Economics is a very funny thing.. and I get the feeling that the team of President Buhari, especially the Osinbajo camp are getting frustrated with the way the situation in Nigeria is going from bad to worse, and their supporters are increasingly jumping ship.
It is true that they've done some common sense clean up, but the seeming addiction of the President's team to law and order, decree or ban approach to economic management have only worsened the situation not made it better. There is a place for law and order, but the economy especially that based on free market principles responds very badly to command and control. Freedom is the hallmark of a free market economy, and the Buhari team have done exactly the opposite of that which has led to the worsening situation.
Let us be clear here...Buhari did not cause the recession, but he could have at least tried to prevent it or at least soften the impact. I dare say the recession was already with us since last year if not for the residual spending of the free dollar rain at the exit stages of the elections. Nigeria has no budget for 2015 and PMB did not implement one. It was as such the highest level of economic and perhaps political malpractice not to come in with an economic plan on day one- and to wait 5 clear months to even have ministers in place. Which takes us to three facts that must underline this long post...
1. Psychology and language matters more than reality. The tone and body language of doom breeds doom. That is why people will be more optimistic and willing to spend when the leader presents a rosy outlook . Our President is always talking about oil price. Of course that is what investors and ordinary citizens will now focus on and will impact their behavior. What the president says matters. Oil was $55 on the day the President was elected, it is $46 today or thereabout. Big deal . It was falling, you knew it- we needed a plan around it to ensure the country was stable not excuses or bad policies like banning everything and "demand management" as the mugu in CBN calls it driving FDI down by 84% and inflation up by 300% even before the grudging acceptance of reality one year late. We have more than oil price going for us. A solid entrepreneurial base, large banking system (if TSA is tweaked), a consumption based economy (which even China will die for) and booming ports/transportation sector. We should promote what is going good in Nigeria. Oil is a poor commodity for the President to tie his emotions and speeches to. Enough already.
2. Velocity of money matters more than availability of money itself. When people trade and money change hands the economy grows. Idling money under TSA banked only at CBN (without a circulation capacity) or crushing trade by truly dumb foreign exchange policies and banning tactics crush the velocity of money and destroys the economy. To limit your intervention to bail outs and the budget funded eight months late is economic malpractice. We needed a stimulus package and an economic team to deliver it outside the inefficient civil service structure since May 30, 2015.
3. There are two sides to a balance sheet. OBJ inherited a poor revenue profile but also had a much smaller civil service with only half of the 700 plus parastatals we have today, which he quickly added to (so in some ways OBJoke created today's problems). Go and look at legislation between 1999 and 2003, and you will see a multiplication of federal agencies. Some needed, some not. This also led to increase in not just payroll but also overhead and cost of keeping up even as his successors perpetuated the reverse Midas touch by ballooning overhead and recurrent expenditure and spurious "capital projects" often directed to service the servicer (civil servants). PMB should have recognized this from day one and focused on taking the public service back to $30/bbl level. Instead we still operate a public service of $125/bbl minus some ghost workers. This ensures less money to drive velocity of funds changing hands vis capital projects, and more Doom.
So the doom cycle feeds itself...there is still room for correction, but we need those in the saddle to first admit we have a problem. We elected a Law and Order Ticket no doubt over the lawless ticket of criminals presented by PDP, but we expect more professional management that hews to the needs of the people - Jobs, Jobs, Jobs.
So here are some free ADVICE for Mr. President, VP and the new team...
1. You can reflate the economy by targeted infrastructure/stimulus program that employs a bunch of people to rebuild our universities, roads , parks/stadiums and schools for example. But it is useless using the procurement process or the civil service. You need that money in the economy hard and fast- into local sub-contractors. Launch an office called Nigeria Works- out of Aso Rock under a special bill. Deliver the much needed jolt the economy needs. Unfortunately if it were May last year you probably will get a bunch of wads from the debt market but that market is probably closed now due to monetary missteps of the last one year led by the CBN governor you guys have somehow retained . Recommended size of rebuild is 5 trillion naira over 24 months. Use bonds to pay contractors- see what FDR did and copy-paste
2. You can reflate the economy by stop focusing on oil and gas and the impact of reduced price or production. Nigeria is more than oil and be more upbeat promoting the promise of the country. Promote technology investments and manufacturing especially (in designated FTZs/Industrial Parks with constant power guaranteed). Please fire the ComTech minister for good measure , and let's stop mismanaging the sector . There is an idea to use school uniforms alone to revive the textile industries long abandoned and employ tailors. Just do it...stop talking about it.
3. You can reflate the economy by doing the hard job of restructuring the public service and also some divesting from NNPC to bring some private sector sanity to that place. NNPC especially can be used to reflate the stock market which has a lot of impact on private sector mentality. It can be listed/spurn as 4-5 companies organized by business units or 3 integrated companies organized by area around the refineries .
4. Send trapped TSA back to designated top tier banks, who should be allowed to lend a portion of TSA gross deposit with them (30%) through a special small business administration (SBA) type mechanism at concessionary rats of 5%. Track the 5-7 banks so used and enforce the pushing of these funds to people that need them for business. Promote active lending and good practice that partners the banks as well. So may be give 75% of the loan from TSA backing, while the bank uses 25% of its own money. For good measure, have banks tender for the opportunity to participate and thus gain TSA business.
5. Keep pushing on power, it will take time but it is worth it. But be aware of structural defects of the privatization reforms under the prior administration. It may be time for NERC to force consolidation of GENCOs and DISCOs (eliminating the NEBT bottleneck) even as it should look at allowing GenCOs to supply their DisCOs directly instead of going through the grid i.e. break the grid up.
In any case, keep pushing- keep trying. You asked for the job, you got it.
