Nigeria: Transcending the economic impasse, By Bámidélé Adémólá-Olátéjú
A flurry of activities has commenced since Asiwaju Bola Ahmed Tinubu won the presidential election and was sworn in, as president. Due to the poisoned chalice he inherited and the economic booby trap he walked into, he enjoyed no honeymoon whatsoever. From the pronouncement he made that “Subsidy is gone!”, it was clear from the onset that President Tinubu ascended the presidency without any illusion about the magnitude of the task at hand. So far, he has responded to the fiscal crisis and taken the punch manfully on the chin. There was no room for manoeuvre, nevertheless he could have ducked it. This would have been in line with the past sequence, wherein the refusal to accept the crisis. Warts and all, his response is commendable.
A key fault line pertained to the path-breaking commitment in the manifesto of the All Progressives Congress (APC) to construct a “Social Market” economy. The first set of interventions resembled the sort of response associated with the Bretton Woods formula, rather than the social market associated with Germany (after the Second World War) and the countries of Scandinavia since the 1920s. The Federal Government is now sensibly rebooting. The commitment to pay N35,000 to federal workers across the board for six months is a good response. It is a stimulus package, like what America did. Subnationals should be assisted to do same.
The Minister of finance needs to allay the understandable reservation about the possible inflationary consequences of this response. The inflationary pressure we are seeing is cost-push inflation, given the dysfunction in our economic structure. Prices went up because the naira underwent a 42 per cent devaluation due to the attempted merger of the corruption-propelled multiple exchange rates and the withdrawal of subsidy on petroleum.
The N35,000 stimulus will give a boost to purchasing power and help restore the balance through what is called the called ripple-effect. In simple terms, ripple effect is a multiplier effect. For example, because there is an increase in the minimum wage, we expect spending to increase. Every salary earner has at least four dependants. Therefore, an increase in spending of one person will help in generating more income for another, hence the spending power of others will also increase. As a result, manufacturers will begin to clear the unsold products, it will stave off disengagement of staff and increase the overall well being of many people.
This response makes one to recall the admonition of Bill Gates that, “if you cannot pay the minimum wage, there is something wrong with your business model”. He is correct! There is everything wrong with the current situation in Nigeria, which is absurdly based on a low wage, low skills economic model. This has translated into a sixties style “growth without development” and the “development of underdevelopment.” Increasing the minimum wage is the beginning of a correction and it must be deepened.
Now to the policy anchors, if President Bola Tinubu must fulfil its historic mission by placing an anti-poverty, jobs creating programme as the propellant for sustainable development and higher living standards, he must embrace the long-neglected need to create Social Capital. A social market begins with the realisation that fiscal, macroeconomic stability is the gateway to achieving social justice. Germany learnt valuable lessons from the fall of the Weimar Republic, leading to the rise of Hitler. Nigeria must also learn from the misguided fiscal recklessness of the recent past. The emphasis must now be on a currency based on production, on skills as well value-added exports.
The concept of social capital must be revisited and placed on the front burner. The Titans of the past, such as Chief Obafemi Awolowo, Sir Ahmadu Bello and Micheal Okpara understood the intrinsic link between the investments in the social sectors, such as education, health, social services, and real growth. The empirical evidence is unambiguous. The United Kingdom, for example, has an admirable health sector, which is also the fifth largest employer of labour in Europe! We must learn from this. The housing sector is another example. In Brazil under Lula da Silva, the housing and school feeding programmes were instrumental in taking forty million people out of poverty. At home we can recall the outstanding achievements in an earlier era of the Lagos Economic Development Board (LEDB), the housing programme of Lateef Jakande and so forth.
Social capital must be brought back to the fore. I suggest that the Ministry of Labour is outdated. It should be discarded, revamped, and reinvigorated in a Ministry for the Social Economy, which fits better into the present thrust. The Social Market thrust must see a new form of industrial relations. A new tripartite system based on goals driven relationships between the government, labour and the private sector must emerge. The old adversarial colonial era format must be replaced with cooperation based on fixed targets long term goals, fiscal stability and inflation targeting, to achieve low inflation and single digit interest rates. The sort of new industrial relations system has delivered increased living standards every decade in places such as Germany, and many other countries now follow suit.
The Federal Government must also speed up its commitment to set up a National Commodities Board. This price-modulating buffer is indispensable and will boost production, cut down on post-harvest losses, and increase the income of subsistent farmers, leading to the transition from subsistence to commercial farming, thereby guaranteeing value addition. Establishing commodity boards must however be interwoven with massive investments in rural roads. The impending 2024 budget must reflect a national effort on rural roads. With this, we will begin to reverse the destruction caused by the ill-advised structural adjustment programme.
In the long term, we should build up local capital by developing our development finance institutions, such as the Bank of Industry (BOI) and the Development Bank of Nigeria in the way that Brazil has developed Brazilian Development Bank (BNDES). The BNDES fit sustainable development into a fearsome powerhouse envied by the USA and the countries of the EU. In the words of The Economist, “BNDES can give loans of up to fifty years tenor.” No USA or European Bank can do that. The capital and technical strength of BNDES is instrumental in Brazil displacing France as the seventh largest economy in the world.
Before he became President, Asiwaju Bola Ahmed Tinubu had always advocated for a credit economy. This is important if we are to revive an indigenous manufacturing base, create a skills-based economy, while resuscitating and enlarging the middle class. This is also vital for capital formation, which is a veritable thrust for defending democracy. Without a strong middle class as a key and defence mechanism, safeguarding democracy would be a tall order. For example, dispersed home ownership is the bedrock of British democracy. No British Prime Minister would want an increase in mortgage rates on the eve of an election. We once had a settled well-established credit system truncated by the illusion of an “oil boom”.
In the fifties and the sixties, aspirations into the middle class started with a journey to get a car on monthly payments from Joe Allen. Bentworth Finance gave loans for furniture and accessories, while the Nigeria Building Society gave home building loans. It is time to go back sensible to that format by upgrading and tightening our identity scheme and establishing good private credit rating agencies. The gains will be immense.
We must admit that we are in a pickle and that the government is between the rock and a hard place. In this context, Marx’ most famous observation resonates: “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.” To be fair to the president, he has owned up to being aware of the consequences of accepting a poisoned chalice. This is made worse because he has “only a limited amount of time upon which to impart his own agencies”.
The options are limited and time, as well as the patience of a hard-pressed public, is limited. In the immediate, the government could draw down (pardon the pun) from its Special Drawing Rights (SDR) from the International Monetary Fund (IMF). The government, any government, is entitled to do so. Such a course of action will not provoke a nationalist backlash that an IMF “bailout” will. Either course will do.
Nigeria faces a liquidity crisis. I do not envy the president. I suggest he lays it bare to the Nigerian people in plain language, instead of trying to bottle it all up. He should let Nigerians know it is bad and that he needs their understanding. He should let them know he will always be upfront with them about the facts. That with patience, brighter days will come. We are very resilient and aspirational. We simply to do not have the hard currencies required to finance imports in an import dependent industry bereft of basic industries and hobbled by an agricultural sector.
If the December target for the refurbishment of the Port Harcourt and Warri refineries can be met, this will be a great advance. Nevertheless, we will not be out of the woods completely. In the medium term, we must go for bust in exports as in “export or perish.” The ports must be brought up to speed and reforms carried out to refurbish key institutions, which will supervise the export framework. Value addition must be the driving force, whether in agricultural exports, solid minerals, or the potentials of the Blue Economy. There is a very good example from Brazil. The South American country, in an admirable determined thrust, moved from the exporting of raw cocoa into processing it. Today, made in Brazil chocolate is sold in dozens in countries including the USA, the EU and Nigeria. Most importantly an astonishing 380,000 new jobs have been created because of this shift in policy.
Nigeria faces a liquidity crisis. I do not envy the president. I suggest he lays it bare to the Nigerian people in plain language, instead of trying to bottle it all up. He should let Nigerians know it is bad and that he needs their understanding. He should let them know he will always be upfront with them about the facts. That with patience, brighter days will come. We are very resilient and aspirational. We simply to do not have the hard currencies required to finance imports in an import dependent industry bereft of basic industries and hobbled by an agricultural sector.
If the December target for the refurbishment of the Port Harcourt and Warri refineries can be met, this will be a great advance. Nevertheless, we will not be out of the woods completely. In the medium term, we must go for bust in exports as in “export or perish.” The ports must be brought up to speed and reforms carried out to refurbish key institutions, which will supervise the export framework. Value addition must be the driving force, whether in agricultural exports, solid minerals, or the potentials of the Blue Economy. There is a very good example from Brazil. The South American country, in an admirable determined thrust, moved from the exporting of raw cocoa into processing it. Today, made in Brazil chocolate is sold in dozens in countries including the USA, the EU and Nigeria. Most importantly an astonishing 380,000 new jobs have been created because of this shift in policy.
Despite the gloom, we are seeing flashes of brilliance already. An example is the recently announced intention to initiate code–sharing in the creative sector. Revamping the intellectual property format will lead to co–production, the creation of jobs, and bringing in an inflow of hard currency earnings. More of this kind of thinking is needed. The Tinubu era must be the era of value addition, true exports promotion and transition to a balanced economy. As local refineries pick up steam, there will be a huge cut in foreign exchange spent on importing processed fuel. However, without basic industries such as iron and steel, machine tools, fabrication etc., there will still be avoidable outflows for maintenance, replacement, etc. We must have basic industries in Nigeria, going forward.
Bámidélé Adémólá-Olátéjú, an advocate, strategist and political analyst, is Commissioner for Information in Ondo State. Twitter: @BamideleUpfront; Facebook: facebook.com/Bamidele. BAO
First published on Premium Times.
