Policy Briefs

Oseloka H. Obaze (OHO) today appeared on an interactive programme, One-on-One on Odenigbo  FM Radio with on air personality Tony Olisa Mbeki, to discuss an array of issues  relating to Nigeria’s fiscal and monetary policies. The excerpt of the discussion follows: 

TOM: Nigeria’s economy has tanked badly under inflation and recession, and much longer than officials managing the economy expected. Because of this prolonged recession, some Nigerians are beginning to get used to it as a way of life. We hear some families have now gotten used to eating rationed foods. And in some other places, children are beginning to forget what a well prepared plate of rice tastes like, as commodity prices, including that of a bag of rice, have refused to come down. Two questions, Sir; ( a.) How do you appraise this administration’s response and management of the situation? (b.) What would have been the best way to manage a recessed economy?

OHO: Simply, by using the Jollof rice index as a parameter. There has been no cost of living adjustment in the nation over the past five years. But the market forces continue to evolve and spiral upwards. A pot of Jollof rice for four persons that cost 3k three years ago to prepare today cost 7k in Kano; 6k in Abuja; and 5k in Lagos and Onitsha. Simply, Nigeria is not faring well; many Nigerians are hungry despite ongoing economic recovery measures. The administration’s response is essentially academic and theoretical. People need to have money to spend. It is the spending of disposable income that stimulates the economy, not tactical fiscal interventions. Times are hard, period. 

TOM: In a speech you made in Awka on the 9th of May you said and I quote “Our foreign exchange policies are at best mercurial; the Naira continues to swing pendulum-style against the dollar, our benchmark currency. We have gone from the promised N2 to $1 exchange ratio, to an all-time depreciated exchange rate of N518 to $1 and to the present N391 to $1. Rather than take hardheaded policies that would support the domestic market and domestic production, we pursue a lineal two-tier Forex policy that is simply wrong.” But that was you in May, do you still hold that view today?

OHO: Well, it’s encouraging the Naira seems to have stabilized around N360, but is it sustainable? We are light years away from the 2:1 parity ratio. But the question is this: Can we continue to foot our foreign exchange bills, for both public and private sectors? Already, there has been a deviation and drop on the oil price dollar benchmark figures used for the 2017 budget. It’s either we are naively optimistic, or we are scared to take the tough decision, that simply says – it will get worse before it gets better. If the Feds are currently saving and the States are spending frivolously and borrowing, then we are working at cross purposes.  

TOM: Since the Central Bank of Nigeria (CBN) started injecting FX to the Interbank and Bureau De Change segment of the Foreign Exchange Market, reports say it has pumped a total of $7.136 billion into the market. Of course, this move has momentarily shored up the Naira which fell to a historic low of N525/$ on the parallel market four months ago. It has been trading around N360/$ since April. With reference to Nigeria’s External Reserves, how sustainable is this CBN’s Continued FX Injection strategy?

OHO: The issue of the two-tier forex regime subsists. The problem is near intractable. It may be operationally convenient, but it is wrong since the beneficiaries are marginal. There’s a dichotomy in value for those who need forex to create wealth and those who require it for paying for social goods or luxury services. Any interventions based on earned oil revenue, but not supported by investors’ foreign capital inflow, not supported by foreign direct investment and not supported by diaspora remittances, will in time flounder. The nexus between erratic oil prices and Nigeria’s mercurial forex regime remain inextricable. 

TOM: Let’s talk about Budget Mr. Obaze. The 2017 Budget has been assented to by the Acting President, Prof. Yemi Osibanjo. As you well know, it was done only a few weeks to the end of the first half of the year. Ordinarily, the late passage and assent to the budget means that it has only six months to be implemented but the federal government has announced its decision to run the 2017 budget until 2018. What’s your take on this?

OHO: I’ve heard the explanation that the 2017 budget will stop running when the 2018 budget kicks in. That’s all well and good. Yet, making the 2017 budget open-ended by implication means that the budget will stop running when the end users say so.; not when the law says so. It would also mean that the drafting, approval of and assent to then 2018 budget will be left to the whims of bureaucrats. Simply, not good. I perceive fiscal indiscipline, if not deliberate subterfuge. Running two parallel budgets is far worse than padding. You can’t expect self-administering MDAs to become self-auditing in such circumstances. Oversight, accountability, and answerability will suffer. This is what happens when there’s weak or distracted opposition in government. 

TOM: The 2016 budget had a deficit of 2.3 trillion Naira, the 2017 budget, also have a deficit of 2.2 trillion Naira. The budgets before these two I mentioned also had huge deficits? To make up for this deficit, the Federal Government borrowed both from domestic and international creditors and continues to borrow money to finance its budget. This doesn’t just obtain in the federal budget, it obtains in the budgets of several states across the country, including that of Anambra. You are a public policy expert, how do we balance our budgets and get out of what now seems like an unending deficit cycle.

OHO: You do so by being contented and disciplined. Fiscal discipline means that you spend only what you have by way of revenue or savings. Having Fiscal discipline means the ability to cut governmental budget spending as well as tax cuts. A government that is overtaxing its people is not disciplined. Fiscal discipline starts with formulating a balanced budget in which revenues are equal to expenditures. You also determine your priorities,. That way you don’t have a budget deficit or budget surplus. It’s sometimes referred to as zero-based budget. Many governors overreach in order to have excess cash for political patronage and grandiose projects. Nigeria’s deficit budgeting at all levels is self-inflicted. No government can solve every problem in four or eight years. You must have confidence in the successor leadership to do the needful, and plan accordingly. 

TOM: Let me quote you again “the cost of governance is too high, it is supposed to be a government of the people for the people, not a government of the people for the people in government” but besides this unbearable cost of governance, you’ve also said our federal and state civil service is too large. Do you see an end in sight?
OHO: Universally, there is a trending ratio of public and private sector employment and related costs, in any stable and performing economy. People go where they create more wealth and thus earn more. That has never been in the public sector, except in countries like Nigeria. Therefore, you cut the cost of governance by enabling the organized private sector to flourish. They have the absorptive capacity to employ more, thus allowing a public sector that is trim, efficient and nimble. The U.K. public service to private sector employment ration in 2014 was 2.2 million to 25million. In the US in 2014, it was 23k to 111k. When government pretends to be welfarist, in order to be popular the cost of governance will spiral. When I was in government we had less than 50 SSAs and SÅs; my friend, Gov. Obaseki of EDO just appointed 192 SSAs, but in Anambra today we reportedly have over 400 SSAs. Why won’t the cost of governance by extremely high? 

TOM: There is this World Bank report that says the future of work lies in SMEs. When we talk to existing and aspiring small and medium scale entrepreneurs, they tell us that prominent among the challenges they face in the Nigerian business climate is that of credit (ie getting loans to fund their businesses). Sure enough, the local borrowing of federal and state governments has tied up a lot of money that would have been loaned to this category of people but the remainder goes to already established business moguls who borrow in millions and billions of Naira? How do we restructure our credit space to ensure that the ordinary man can get loans at an interest rate that is not suffocating?

OHO: I’ve seen an alarming figure of the fail rate of SMEs in Nigeria being as high as 75%. Such business failure (BF) is mind boggling. SMEs are critical in that their contribute 55% of the GDP and 65% of employment; hence where the fail rate is high, the economy suffered. But the reality is that SMEs don’t fail on account of poor finances or lack of credit facilities alone. I can easily enumerate a dozen factors, why SMES fail, including poor access to credit, inadequate capitalization, poor financial planning and review; poor market segmentation and/or strategy, lack of market knowledge poor strategic vision, absence of a standard-quality programme; and underestimating the competitors. These fail factors are all prevalent in Nigeria. But policymakers can help in reducing existing redundancies; the COT being charged by our banks are killing. As you will observe, some federal government projects are now based on the SUKUK financing format, which the Islamic zero-interest model. We need to do more for our people, and it starts with government and private sector interface. 

TOM:  In advanced economies, people and corporate bodies pay taxes. To them, they ought to contribute their fair share to the advancement of their societies. Back here in Nigeria, the attitude of both the government and that of the paying public is entirely different. When asked, people cite reasons for doing anything but voluntarily pay taxes. For instance, they say government forces them to pay sanitation fees and levies, yet they are forced to dispose their refuse themselves. Even government designated refuse collection points are not evacuated as at when due. Another reason they give is that they are not provided any proof that the money they pay in taxes are prudently managed to achieve public good as most government dealings are still shrouded in secrecy. In some cases, months or years after people in government leave office, they begin to hear that the monies they paid in taxes were found in private accounts, septic tanks, homes and even bushes. That’s disheartening to taxpayers, you think otherwise? 

OHO: There’s cliché which say that “only two things in life are certain: death and taxes.” Even the Bible admonishes us to our pay taxes (Romans 13:7) and to “give to Ceasar, what belongs to Ceasar.” Yet it is most disconcerting when tax payer’s monies and collectivized public revenue are not prudently used or stolen. Nonetheless we must pay our taxes. The simplest way of addressing this matter is electing into public offices, people who are honest, credible and committed to accountability and transparency. We must also appreciate and support in politics “people who are good before coming into politics; not people who hope that coming into politics will make them good.”

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