Thursday, October 13, 2016 8:08 am
Professor Tunde Babawale is of Department of Political Science and Dean, Students Affairs, University of Lagos. He has been Director-General of Centre for Black and African Arts and Civilization (CBAAC)
Q: Nigeria is in a serious economic crisis. Can you paint a picture of what is actually happening?
There is every indication that the problem that is currently confronting the Nigerian economy could be traced to the past, I think the current problem started in my view, about 2011 caused largely by the failure of our government to save for the rainy day and the declining prices of oil in the international market which started as far back as that period. The second point is that the slowdown in the economy which started at that time should have elicited an imaginative response from the Nigerian ruling class and such imaginative response should have included cutting down on waste, reducing drastically the cost of governance and frontally tackling corrupt practices which seemed from that period to be multi-faceted and multi-dimensional.
Corruption could take the form of direct pilfering of state resources; It could also take the form of over invoicing of contract. It was also made manifest in the very perennial cases of ghost workers on the nominal roll reported at the level of states, local governments and even the federal government. Although government partially responded by introducing certain changes which included the Integrated Payment Payroll Information System, IPPIS, for the payment of salaries and allowances. All of these were not faithfully followed, for example, not all agencies of government were migrated into this newly developed system of payment at the same time, Some bluntly refused to be part of it and nothing was done to them. Again, there were certain loopholes that were not really covered, so all of these exemplified what I referred to as government’s lack of imaginative response at that time to the looming danger of an economy going into crisis.
Of course, there is no denying the fact that the insurgency in the north created some problems in terms of diverting government’s attention and diverting government’s resources into an unproductive venture but the tragedy of the period is that it also provided an avenue for people to loot the country. So, it is a crisis that has shown symptoms before this period. However, the crisis is not unavoidable. I have said it is not unavoidable because the same Nigerian economy which was progressively degenerating into this crisis was rebased in 2013 and in spite of the signs of crisis, it was still adjured the biggest economy in Africa which grew or jumped from a total GDP of about 290 billion dollars to 510 billion dollars after the rebasing and Nigeria at that time became the 26th largest economy in the world and one of the fastest growing economies in Africa.
All of these were indicators that the Nigerian economy, even though it was experiencing crisis, was still manageable. At that point in time, state governors were in cahoots with the federal government engaging in a spending spree, wasting money on white elephant projects. For example, what is a multi-billion dollar stadium project doing in a poverty-stricken state? If you have a ruling class that is imaginative, what should have been established are industries to generate employment and provide buffers for the economy of the state in the future. No such things were done, many governors were building flyovers and buying bullet proof vehicles. To worsen matters, these governors, through the Nigerian Governors Forum publicly stated that there was no need to have savings in the excess crude account and they even took the Jonathan administration to court. I think the case is still in the Supreme Court.
That was under the leadership of the then Rivers State Governor, Rotimi Amaechi. In a fundamental sense, the root-cause of the problem of the Nigerian economy is because we are a mono-cultural and dependent economy. All the talks about diversification since independence have been mere platitudes; no serious efforts have been made to sincerely diversify the economy. For example, if we are an oil producing country, why are we not going into petro-chemicals production? Why is it that as an oil producing country, we do not have our own functional refineries? Why don’t we feel ashamed in importing refined crude when we are selling crude to others?
So, all of these indicated that the crisis facing the economy predates 2015; However, it appears to me that in 2015, the government that took over did not also appreciate the enormity of the crisis and did not put in place measures to address the looming crisis. Instead of going to work immediately this administration took over power, what it did was to go to bed and for six months, nothing was happening in the economy because even those who would drive the economic policy, the Federal Executive Council was not put in place. So for that period, it appeared that Nigeria was on an auto-pilot and that now compounded the problem of the economy which was inherited and by the time the government woke up from its slumber the economy was in serious trouble, it had become a malignant tumour.
At the micro level, what was the problem?
What was responsible are as follows: One, at that time the economy began to show signs of crisis and at each time that the crisis manifested, we still did not have the response that would address the problems. What is responsible is profligacy of the ruling class, especially government officials, the waste in government, the high level of corruption at every level. Thankfully, this administration has begun to send signals that it is no longer business as usual but to what extent has that campaign been effective? For example, the campaign against corruption is restricted to a very minute portion of the federal government, not even the totality of the federal government.
I do not know of any ministry that has been thoroughly investigated for malfeasance since this administration came into power, not to talk of state governments or local governments, so in many cases, the indication that we have is that corruption is still going on regardless of what is happening now. So, part of the problem is that the anti-corruption drive has not been holistic enough to totally discourage corruption at the governmental level, which is what is responsible. So, I am saying that corruption is still going on most unfortunately. Secondly, the price of crude oil at the international market has thrown our budgetary calculation out of joint and has made it impossible for us to meet some of our obligations as a people, especially in the area of foreign exchange requirement; that is one reason why we have problems, I had earlier alluded to the fact that our excessive reliance on oil has been a disadvantage. So, if I may summarise, the problem of corruption and the anti-corruption drive which has not been holistically done, the question of our continued reliance on a mono-product in our economy; thirdly, the lack of imaginative policies to counteract the emerging crisis in the economy.
Why has it been difficult to solve the current financial problem?
I think the financial sector is in a mess because of the timidity that has been exhibited by the leadership of the Central Bank of Nigeria, CBN. Even though the law talks about the independence of the CBN, what has happened in the last one year has shown everybody in practical terms that the CBN only watches the body language of the president or the presidency and will not do what it thinks should be done simply because it feels that it will not be pleasing to the government. That is not the role of the CBN. The CBN should put in place fiscal and monetary policies that are deemed right for the situation. For example, the question of the continued insistence on two different exchange rates did a lot of damage to the economy and at the time it is even said that it was still surreptitiously practicing the previous system as it became evident when government went out of its way to fund people on pilgrimage using the previous exchange rate.
That was anomalous and counterproductive. So, the financial sector is in a mess because the regulatory bank, the CBN has failed in its responsibility to regulate and to take the lead in determining policies in a proactive sense that could move the economy forward; that is one major problem. Secondly, the policies that government put in place in 2015 encouraged capital fight and discouraged direct foreign investment. Government for example began to hound and chase after owners and holders of foreign currency. Where is that ever done? For close to six months, no individual was allowed to pay cash in foreign currency into any domiciliary account.
When people who made money and earned foreign currency legitimately could not pay directly into their bank accounts, they took their Forex elsewhere, to places like Ghana. What we needed to have done in that circumstance was to have put the monitoring agencies in place to sniff out only those that were illicitly acquired and not treat the wheat with the chaff. What the government did was to lump everybody together and all holders and owners of foreign exchange were treated as actual or potential criminals; These were policies that threw our financial sector into crisis.
What can government do to fix the economy?
For the economy, what needs to be done are: One, we need now to begin to think of how to pump more money into infrastructure even if we have to borrow. I am not against borrowing if it can be invested in regenerative and productive ventures. Pump money into areas of infrastructure and industry where employment can be generated. Bailing out states is not necessarily a good economic policy because it is not sustainable and will not encourage creativity on the part of the states but if you pump money into building industry and infrastructure, you are likely to enhance the capacity of the government to generate employment, for people to earn money and for taxes to be paid and also enhance the revenue that will be accruable to states to make them less dependent on bailouts. That is one measure.