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Naanen: We cannot hold government accountable without an economic blueprint

By Kelvin Ebiri
06 November 2016   |   4:04 am
I don’t think they are doing anything wrong. The country actually needs some assistance. Every government needs a blueprint or a framework to guide policies.
Naanen

Naanen

Professor Ben Naanen is an expert in economic history in the Department of History and Diplomatic Studies, University of PortHarcourt. In this interview with KELVIN EBIRI, he said the Federal Government has been groping in the dark because of lack of overall structural framework.

What is your take on IMF and World Bank’s pressure on Nigeria to produce an economic blueprint?
I don’t think they are doing anything wrong. The country actually needs some assistance. Every government needs a blueprint or a framework to guide policies. And since the present government came into power there has been a clamour for economic blueprint that will guide government policy. In a way, it gives you a sense of direction and you are able to predict where you are going. But without that, you will keep groping in the dark and keep making mistake without any kind of blueprint. And that is what some people are saying that the government is groping in the dark. Nobody knows the direction of policy.  Nobody knows the direction where the country is going. We know quite all right that the threes pillars of the present administration are: economic recovery, security in terms of Boko Haram and other security issues, as well as, combating corruption. Beyond that, what do we have? These are three cardinal principles, but we need an overall structural framework for the direction of the economy. And that is what I think those agencies are saying and that is what a lot of people are talking about.

Are you worried that 18 months into the life of this government, it lacks an economic blueprint?
Some governments do that in terms of budget allocation. Budget allocation gives a sense of direction of the economy.  It doesn’t mean that the best of blueprint, the most cleverly woven and most intellectually discussed blueprint is necessarily the best. We have had so many blueprints in this country, such as SEEDS, NEEDS and all manner of things that came up during the President Olusegun Obasanjo administration and before that. But the important thing is that at least, let this government have one so that you will be able to judge, have a sense of direction where the country is going. That in itself will generate debate. You will know if the blueprint will best serve the interest of the country or not.

The kinds of framework you are talking about, how we are going to achieve economic objectives, in terms of poverty reduction, industrial growth, agriculture, and so on. Without that kind of blueprint you cannot hold the government accountable. It is important that that kind of framework should be put together.

What could be responsible for the government’s inability to come up with an economic blueprint?
I think the government thought that just mentioning that you are going to revive the economy, fight terrorism and secure the country, and by fighting corruption that that is the framework within which the government is working. These are overriding goals of the administration, but the economic aspect is key. Maybe that is an oversight.  Perhaps they thought that budget indicators would give a sense of direction where the country is going. But it does not work out that way because this blueprint will give you an idea on how to allocate resources within the economy, to prioritise and above all, it will create a sense of debate on where the country is going. If there are fault lines somewhere that needs to be corrected, issues that need to be promptly addressed, it can generate that kind of discourse and conversation across the country, and at the end of the day, you will have a very clear sense of idea of the direction of the country. That will now guide policy, budgetary allocation, whatever issue you are pursuing that is fundamental to the economic growth of the country. It is like a kind of theoretical framework.

What are the consequences of not having a clear cut economic policy?
I think that the consequences are that we will be making mistakes. That is the most obvious consequences. Mistakes that are clearly avoidable. But, let me also warn that the blueprint is not a final solution. A blueprint is a means to an end. We have been treating blueprint in this country as if they are ends themselves. You get a blueprint and at some point the government abandons everything without taking into cognizance allocation of resources in economic planning. It happened to SEED, it happened to SAP and all the previous blueprints that we have had. It is important to have a blueprint, discuss it and let everybody know the direction in which the country is going and stick to it. Where you make mistakes, you can adjust. It is not that there is anything entirely sacrosanct about blueprints. If there are issues that you are pursuing and are not attainable even with the blueprint, you can also make adjustment. That is the issue about blueprint. It is not an end in itself. But it is important to have one in order guide policy direction and without it mistakes are bound to be made.

You cannot predict economic policies. Your partners, both foreign and local, investors cannot know the direction in which you are going.  If you have blueprint, the investors know that they can predict government policy. They can say this is the direction and this is where we should go or decide to put our money. But now, you left people guessing all the time. You don’t know whether your investment will be secure or not because of policy changes that have been part of the problem we have been having in this country. Midfield you change direction, you change ship and everything you started will be abandoned and that is also partly responsible for spate of abandoned projects scattered around the country. The country is a veritable graveyard of abandoned projects because you don’t know the direction, which the state governments are going. The Federal Government, even when they have a blueprint, they don’t adhere to the blueprint. They don’t even make any conscious effort to realise the blueprint. These are some of the pitfalls we should expect.

Are there some notable mistakes this administration has made due to lack an economic blueprint?
Yes, some macroeconomic mistakes. For instance, the issue of interest rate. In a period of recession you don’t have double-digit interest rate as we are doing. The government, the Central Bank of Nigeria (CBN) and the banks are literally killing the economy of this country. You see when you have this kind of situation, as experience has taught us, for example in the 1929 Great Depression that the world went through, America was the centre of the world economy and because of the wrong policies that the American government put in place initially, the economy came under depression. It was when President Roosevelt came that he went against conventional wisdom, against conventional economic principles, that’s the free market principles, which the previous president thought that if you motivate the business sector and allow it to operate without government’s intervention that that the situation will fix itself. That didn’t happen. It was the intervention by President Roosevelt that lifted the American and world economy out of recession because the American economy drives the world economy. And so you had massive spending, the war spending, reduction of interest rate and all kinds of monetary expansion, which lifted the world economy out of recession. So, what do we learn from that? We can even learn from the most recent situation in 2008, when the stock crisis almost drove the global economy to the brinks. What did President George Bush do at the time? Although President Barak Obama inherited some these policies, he had massive injection of cash into the economy, Massive reduction of interest rate between zeros to one percent. Just imagine. In an expansionary monetary supply, you spend your way out because that is what economic experience has taught us.

I read the other day in The Guardian that various interest rate the banks are charging range up to 28 percent. No economy, even in normal times can survive that kind of interest rate. How do you expect to lift the country? You are encouraging people to go into production, where will they get the money? Even people who have borrowed money before now, with this adjustment of interest rate, it is becoming very difficult to service the existing debt portfolio of both private and corporate borrowers. This is the kind of thing we are talking about. The government should become proactive. Don’t allow the banks because of their own profit interest to run the economy aground. As you are aware, even with the current economic situation, the banks are declaring huge profits. Where are the profits coming from? That is at the expense of the country. The Minister of Finance is saying we need to reduce interest rate and the Central Bank, and the commercial banks are saying no. And the CBN, which should give a sense of direction, is watching the economy going down. This is one of the issues we should be addressing. Quite honestly, we cannot get out of this current situation with the current interest regime. Pure and simple, no matter what we say about it. This is one of the grave economic mistakes they are making.

Considering the conflict between the ministry of finance and the CBN, shouldn’t the president overhaul his economic team?
People have been clamouring for that. I think the minister is doing her best. There is quick fix. What we are saying is that there should be a sense of direction and you should move in that direction. But to think that overnight that everything will turn around, it is not going to be easy like that. Her advocacy of lower interest is very much in order. Where I see the problem coming from somehow is from the direction of the CBN and the commercial banks. There should be a correlation between the fiscal authorities (government) and the monetary authorities (CBN).  Monetary policies are the repertoire of the CBN. There should be some unity between the two to meet and look at the issues. Does the current interest rate serve the best interest of this country? Can it lift us out of this recession? I am not saying that the interest rate is only the tool. It is one of the several tools that could be explored, but it is a critical tool for that matter. I read in the paper of people criticising the minister. In times of difficulties people find scapegoats.  But as far the economy is concerned, the minister is doing what she can. Not that she is infallible. There have been a few slips here and there, but on the overall, I would think she is trying. That is my own assessment.

In the absence of an economic blueprint, what possible strategy should the government adopt?
What I will personally recommend to the government is an expansionary monetary policy. That is one important tool we should adopt. The government should spend its way of this situation. Targeted spending. Not just throwing money at the situation and you don’t monitor anything and that is why we are talking about blueprint. When you have a blueprint, you know where to target and put resources. Vast reduction of interest rate is one of the key points. Interestingly, while I was listening to some interview, the banks said one of the reasons why they put interest rate so high is because of the large portfolio of bad debt. Why won’t people default? It is bad economies. When you raise interest rate so high, people are not able to pay and you have a circular movement, that vicious circle has to be broken. So, spending our way out of this situation is key, as well as, reduction of interest rate, harmonisation and reduction of taxes. Initially, you can say if you reduce taxes you will reduce government’s revenue. But the issue now is that if you bring more people into the tax bracket or net, you will realise more money. And when you make the tax more manageable you will make more money. But, if you make it high, people will always find excuses to dodge taxes. The truth is that there has not been massive increase in tax rate, but the lower level tax payers (lower income earners), small business people, I think they need a tax break. The government needs to put more money in people’s pocket so that they can spend us out of the present situation.

One of the reasons the CBN is arguing against the interest rate is inflation. They say they want to control inflation. Inflation in Nigeria is not related to money supply. It is less related to money supply than the cost of foreign exchange. That is it.  We really have to redefine the causes of inflation because that is one of the issues. I have listened to that argument that they want to control inflation. And that if you do that, that the banks will now give money to non-productive sectors. Why don’t you make a policy that will target these lower funding sectors like agriculture and industry? People talk of agriculture everyday. It is proper. But no economy develops without an industrial base, which is what we don’t have in this country. The industrial sector is completely in shambles.  Not much is happening in that sector and people are not talking about it.  Even for investors, where do you get money to invest? Who is able to garner millions of his own private savings to invest other than going to the bank to seek financing? And how can an industry survive with a 26 percent interest rate? Is it possible for a commercial borrower to be able to support any productive enterprise with 26 percent interest rate? It is simply not possible. So, we are in a vicious circle and it has to be broken. These are some of the areas the government must come in. we know that the CBN has autonomy over monetary policies, they should discuss this matter.

It is not something that you leave for the CBN alone. There should be targeted intervention. The independence of the CBN can be guaranteed, but then, bring CBN into discussion to make them realise the importance of issues like lower interest rate. If it is left to the banks, they continue to charge higher interest rate even when it is not in their own interest to do so. Because of greed, they want to make profit. What is important to them is bottom-line. In having that kind of bottom line, you are stifling the economy and you loss sight of greater advantage you would have had on the long run if you had a reduced interest. If more people are able to borrow, you will expand the market. If more people are able to borrow, more money is coming into your vault. What they are doing now is simply manipulation by laying off staff and all sorts of things in order to sustain their bottom line. That is not proper. It is not in the interest of the country.

Should Nigeria succumb to IMF and World Bank’s demand for removal of fuel subsidy?
For the complete removal of subsidy, it does not happen in any economy. The IMF and World Bank, the Breton Wood institutions, they can make their recommendations, but there is no developing economy that does not have some kind of protective system. It depends on how you operate that subsidy regime. I don’t think that any government, even in those countries that are in the forefront of Breton wood argument, the liberal economies of the western world, they have one form of subsidy or the other. They were talking about removal of petroleum subsidy.

The latest report we read about fuel distribution is that demand is declining because people are not able to fuel their cars. If you have three cars, you now put one or two on the road. The demand is falling. I don’t think that any further tampering with fuel prices will be in the interest of this country. Unless they want the economy to collapse totally. Because this is a country without any public transport system. No mass transits. Everything is dependent on vehicular transport. You don’t have electricity supply and everything is dependent on generators and you keep talking about removal of subsidy, hiking of fuel prices. I think what we have now is enough.

Enough is enough. We should not be talking further increase in fuel price. The importers are not complaining and by the way the minister was saying that more than 20 percent of our foreign exchange goes into fuel import. That is another indicator of a country that does not know its direction. Having produced petroleum for more than 50 years, why should this country be importing fuel the way it is doing? Most of our pains are self-inflicted. Wrong policies of previous governments and we are suffering for it now. We have to find a way of breaking this vicious circle.

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