Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited
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- Fiscal Policy
Buhari's fiscal oddity 08 May 2018
Nigerian President Muhammadu Buhari
In an informal survey that is still running since I published my October 2016 editorial note, entitled “Nigeria's misplaced priority in infrastructural development,” I ask: “Which should be the priority of Nigeria: investment in education or infrastructure?” The response I get the most is “both.”
This overwhelming response reflects poorly on the quality of public education in Nigeria. From my vantage position of collecting the responses, I see the mother of all the reasons investment in education should exceed, by miles, that in infrastructural development. If ours is a society that cannot answer an either-or question, our priority on investment in infrastructure is mistaken, indeed.
The administration of President Muhammadu Buhari has been pursuing an infrastructural illusion since fiscal 2016. In the budget proposal of that year, capital expenditure attracted 30 percent of the total allocations. This has since become the benchmark for its subsequent budget proposals.
But on both occasions when President Buhari assented the 2016 and 2017 budgets after they were passed by the National Assembly, actual allocations to capital expenditure were below 30 percent. Nevertheless, the administration continues to boast of its 'unprecedented' benchmark for public investment in infrastructure. As a result, the propaganda value of the budgets becomes clear.
The administration argues that its budgeting for capital projects was the strategic policy anchor for ending the recession that started in Q2 2016. Nevertheless, the recession became the longest of the country in three decades. When it ended in Q2 2017, the recovery was inspired by the rebound of oil prices, and therefore fragile, as it remains till date.
The infrastructure investment strategy has been one hundred percent funded by debt. In three years, the strategy sharply increased the public debt by 75 percent. Now that Nigeria's public debt has reached unsustainable level – on account that debt servicing now gulps about 40 percent of government revenue and because government is having to borrow locally and externally to repay matured debts – a new reason for the borrowing has been made up.
At the 2018 IMF/World Bank spring meetings last month in Washington DC, Ben Akabueze, Director-General of the Budget Office, suggested the reason Nigeria has recently ramped up foreign debt is because “the concessionary lending windows are about to close.” Therefore, he wondered why the international financial community would criticise the country's much-increased foreign borrowing.
Akabueze's incredulity attracted no direct response. At the State of the Africa Region seminar where he made his remark – a programme that reflected on main trends shaping the continent’s economic outlook – Nigeria was the elephant in the room. The country was not mentioned among the drivers of Africa's economic transformation. South Africa and Angola have the distinction. Neither was Nigeria included among the economies driving per capita GDP growth on the African west coast. Of course, more Nigerians now live below the poverty line of $1.9 per day; while unemployment has almost doubled in the last three years.
To not embarrass Nigeria, every effort was made not to mention the country by name when the problem of foreign debt was highlighted, although Nigeria's debt has risen fastest than any other sub Saharan African country in the last 18 months.
Nevertheless, the world has begun to call out the Buhari administration for its fiscal anomaly. In March, Bill Gates dropped the bombshell that Nigeria is pursuing an odd fiscal policy. He said the government was not investing in people. Instead, the administration has been budgeting massively for infrastructure. Rather than take Mr. Gates' rebuke on the chin, the Nigerian officialdom stuck to its conceit.
A ruder awakening is ahead for the country in October when the World Bank launches its first Human Capital Index (HCI). The idea behind the index is that investing in people – especially through education and health – is far more important than investment in infrastructure.
When I put my survey question to Femi Aribisala, who holds a doctorate from Oxford University, he said it was a no-brainer. Human capital is even required to deliver infrastructure projects.
Investment in human capital should be prioritised over and above investment in infrastructure in developing countries. Investment in human capital can't even lag in the advanced economies without affecting their global competitiveness.
According to the World Bank, human capital accounts for an estimated 70 percent of wealth in rich countries but only 41 percent in poorer countries. Strategic investment in education, health, social protection and jobs lead to better quality of life and more productive workforces. Therefore, investing in people strengthens economies.
As Akabueze suggests, Nigeria's current foreign borrowing binge may be deliberately and functionally short-sighted. The question is: What do we do next? The World Bank says it is in talks with the global rating agencies to feed the HCI into their sovereign rating decisions. Because of the neglect of investment in the Nigerian people over the last three years, the medium-term outlook of yields on Nigerian debt would rise, if the HCI becomes influential on sovereign credit ratings.
The current situation of investment in healthcare in Nigeria cannot be better described than by President Buhari's – as well as his family's – reliance on medical tourism. Given their dependency on medical treatment abroad, Aso Rock Clinic that is in place to serve the presidency often lacks basic supplies, including syringes. More generally, Nigeria has continued to struggle with immunization coverage, while episodes of Lassa fever and cholera outbreaks are back with a vengeance as threats to public health.
As for education, the country has continued to treat its collapse with levity, instead of marshalling public emergency response. While the world is moving to increasing learning outcomes, there is no reform in sight to arrest further decline in the low level of learning when considering the years of schooling in Nigeria.
By shifting focus to investment in human capital, the World Bank should be seen to be correcting its immediate past mistake. The Bank was at the forefront of drumming up investment need in infrastructure as a development strategy for developing economies. At its previous yearly meetings, SSA countries were set on a wild goose chase of $93 billion annual investment in infrastructure to close existing gaps on infrastructural demand and supply.
The World Bank has now turned its back on this counter-intuitive policy recommendation. But the responsibility for sensible policies rests squarely with the governments.