In this first of a three-part article, my aim is to get President Muhammadu Buhari to reevaluate 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.
The engine of wealth creation and poverty reduction is the private sector when enabled and not when crippled.
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, that his country's case was very severe and so would require restraint on his part in the design of a serious economic 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 he accepted 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, providing 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. Those decades of the 1980s and 1990s in particular saw average growth rate of below 3 percent trailing the higher rate of population growth of 3.3 percent. It was only during the years of 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 others 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 that 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. The poor citizens who believed in and voted for Change want solutions that will raise the quality of work generated in the economy and hence, their income. They do not wish to join the thousands whose jobs are already threatened by a few factory closures in the last few months. Let us allow the forces of the market to discipline us. The market disciplines, better.
Shall we, Mr. President?