that will not get to the masses. And stolen money behaves strangely: it generally prefers to hide abroad, with negative multiplier impact on the economy.
Yet, beyond corruption, the most egregious miscalculation made by the Ashiwaju in his recommendation is the focus on the economy as an arbiter of good governance. In ranking African countries, the Ibrahim Index of African Governance looks not just at economic activity, but researches four categories of good governance.
- Sustainable Economic Activity
- Participation and Human Rights
- Human Development
- Safety and Rule of Law
On this index, Nigeria , currently the continent’s largest economy, only manages a 37th position in Africa , an eloquent confirmation of the relative irrelevance of economic size as a litmus test for good governance and the well-being of the individual citizen. If I were to add a category to the Ibrahim Index it would be
which would query the gap, and the dynamics, between those at the top of the wealth pyramid (whatever their political affiliations) and those at the bottom. Issues of equity are addressed but not exhausted by the extant categories of Human Development, Participation and Human Rights.
It would answer the fundamental question ‘Whose Country is this anyway?’ and would be interested in the fact that although 15 of every hundred Nigerian children will die by the age of 5, on some streets in Nigeria , the statistic could be closer to 80%. The point of course in all this is that while devaluation as a broadbrush economic policy will have a marked impact right across the society and political economy, we need to properly assess its impact on these five areas of the delivery of the elemental benefits of good governance.
Now, while Mauritius consistently retains the commanding position of the Index’s No.1 in Africa , its economy is a minnow in comparison to Nigeria ‘s. Clearly, it does not take a very rich country to deliver ‘good governance’. An inequitable small economy will grow into an inequitable big one, so Nigeria ‘s economy can double in size, while the bottom half of the population becomes twice as badly off as they are today.
This possibility should agitate the mind of any progressive politician. Good Governance is the pill which should be taken by the political elite, before they recommend the radical, life-threatening surgery of deficit budgeting and inflationary spending to the larger society. The economic policy proposed by the Ashiwaju has the potential to positively impact across the five spheres of governance, but ONLY if it is preceded by the necessary systemic changes that will allow the benefits to filter down to the population at large, rather than be commandeered by the ruling elite, as has been the case to date.
The occupants of state houses across the country must end the ideology of ‘Settlement’ whereby the loudest noisemakers and the nearest cronies appropriate the wealth of the commonwealth. They must instead adopt the ideology that identifies every citizen, especially the most vulnerable members of society who can least fend for themselves, as members of the Extended Family of the State, and design their policies accordingly, focusing on the provision of the basic fundamentals of education, food and shelter as drivers of sustainable economic growth that has direct impact on the other indices of development correctly identified by the Ibrahim Index of African Governance (IIAG).
Any close observer of our society knows of course that the feeding system is too entrenched to be affected by pious declarations and the goodwill of a head of department or a head of state. For instance the Ashiwaju declares: ‘The deficit is not simply for the sake of running a deficit; the funds cannot be spent on nonproductive matters. It must be used to fuel infrastructural and other projects that not only employs great numbers of people but enhance the overall productivity of the economy.’
But of course.
Like the thousands of abandoned projects at the Federal level alone. There is something fundamentally wrong with our system that we must address. Every election cycle, the real economy shuts down while fictitious (political) contracts are awarded to fund campaigns and bloat the register of abandoned projects.
Once the new governments are in place, the first order of business is to recoup godfather funds used to buy office, the N750 million Ndudi Elumelu scandal being only the most recent in the political corruption timeline. These are the ineluctable facts of the Nigerian political economy, and we must devise a system to protect the budgeted billions from the reach of larcenous government officials and contractors alike. Nothing less than a Corporate Corruption Act will do. Such an Act will function as a BribeCode that shuts down the gravy train by:
- Punishing companies convicted of the offence of bribery above a threshold of say, a million naira, with the strict penalty of liquidation.
- Protecting informants/whistle blowers and incentivizing/compensating them with a payment of 1% of the assets of the liquidated company.
- Destroying the culture of political patronage and godfatherism by making it possible for any of Nigeria ‘s 37 Attorneys General to bring suit for the liquidation of a company convicted of a serious corruption offence.
- Affording robust protection from victimization by innocent companies, while achieving all the above.
The knock-on effect of adopting the Bribecode is that much of the N6.87 trillion that is stolen from Nigeria every year will no longer happen. The AU’s Thabo Mbeki High Level Panel on Illicit Financial Flows from Africa reports that most of the illicit flows from Africa occurs in Nigeria and is occasioned by private sector corruption, tax evasion, and illegal transfer of profits abroad by multinationals.
These transfers are usually effected by the routine bribery and subversion of public officers. With the Bribecode in force such transactions will no longer make balance-sheet sense and should largely disappear, not by the recruitment of saints for public offices, or by the draconian jailing or execution of public officers, but the expedient of legal and fiscal engineering.
An economy with a cash infusion in the order of N6 trillion annually can create a lot of domestic jobs without risking hyper inflation and uncontrolled currency devaluation. This is the systemic change that will not only prepare Nigeria for the proposals of the Ashiwaju, but may make them completely unnecessary.
Yet, this is not a change that will come from a professional political class fully invested in political corruption. It is a change that can only be inspired by people who are sick and tired of Politics as Usual. In his article, the Ashiwaju says the right things as a champion of the masses, but it will amount to political posturing if the elephant in the room is not called out.
That elephant is Political Corruption. I urge him – and all other Nigerians – therefore to support the Bribecode. A doubling of the naira in circulation will not help Nigeria . A bullet in the head of Grand Corruption will. We earned about N6.8 trillion in oil revenues in 2012. How about earning a further N6.87 trillion in 2016, merely by tackling corruption with the Bribecode. We should not mortgage our house to dig a new well closer home, when we can simply replace our leaking basket with a bucket. When I speak of a common sense revolution, that is what I mean.