Is our economy stupid?
Posted by News Express | 30 September 2019 | 1,111 times
You may have heard the phrase, “It’s the economy, stupid.” It is credited to James Carville who worked for Bill Clinton as a strategist in the 1992 US presidential race. Indeed, the economy determines the supply of opportunities and how it is distributed. That is why in many countries the economy is a consistent feature in election debates and campaigns. Generally, voters care a lot about economic opportunities. But the latter is not just the result of the policy choices of one administration. It is also more about the underlying structural foundations and the assumptions on which policy choices are based.
Nigerians care about the economy. Our economy affects us in every way and every day. And yet our current economic path very much depends on what happens outside of Nigeria — most of which we have no control over. The result is that most Nigerians now struggle to meet the basic needs of life such as food, clothing, shelter, sanitation, healthcare, education, security, and decent tax-paying jobs. Not that we do not have the resources to produce locally and monetise in Naira (a symbol of our sovereignty) to meet the basic needs of our population. But we have for some reason deliberately created constraints resulting from our chosen economic path and the thinking and motivation behind it. It is currently generally unattractive to produce enough of what Nigerians need locally, with entire value chains denominated in Naira (in our control).
Our economic realities
By making it unattractive to produce enough to meet our needs to support modern living, it has become attractive to import. On the one hand, if we are not producing enough (that we can produce), our economy is not creating as many decent tax-paying jobs that our population needs. On the other hand, consumption based on imports requires settlements in foreign currencies/exchange (such as US$) that have international value. But our country earns limited foreign exchange mostly from the sale of crude oil. The world needs oil for energy to fuel manufacturing and associated value chains, transportation, power homes, etc. There are other important reasons why the world buys our oil. It is about economics and the geopolitics of oil. It is strategic to global power relations and controls. The global supply of oil can influence domestic policies and determine economic and political outcomes in many countries.
Local constraints and the nature of global demand and supply, currently make our country globally uncompetitive in the production and supply of other goods and services apart from crude oil and gas. Given the limited supply of foreign exchange in an economy that is so heavily dependent on US$; given over 200 million Nigerians to provide for their needs (and wants) that one way or another depends on US$; given the state of infrastructure and the urgent need to build, obviously we have ‘created’ or stumbled into a trap — one of much scarcity of resource in the presence of high demand for the very goods and services that we need to survive. It is the scarcity or limited supply of US$ supply that is in part responsible for the high rate of Naira exchange to the US$. It is in part what is responsible for our inability to meet the day-to-day needs (which depends on imports) of our population. It is also this scarcity that influences the behaviour of Nigerians in diverse ways. Some Nigerians under very difficult circumstances continue to create real value at home and abroad. Other Nigerians feel entitled. There are those committing terrible crimes against humanity. Yet other Nigerians, motivated by excessive greed, exploit the structural and systemic weaknesses in our economy to primitively accumulate scare resources and power. And by promoting regressive policies, we continue to make conditions even worse for most Nigerians who struggle in their day to day battle to survive harsh economic realities.
The above is just a summary of our economic challenges. We are overwhelmed by deep structural and systemic issues. The good news is that our challenges have clear solutions. But the solutions require some consensus, political will, and hard work. Our challenges require longer-term response and attention to the fine details that constrain our economy.
The economic advisory council
The newly inaugurated economic advisory council can provide insight on how to urgently begin to piece together all at once the building blocks and to lay the foundation to anchor a better economy. One that is dynamic and creating opportunities. An economy that is underpinned by a philosophy that reflects our population of about 200 million Nigerians — many young and talented (untapped). That reflects our diversity and multinational country. One that reflects our natural resource endowments as distributed across Nigeria. More importantly, that our economic choices ought to be within the context of the history of slavery and colonisation and the post-war global systems, to inspire us to do what is difficult and ambitious, and not what is easy. Our philosophy should extend beyond any ‘short term gains’ that politicians focus on for the purpose of election victories every 4-years cycles, that distract and detract from our ambition as Africa’s most populous country.
Advice to Advisers
Most Nigerians would agree that we are very fast approaching crisis point. It is easy to see the connection between most of our challenges and our political economy. For some of our challenges, economic advisers can justify the case for urgent palliative measures to alleviate pain and reduce social costs. One would be right however, to think that the President is more interested in addressing the weaknesses and cracks in the very structural foundations of our economy. The very foundations required to support the Nigerian economy that can systematically, rapidly and sustainably deliver on jobs, development, and security in the short to long term, in view of the externalities. I would imagine that the nature of the work of the economic advisory council will, therefore, be research and evidence intensive.
In no particular order, I would like the economic council among other advice to the President, consider to:
- consult widely within government (federal executive and legislature, and states) organised labour, organised private sector, academia and Nigerians generally. This would provide first-hand real-time data. It would also help members and the President to understand the mood of Nigerians across the country in relation to bottlenecks, the standard of living, cost of living, poverty, etc., to contextualise any potential economic benefits resulting from policy choices with potential social costs. Some Nigerians (individuals and small businesses) may be taxed enough already from high rates and multiple taxations with little to show for it in terms of government investments in infrastructure and public services. There are however opportunities for the government to increase revenue and reduce waste and leakages.
- highly recommend the acceleration of digital registration with realisable targets to electronically and securely capture the identities and profiles of all Nigerians by 2022. A unique national identifier for every Nigerian national and resident is an important backbone for business, security (crime, terrorism, etc.), research, economic and social policy, credible electoral process, property registration and rights, planning and more. These benefits should be the justifications for appropriating borrowings by the National Assembly to invest in, performance-based, rapid implementation of, national identification and social insurance system, that would create tax-paying jobs, grow the economy and return on investment.
- highly recommend that the federal government in liaison with the National Assembly and state governments, pursue a national digital and data policy and strategy, with targets for the public and private sector. This will create data and technology-related decent tax-paying jobs and prepare the country for private and public sector exploration of opportunities in artificial intelligence in the future.
If the above advice is followed, our country would be better organised. It would help us re-engineer mini-ecosystems within our country, connecting and communicating to form a more efficient and effective ecosystem. This is because there will be greater transparency, visibility, clarity, certainty, trust, and confidence. The overall benefits would include: (1) opportunities become more visible to entrepreneurs and investors, and businesses; and (2) the central bank can with high confidence conduct monetary policy to support economic growth and manage inflation better. For example, data on Nigerians is an important backbone to responsible lending and consumer finance to increase predictable patterns of demand for made in Nigeria products to inform scaling.
In addition, it would also catalyse a major transition in the whole population and a change in the mindset, especially of the political class to see Nigeria as a country of human assets for production. Not just a country of landmass to exploit mineral resources, export, earn foreign exchange and finance imports for consumption. Without structural digital foundation and transformation, our entrepreneurs will continue to struggle. We will continue to lose our young talents to other countries, and to crime. Just like corporations that fail to transform, we are losing to competitors.
- ring-fence investments (commission) in long term base research (in key/targeted economy and development sensitive areas) in selected universities to keep our best brains busy making discoveries and scientific breakthroughs that our economy will require to compete to our advantage, and for national security.
- strongly consider program-based budgeting to enable Nigerians to track public investments and to rate program performance. This would ensure that government expenditure can really flow through and stay in the real economy.
- utilise the window of low-interest rates in global markets to raise US$ (and Naira) capital components to aggressively and transparently invest in our infrastructure and create decent tax-paying jobs. These would reduce the cost of doing business, contribute towards an increase in productivity and competitiveness to substitute imports (and protect foreign exchange/reserve) while creating jobs; and would enable us to participate better in the Africa Continental Free Trade Agreement (AfCFTA).
- equip decision-makers in Nigeria with relevant tools with which to achieve a leading position in AfCFTA. There is an opportunity to explore the merits and demerits regarding a new settlement instrument/currency for intra-African trade, other than the US$ or any major global currency. Some of the merits of a new African trading currency (not to replace but to convert against local currencies) may include ease of buying and selling (non-US$ transactions); discourage conduits for dumping goods from other parts of the world; serve as buffer to African economies; prevent the erosion of US$ and other foreign exchange reserves from exports outside of Africa; and potential high volume intra-Africa mega-regional trade could strengthen the value of any new African trade settlement currency against other global currencies. This could redefine the value of African assets, goods and services in global markets to benefit African countries and place Africa in stronger trade negotiating positions.
- restructure to be more solutions, application, and research-focused (in liaison with the National Assembly, states and local governments) and ring-fence adequate funding for compulsory primary and secondary education and smarter funding of the supply and demand sides for tertiary and further education. The wealth of a nation is intrinsically linked to the quality of its education, research, new discoveries, patents and links to industries.
- ring-fence (in liaison with the National Assembly, states and local governments) funding for health care, policing and social housing linked to community models to create local jobs, include local people, build solidarity and social capital, and strengthen our community systems. There are opportunities for civil society and the organised private sector acting as responsible members of local communities to play active roles.
- utilise every tool that we can access to aggressively resolve Boko Haram challenge soon. It is creeping, distracting, draining and wasting our limited resources, and exhausting our country.
- more aggressively improve all of the elements/determinants in the ease of doing business in Nigeria. We need to create jobs to increase income tax and finance social investments in cost-sharing ways, that emphasises ownership and not a behaviour of entitlement.
- seriously consider and initiate the constitutional process for the restructuring of Nigeria based on the compelling economic, social and political stability case.
- highly recommend strategies aimed at uniting the different cultures, ethnicities, and tribes in our country and strengthening our democratic institutions.
Important global dynamics
There are a number of things that are happening altogether in the world that would affect us. (1) the credible threat of climate change. (2) many high-volume oil and gas consumers and importers are now producing enough for local needs. (3) the technology around renewable energy is improving and thus strengthening the business case and models. (4) the global economy is slowing down and at best, experiencing volatility due to uncertainties from trade disagreements between major global economic powers. All of these should ring a bell.
We have for too long squandered our oil and gas leverage. It is likely that we may not have any oil leverage in 10 years from now. Based on our current economic path, we should all be very bothered, perhaps scared. It is this kind of legitimate concern and fear that should make us ask the following questions so that we can demand of ourselves answers that suggest a collective response:
- What would we do if we cannot earn as much US$ from exporting oil and gas in the near future as we do today?
- What would we do if the global trading system was disrupted and collapsed?
- With the wave of nationalism, nativism, and xenophobia resulting from real and perceived growing inequalities and cultural identities around the world, how would we respond to threats that may target Nigerians who are now spread all over the world?
- How did other countries organise their people to produce from available natural resources to meet the needs of their people before the current global system?
These questions should drive national discourse and inform policies. When an American President stands before the United Nations General Assembly (UNGA) and declares that, “the future belonged to “patriots” and not “globalists” in the context of “… having spent over two and a half-trillion dollars since my election to completely rebuild our great military, is also by far the world’s most powerful nation”, this should matter a lot to us. We should all ‘wake up from our sleep’ and begin to inspire us to build our own country. It should no longer be business as usual because the world is changing and indeed fast.
It takes a Minister
The subsequent series of articles — It takes a Minister — under this column would discuss what each Ministry, Department and Agency; and Minister should be doing in the smaller details, working closely with the National Assembly, to bring leadership and clarity to industrials sectors. If they do, it would be easier for Nigerians to identify opportunities in defined and regulated value and supply chains, in order to generate new ideas and solutions that would attract investments and make business propositions ‘bankable’.
Source: News Express
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