SUKANMI: Economy Can Recover With Right Policies, Institutions
Odubunmi Sukanmi is the Head of Economics Department, Lagos State University. In this interview with TEMILOLUWA ADEOYE, he said a firm grip on the economy requires appropriate policies and institutions.
What are your thoughts on subsidy?
THERE is no fuel subsidy in Nigeria. What Nigerians are paying for is the inefficiency of NNPC. When you look at the cost of refining crude in Nigeria, and compare it with cost in other countries, the cost is low in those countries, and it is the cost that determines the price of the output.
Is it advisable to remove whatever is claimed as subsidy?
It is a call in the right direction. The first thing government needs to do is to look at the refineries properly. They should look at the way crude oil is being processed to bring down the cost. Government needs to find the reason for the high cost of production. When you are able to reduce the cost, you will realise that there is nothing like subsidy.
Nigeria had devalued the Naira twice this year, and some are pushing for further devaluation. Is that they only way to reposition the economy?
There is a mechanism for devaluation, which the layman needs to understand. Devaluation is an official reduction in a country’s currency value, compared with other convertible currencies in the world. It is not the same thing as depreciation. Devaluation is carried out by the Central Bank of any country, while depreciation is due to the forces of demand and supply of any currency.
Sanusi is calling for depreciation. If that happens, the implication is that goods being produced in Nigeria would be very cheap for people in other countries of the world to buy. And when we want to import, the cost of importation will be so high. That would discourage importation and encourage others to buy from us.
The point is this, if everybody wants to buy from Nigeria, are we able to meet the demand? The answer is no. That is why in economic analysis, they will tell you that before a country devalues, there are certain criteria that you must look at. If these things are not there, devaluation will not be successful. One of them is the degree of elasticity of supply, which must be fairly elastic. A small change in price will bring about more than proportionate change in quantity supplied. The point is, what is the degree of elasticity of supply? If we are not able to meet supply at international market, then devaluation is useless. Most of our industries have closed down and the existing ones are not even producing at optimal capacity. To function at optimal capacity, you need energy, and we know the energy situation of Nigeria.
What do you think Nigerians should expect if subsidy is removed and the Naira eventually devalued?
Devaluation reduces the power of your currency compared to other currencies in the world. It means that you will not be able to have the full benefit of international trade. It means there are some products that are not made in Nigeria, which we need to import, but the price of import will be at the rooftop. It is the people that will make demand for such goods. That is why it is said that when you devalue, people suffer. That is the concept of devaluation.
Does the present government have a firm grip on the economy?
Before you talk about ability to manage the economy, you need to know the past history. You need to know where you are currently, and then you can chart the course for the future. When you look at Nigeria’s past government, and you dig deep into the economy, you will realise that a lot is wrong. Past governments did not really do anything to boost the economy. They left a lot undone, and it is affecting us. If you look at this present government and expect magic to happen, don’t expect magic from them. But if they put in place the right policies, the economy will bounce back.
What policies are we talking about?
Government should try, as much as possible, to reduce cost of doing business in Nigeria, because it is so high, compared to other countries, it is scaring investors away.
But Sanusi is also calling for an upward review of taxes; is that the way to go?
These are the things that we need to sit down and look into. What is the cost of doing business compared to other countries? There are so many obstacles in Nigeria for investors. So foreign investors would rather invest in countries with fewer hurdles, and more incentives. Sanusi is talking about tax, but it seems he has not really synthesized what the Nigerian economy is all about. As an economist, I would advise government to declare tax holiday to new companies, at least for the first five years. That would serve as an incentive for investors to come. It is like using a thousand Naira to gain N100,000. It would have positive multiplier effect on the economy, because when a foreign firm establishes in your country, it will generate employment, income into individual pockets, many people will also be dependent on the employed person, so it will be a multiplier and the economy will grow. That is why there is need for government not to listen to calls for the increase in taxes. They should look at new firms and give them tax holiday for the first five years, so that they can expand their production capacity.
Are there short-term solutions?
In economic planning, there is short-term, medium-term and long-term plans. Short-term policies are the ones you can put in place for between four to six months. Also, these are the policies that will gain the confidence of the people, other countries, and investors.
For instance, the issue of security is a short-term policy that should be pursued because no investor will invest in a state of insecurity. If the economy is secure, foreign investors will come. Government needs to tackle insecurity adequately, with a sense of urgency. In fact, a lot of them have left because of insecurity.
Energy has a lot of multiplier effect on the economy. If graduates have access to small-scale loans, and they are able to establish, if they established and there is energy to power what they are producing, economic activities will increase, and at the same time, they will be employing people. So rather than looking for white-collar jobs, they will be employers of labour. It will have a lot of multiplier effect.
The truth is that in any policy, there will be merits and demerits. All the policies in the short run may be hard, but the long-term effect is what we are looking at. In the long run, those policies will bring about structural changes, if government is sincere.
If they can find avenues to cushion the effects of the policies on the people too, it will be good. Sure-P was meant to cushion the effect of subsidy, but the former Niger State government said it openly that there was nothing like SURE-P, that government deceived Nigerians. There has to be sincerity of purpose, at all levels of government.