Menu

Citizenship bailout for the Nigerian economy 19 Jan 2016

Between 2011 and 2014, the yearly average prices of the Brent Crude were above the benchmark oil prices of the Nigerian federal budgets. If we had avoided the so-called quantity shocks (i.e. oil theft) and shunned pro-cyclical extra-budgetary spending, the country would have saved $131 billion in just four years. But we didn’t. Within the same period, Norway was saving $1 billion a week into its sovereign wealth fund which held $873 billion in assets as at June 2015.

As a result of the profligacy of the administration of President Goodluck Jonathan, which continued the tradition of previous administrations, six months of oil prices below $60.00 per barrel has left Nigeria in a fiscal crisis. Low reserves buffer, and the structural rigidity that inheres with oil still accounting for 70 per cent of government revenues and 90 per cent of total foreign exchange earnings, ensure this crisis is severer than it should have been.

Overall, the country is facing a cocktail of low foreign reserves, fiscal deficit (spending more than income), negative external balance (import higher than export), internal imbalance (consumption higher than production), high inflation, and persistent weakening of the currency. This combination is not what a country that had been efficient with policymaking and governance faces in just six months of uneconomical oil prices, after a long period of price boom. It should even hardly happen in lengthier periods of economic slump.

It is true that virtually all the oil-exporting countries are now having to deal with budget deficits and downward pressure on the value of their currencies. Oil prices, which peaked at $110 per barrel a little over a year ago, dropped to $60 last July and are currently below $30. However, Nigeria is among oil-exporting countries that are suffering most severely as a result of mismanagement of past oil windfalls.

Responsibility for our problem

Nigeria is partly responsible for the continuous downward pressure on oil prices in the international market. Our oil dependency ensures that we continue to contribute to the supply glut in the oil market. Although over-supply is the major dynamic at play for extant low oil prices, the government of President Muhammadu Buhari intends to pump additional 3,000 barrels daily into the market in 2016. Adding to the global supply when oil prices are this low is tantamount to fire-sale of non-renewable national asset. What is more, it amounts to doubling down on a perilous economic future.

But the fundamental cause of this national economic adversity is there are no true Nigerians. If there were, well, they have since become extinct. Nigeria lacks truly patriotic citizens. We always subordinate national interest to our personal or parochial group interests. Fake Nigerian patriots hold the reins of government and equally fake is the followership. We know this because of the actions and inactions of government. We also know that a good number of the crop of “government people” we have had in the last five years were outside the government a couple of years earlier. But the more government changes, the more its people behave the same way.

Boxed into a corner

The current dynamics of oil prices have boxed fake Nigerians into a corner, and there won’t be a let up anytime soon. Our saving grace would be patriotic citizenship. As long as oil prices remain low, we may become worse off unless we muster the patriotic zeal that is required to restructure and reflate our economy.

Would a policy wand not help in saving the day? We would need more than that. So, let’s speak to the heart of the matter: the current exchange rate crisis. The Central Bank of Nigeria has banned, unbanned and will definitely re-ban certain foreign exchange transactions. But it has been of little avail. Policy musters would not go far enough. Entrenched interests always seem to conspire against us as we end up with policies that, very often, are dumb; and when they are not, implementation is sabotaged.

The CBN included imported intermediate goods in the 41 items that cannot attract foreign exchange from the official market. This was intended to promote domestic production and at the same time curb demand pressure on the naira. But sourcing foreign exchange through the banks to pay tuitions abroad is permitted. However, providing foreign exchange for school fees abroad is inherently a contradiction of the lofty objectives of the capital controls.

How can a country that doesn’t even aspire to being able to train locally those who would operate its aspirational industrial economy industrialise? Which one comes first: the training of astrophysicists or going to the moon? Are we going to be able to develop the vaccine for Lassa fever before we train our biologists and pharmacologists to the highest standard?

Most of the degrees on which we fritter our foreign exchange are in disciplines that are of little relevance to our industrial aspirations. Harvard MBA, Law from Yale, Finance from LSE; why should these be what we are using our meagre foreign exchange to acquire? In pursuing their beggar-thy-neighbour policies, these are what the developed economies are advertising to us and we are writing the cheques.

The aberrations

We continue to suffer grave policy calamities because we make policies to indulge the rich. Since Nigerian policymakers and government officials are the nouveaux-riches, they basically rig policies in their own favour. Fair enough if the benefits spill over. But in developed societies, policies are made to promote the strengthening of the middle class and to tax the rich (pun intended). It is the middle class that form the critical mass of entrepreneurial activities that promote job creation and inclusive economic growth.

One other reason for Nigeria’s failed policies, especially the import curbs, is the indulgence of the Nigerian middle class, noted for its exotic taste and conspicuous consumption. We pride ourselves as very cosmopolitan. We also like to use imported tooth picks. While at it, we are unbowed. We might even shout on the people who supply our exotic demands. In this sheer pomposity and foolery, we refuse to recognise the times we are in now and heed the call to save our economy by embracing import substitution.

I was asked on a radio programme why a “hardworking” Nigerian should be denied the use of her debit card abroad. Well, in the first place, the CBN regulation did not ban the use of your dollar debit card or your ability to make wire transfers abroad, if you had received dollar inflow(s) to cover the transactions. But if your “hard-earned” money is in naira, there is no citizenship entitlement for spending it in dollars. The dollar is not Nigeria’s legal tender. The government now even earns far too less dollars to subsidise the exchange rate for unproductive consumption of foreign items.

As I write, the CBN has eased its capital controls policy. We can resume importation of tooth picks, and we can continue sending our kids abroad for degrees of little relevance to our national industrial aspirations. So long as we continue, our economy would remain susceptible to external shocks.

Patriotism Remedy

Old habits die hard. Because of how we got to where we are, the government and its regulatory institutions are unable to rally the citizens to embrace an inescapable adjustment. In the middle of a decline in our national economy, which has occurred in a global environment that remains very fragile, we all are still insisting on our profligate ways. The National Assembly wants to purchase foreign-made luxurious vehicles instead of buying locally assembled equivalent in support of the National Automotive Policy. But as the inescapable adjustment imposes itself nevertheless, the reality of our misplaced priorities will dawn on us.

The exchange rate crisis underscores the mutual self-destructive habits of policymakers and the Nigerian middle class. Government cannot deliver on the right policies, and private citizens are not setting the right priorities within the framework of a sustainable national economy. Bad policies or bad behaviours of government officials, which emanate fundamentally from lack of patriotism, undermine the interest of the citizens. Unpatriotic behaviours of private citizens in turn reinforce our common underdevelopment.

This suggests that what the country needs in weathering the present economic slump are not hifalutin policymakers. What we need are patriotic policymakers and a patriotic populace, especially the middle class. Unfortunately, patriotic sentiments would tend to diminish under the situation Nigeria is currently.

But since there is no other way to come out of our underdevelopment, we would do well to start securing our personal interests by promoting the interest of our country. The crisis we are in signals potentially horrible prospects for the country, but we can turn the tide over the medium- to long-term by loving our country as our selves. From all indications, the world is not near a post-oil economy. We need to start fortifying our sense of patriotism. We must break ranks with our inglorious past and zealously commit to growing a non-oil economy to better position the country to harness the opportunities of the inevitable rebound of oil prices in the future.