President Buhari and Oby Ezekwesili during a recent meeting in Aso rock
In this first of a three-part article, my aim is to get President
Muhammadu Buhari to re-evaluate his obvious discomfort with the workings
of a market economy and change; so that he can effectively lead the
Change agenda that he promised Nigerians. To the extent that the engine
of wealth creation and poverty reduction is the private sector when
enabled and not when crippled, this intervention is necessary to lend my
voice to that of other concerned Nigerians.
The reason is simple. Even though the president currently invests
enormous air miles and time in chasing the proverbial foreign direct
investment, it is easy to observe the antipathy that he has with
choosing the right sets of instruments to support the intrinsic capacity
of the private sector to drive economic growth. Nothing gives away so
much in terms of how the president considers business as his forex
policy stance.
In my career, I have had the privilege of interacting closely with
newly elected leaders of countries. Generally, most of these leaders
start their presidency with a desire to quickly deliver on campaign
promises. The problem however is that the complexity of managing
economies, especially troubled ones, often diverges terribly from the
easier rhetoric of campaign promises. In no other continent is this more
prevalent than Africa. This is of course due to many reasons that
include the absence of data-anchored-issues-based campaigns and the poor
interest or even lack of capacity of the electorate to push for such.
Many presidents assume office with good intentions but faulty
ideological notions of what it takes for economies to grow and improve
the lives of citizens. The more entrenched the ideologies and doctrines
that leaders hold on to, the harder it is for them to embrace economic
pragmatism. Meanwhile, pragmatism has loyalty only to empirical and
analytical evidence which show that a particular economic solution will
deliver the right results for the overall good of the citizens. An
evidence based policy method helps in shaping the pragmatic leader’s
mind since their overriding vision is to produce good development
results for country and citizens. Therefore, the foundation on which a
leader’s policy thought rests can be a useful indicator of whether
he/she would succeed or fail with economic management.
Let me start by telling the story of one of the leaders of a
country in Africa that subsequently became a champion of economic
pragmatism. We met that president within the first month of his
inauguration to discuss his economic policy priorities. He had come to
power after what was a very bloody presidential election to turn around a
severely damaged economy where citizens had become perniciously
impoverished by successive regimes of bad governance.
The president had campaigned on an agenda of taking on his
country’s destructive elite class by tackling grand corruption and
improving the lot of the poor. The expectation of his poorer citizens
was therefore extremely high. At that first meeting, we made the
president to understand that he had a Herculean task which would require
him to constantly make tough economic policy choices.
He was however still caught up in the euphoria of his mandate and
the strong socialist ideology he had championed in his exuberant years
in opposition politics. He assumed, as he lectured us at our meeting,
that he had the power to will anything he wanted into existence for his
people.
He tore at the fundamentals of our counsel that economic management
is always constrained by scarce resources, thathis country’s case was
very severe and so would require restraint on his part in the design of a
serious stabilization program. Faced with serious balance of payment
and crippling fiscal crisis, the president was nonetheless determined to
take all the ideological command and control actions that would
exacerbate the situation.
While we advised economic pragmatism based on analytical and
empirically driven policy options, the new leader consistently rebutted
with well-worn ideological stance on monetary, fiscal and financial
policy and structural reforms. When he spoke about his proposal, the
scale of his priority spending and the fiat with which he wished to see
the national currency “bounce back”, I knew that the well-meaning leader
we were listening to on that day had a steep learning curve that had to
be flattened.
Convinced that his country needed him, I felt that what he had to
do was to learn quickly that it is sound economic policies and not
wishful nationalist aspirations that enable a leader achieve good
intentions for the poor. It took less than four months for him to
realize that the more he applied the wrong ideological solutions, the
worse the economy became and the noisier the groans of his citizens.
At a point, he realized that if he did not structurally adjust his
thinking for the benefit of the economy, he would imperil not just his
own vision for governance but would ironically harm the poor to whom he
had promised a better life. The good thing is, that president was open
to learning and did in fact learn so fast that he went on to become a
counsellor/mentor on “economic pragmatism” to other elected leaders
within his sub-region.
That president was elected to a second term despite the strong
fight put up by the opposition party. The poor to whom he made promises
that he mostly kept during his first term by running an economy that had
started marginally improving their erstwhile stagnated condition,
returned him to office to continue with sensible, pragmatic economic
management. And so, even though it took enormous work and plenty of
shouting matches between us, that president finally eschewed outdated,
harmful, needless ideology and embraced sound economic principles that
grew his economy and began turning things around for his people.
Whenever I tell the story of that president, the audience asks me
when his turning happened. The answer is, once heaccepted the need to
unlearn his dogmas and became open to learning new things.He unlearned
stifling ideology and instead learned how to accept and use the
principles of the market to solve his country development problems as
often as relevant.
He learned how to deploy the enormous powers of a president more
appropriately to the things that the market cannot solve. He learned
that his policy leadership role and provision of basic services for
citizens and critical infrastructure/quality skills for business
depended on how much analytical evidence guides his decisions. All that
learning transformed and retooled him to lead for results. The
experience of that president leader proved to us that “The best politics
is good economics”.
As I thought of the current economic policy brouhaha since the
advent of President Muhammadu Buhari’s administration, the similarity
with the president in my story could not be more striking seeing they
share the same ideological mindset, pro-poor base and anti-corruption
fervor.
Let me quickly insert here that I am a fanatical supporter of our
president’s anti-corruption agenda because one knows from analyses how
much of an obstacle to economic growth and development, poor governance
is to the Nigerian society and economy. So, President Buhari is right to
make tackling corruption the cornerstone of his presidency.
All things considered, I am one of those Nigerians who would
readily march to protest any duplicitous attempt in the guise of “breach
of rule of law”–where it is not factual–to truncate the reinvigorated
efforts of the Economic and Financial Crimes Commission (EFCC). Like
most Nigerians who are absolute in support of the anti-corruption war,
one wants the Commission to record successes through effective
investigation, intelligent prosecution through the courts and conviction
of all those proven to have engaged in corruption. The EFCC will not
always get it right in this fight but theirs is a task that should get
the support of all Nigerians who have ever wished for a decent society.
I am however not at all a fan of President Buhari’s economic
management. Our president’s economic policy direction should worry even
the most ardent of his admirers. From his interest in reviving federal
government ownership of a national airline to his obvious comfort with
exchange controls, the president has left no doubt that ideology is
strong in the way he thinks of growing the economy. Each time I have
listened to the president reminisce on his economic policy stance of
1984-1985; I worry that Nigerians will struggle with his economic
ideology.
Why do I think so? Well, because contrary to what our president may
believe, and despite the good intentions that were behind them, a
number of those policy thrusts of 1984-85 actually failed on account of
every indicator that is globally used to measure economic progress.
For example, manufacturing capacity dropped below 20% and many jobs
were lost. The anxiety of many people that economic history could
repeat itself during President Buhari’s latest incarnation was always
legitimate. Counterfactually though, there was (and still is) hope that
he would listen to the team he has assembled and learn through economic
evidence that the world has changed since he last tried to swim against
the tides of market forces about 30 years ago.
However, the president’s now well publicized and known stance on
the acute foreign exchange crisis has magnified nervousness about his
economic management history and ideology-centered policy direction. The
envisaged persuasion by his team and the anticipated learning by the
president, which many had hoped would help mitigate anxieties may not be
happening or perhaps not as quickly as would serve the interests of his
primary constituency- the poor.
So strong is the president’s view on the value of the Naira that he
uses words like “murder the Naira” to foreclose any consideration of
alternative perspectives. It is precisely because of this manner of
framing tough economic policy choices that the country is at this time
engaged in an unhealthy debate that lacks empirical foundations and
nuance.
But we can turn around this unhealthy debate and raise the quality
going forward. That explains why I want to address what one sees as the
root of the president’s economic management style and preferences. It is
from that root that the president bears the fruits of his views and
statements like the recent ones on monetary policy. I therefore choose
to address the hobbling ideological crushes of our president because if
not tackled head on now, they are lethal enough to undermine his
economic management and derail the economy with severe consequences for
everyone.
Our president urgently needs citizens’ help in order to unlearn his
ideas of old that government knows better how to allocate production
resources. True, Nigeria has oscillated from a command and control
regime with government as driver in resource allocation to a more market
oriented system since the past 30 years. We however can be said to now
have a broad coalition and even near consensus that the market economy
framework has served us better.
Before 1999, economic growth was low, fragile, patchy and volatile
hovering and the lost decades of the 1980s and 1990s saw average growth
rate of below 3 percent trailing the higher rate of population growth of
3.3 percent. It was only in some of the few years of the 1986-1988 when
a measure of disciplined market reforms were implemented that Nigeria
recorded economic growth as high as 5-6 percent. Afterward, as politics
began to trump economics and indiscipline set in, economic growth
stalled throughout the 90s. It resumed again with the implementation of a
comprehensive scale market economy reforms between 2003 and 2007.
Not only did those reforms help the country achieve macroeconomic
stability as a prerequisite even if not a sufficient condition for
growth, but it did in fact begin to grow and reached as high as 6-7
percent annually. Since then, the Nigerian economy has grown yearly for
about nearly a decade and a half at an average of six percent annually.
Although growth does not automatically reduce poverty, it is a fact that
without it, no economy stands a chance of ever reducing the number of
the poor. Even then, our macroeconomic stability was hard won through
very tough and costly market economy type reforms. It has remained one
of the most enduring features of economic management under three
administrations. If it unravels, it will set Nigeria back terribly.
Currently, the danger is that we seem to want to return to the
pre-1986 era of command and control that was inimical to economic
growth. What the president needs now is to save the economy and save the
Nigerian poor that form the largest base of his supporters. There seems
a hesitation on his part to admit and embrace the near global consensus
that market economy has delivered better than all other economic
systems despite its known limitations.
What several neo-socialists especially in Nigeria have refused to
admit is the evident failure of the socialist/communist economic system
that influenced even Russia, China and India to all embark on Change and
thus modify their economic thinking toward a pragmatic acceptance of
the market principles. These former bastions of command and control of
economic factors of production realized that in order to achieve better
economic growth than in the past, they needed to embrace the market
economy.
In 1978, the then Chinese leader, Xioping Deng embraced the
principles of the market and China implemented them vigorously and with
great discipline. It was within less than three decades of abandoning
communism and embracing what China calls “socialist market economic
principles” that it achieved the record two decades long double digit
growth that helped lift 600 million Chinese out of poverty by growing
its Gross Domestic Product from $150 billion USD in 1978 to $10 trillion
USD in 2015. The rhetoric of communism had sounded very attractive in
previous decades but had impoverished the people and kept China
stagnant. Until 1978, China’s income per capita was factually lower than
some countries in Africa.
For Nigeria however, our economic policy inconsistency of the
decades of the 80s and 90s led those years to be called “lost decades”
in our history. At the same time China discovered the benefit of the
market principles in growing economies faster, conversely we suffered
the collapse of our economy during many cycles of bad policies. The
discipline of the market system in efficiently allocating scarce
resources is what should most recommend it to a Nigerian society where
we all agree that indiscipline and a tendency to abuse administrative
and discretionary decision powers are the bane of good governance.
Even the president recently stated to our collective shame abroad
that Central Bank directors were abusing the exchange control to their
personal benefit. The fact is, such misdeed is not new. The most
associated reason for failure of state owned enterprises in Nigeria
according to studies is the “abuse of public power for personal gain”
which is instructively the definition of corruption by Transparency
International.
As one who detests the demagoguery of a nationalism-laced pillage
of public resources than has been our experience in the last five
decades of our independence, I am unapologetically a champion of a
market system with the right amount of regulation and intervention when
there is obvious “market failure”. We however would have to learn how to
design policy interventions that can help to achieve social inclusion
so as to mitigate the inequality that market based solutions generate in
the wake of its efficiency.
I am neither a laissez-faire free market ideologue nor believe in
the other extreme, a stultifying government control. I am for economic
pragmatism all the way. Command and control harms the intrinsic
creativity and innovation of the market system which lies within private
sector. Economic pragmatism is what has helped more economies in the
world including in Africa to grow faster and better. At the turn of the
millennium, as many more policy makers on the continent began to discard
outdated ideologies and began to rely on evidence-based persuasive
argument for market solutions, the continent began to grow.
For Africa and Nigeria more, it is instructive that there is no
exceptionalism to the positive impact that the discipline of the forces
of the market can have on outcomes. Market forces universally allocate
scarce resources more efficiently, simple. Mastery of how to intervene
effectively as government when “market failure” occurs is what
differentiates the performance of one economy from another. That is why I
believe that as a leader whose personal mantra is discipline, if our
president were willing to learn how well market forces can help him
enforce discipline in the allocation of scarce production factors, he
could potentially win this crisis.
The current severe crisis of scarce foreign exchange resources in a
country that earned well over $1 trillion dollars in the last decade
and a half is indicative of the underlying cost of indiscipline which
has a serious economic cost and implications for Nigeria. Take the
matter of managing our oil windfall, which other countries including the
new comers like Angola have learned to do well. We failed at it during
three previous boom cycles of the 1970, 1980s, and 1990. It was not
until 2004 that Nigeria finally set up an oil-based fiscal rule. Through
it, the Federal Government succeeded in entrenching a political
arrangement (even if not constitutional) to set aside “surplus” from
higher oil prices above an agreed budgetary oil benchmark price.
In 2013, I delivered a Convocation Lecture at the University of
Nigeria Nsukka and called the attention of the then Federal Government
to addressing the troubling possibility that the fifth oil boom would
end with the savings in Excess Crude Account (ECA) depleted and no new
stock accumulated. Less than a year after that speech and six years
after record high oil prices that could have easily built up foreign
reserves including ECA to as much as $100 billion Dollars, the news was
regrettably tragic. At the World Economic Forum in Davos, Switzerland in
January 2014, the then Minister of Finance – Dr Ngozi Okonjo-Iweala
stated that “the depletion of the Excess Crude Account to about $2.5
billion has made the country more vulnerable than it was in the past and
put the economy of the country at great risk”.
With that statement, it was safe to conclude that because of
indiscipline, the fifth oil boom ended with a big bust for Nigeria. That
great risk that the former minister warned of fully materialized and
threw the Nigerian economy into crisis. Presently, all that Nigeria has
is $2.5 USD billion of Excess Crude Account and a fast depleting foreign
reserve of $27billion. The basic fact is that as fiscal -spending
actions expanded – an accommodating monetary policy that supported
humongous money supply into the economy reigned. It is one reason that
the Central Bank of Nigeria is presently caught up in a knot where it is
both wanting to shore up the Naira and at the same time battling a near
intransigent liquidity excess problem. This will of course be worsened
by a proposed 2016 budget that seeks to expand public spending on the
back of massive borrowing. With all these, the effort at controlling and
commanding the demand for foreign exchange can only worsen already bad
economic distortions. It is these distortions, more than dollar demand
side issues that form the crux of our current account and fiscal crises.
Like the president in my story, ours has to be open to unlearning
old ideologies and embracing new economic thinking models of pragmatism.
He will need to allow the principles of the market enforce discipline
upon all economic agents to redirect the path of our beleaguered
economy. That way, we can avoid the inequalities created by publicly
funded subsidies to those who least merit it as has happened with the
forex pricing situation. We can end the corruption and rent seeking
aided by the power of administrative discretion that is handed to a few.
We can stop the high cost of ineffectual administrative enforcement in
controlled economies.
Let us drop old ideologies like China did and permit the market to
work for us. Actually, let us allow the forces of the market to
discipline us. It disciplines, better.
Shall we, Mr. President?
