3rd February, 2015
By Oyebanji Gbenga
Economy is still the best indicator to measure the success of any government. GDP, jobs, wages and family incomes are the cornerstone of living standard, using just one parameter is abracadabra. The GDP anthem as the only parameter to measure economic growth is fickle. I sympathize with President Goodluck Jonathan’s transformation agenda because the Minister of Finance and the Coordinating Minister of the Economy, Ngozi Okonjo-Iweala’s concept of boosting the economy had been based on magic asterisk, her proposal most times is incoherent, the economy does not have a detailed blueprint on how to sustain it and how to create a conducive environment for business to succeed.
Inconsistency in sustaining the budget is the only factor causing the zigzag economic growth. In 2013 Okonjo-Iweala said: “We recognize that Nigeria’s infrastructure deficit remains one of the binding constraints to growth in the economy.” The 2014 budget had over 1 trillion naira as capital expenditure but 2015 has 650 billion naira. How can a country with huge infrastructure deficit reduce capital expenditure to this level with all the uncertainty in the economy? The austerity measure proposed by the minister is the height of junk-comedy. How can this be austerity measure when recurrent expenditure was increased from 3.6 trillion naira in 2014 to 3.9 trillion naira in 2015? Capital expenditure was reduced from 1.1 trillion naira to 650 billion naira which is almost 45% decrease.
How will the economy be sustained with fluctuating crude oil price and a debt-trapped economy? Nigeria’s domestic debt at 2014 was 7.42 trillion naira which is the highest in the history of the economy.
Voodoo economics is at play in Nigeria. The term was first used by George H.W. Bush during his failed bid for Republican candidacy against Ronald Reagan in 1980, describing Reagan’s “supply side doctrine” as inconsistent with the reality of the economy. Bush had argued that using interest rate cut is better than using tax to sustain the economy in the time of recession. The truth must be told that Nigeria’s economy is facing recession, expected revenue is uncertain given the proposed budget. The two saving grace at this moment is tax and borrowing. If managers of the economy decide to use tax to generate revenue the private sector will be seriously affected, because there will be a systematic tax increase above board. If borrowing were preferred the future generation is mortgaged. This is the time that recurrent expenditure should be slashed to 20% of the budget and capital should be 80%.
It does not make economic sense to tax the citizens, take loan and the money is used for paying salaries. The two fiscal tools should be used for infrastructure development. The high recurrent expenditure of the budget is making our nation’s debt profile unbearable, it is crowding out private spending and increasing credit rationing from the banks. The banks prefer doing business with the government because of high recurrent spending.
The minister of finance’s prediction about the economy in 2015 is nothing but a “rosy scenario” as her assumptions about future growth of the economy is without plan. It lacks purpose and focus. The proper austerity measure should be to cut government spending in recurrent expenditure and increase government investment in capital expenditure. This model will focus the economy on creating jobs, it will increase wages and there will an overall impact on standard of living and the GDP. The huge gap between the rich and the poor can only be reduced if infrastructure and human development are the focus of the budget. Redistribution of income in the 21st century is not about stomach infrastructure but physical and social infrastructure and human development. Investing in the youth still remains the surest way to secure the future of a nation.
Using magical economic policies to alleviate poverty is the most fickle way to insulate an economy from recession. I believe that every Nigerian, regardless of language, tribe and culture deserves 24-hour power supply, free education, free internet access to spur research and development, good roads, good hospital facilities to increase life expectancy, good rural-urban transportation networks, good universities that are research centres and not certificate centres.
Building a sustainable economy is in three phases: short, medium and long term, because governance is a process. All these infrastructure and human policies will cost money. Instead of spending all the money on recurrent expenditure, resources could be channelled towards human and capital development. The question on the lips of all should be: how do we make the government focus most of our resources on the economy? We need a labour movement that is not political; that will put pressure on government at all levels to focus on infrastructure development, labour rights and civil rights.
The nation needs to have a central philosophy on dignity of work and that all Nigerians have a right to earn more than poverty wage. The crude oil industry is a boom and bust. Oil analysts have predicted that the price of crude oil could fall below $40 before rebounding to $70 by the end of the year which some say is doubtful. The benchmark for 2015 budget is $70+, the price of crude oil currently is sub $50. How do we as nation fund our elitist budget? Some have argued that we dip into the foreign reserve, some argued that we spend from the excess crude account.
The budget proposal is based on tax revenue, debt and petrol-dollar receipt. Spending most resources of the budget on recurrent expenditure is a dumb economic policy. The crude oil price debacle is a testament that running government based on petro-dollar receipt is not sustainable, which brings us back to diversifying the economy.How do we use diversification of the economy to rescue the economy from voodoo economists? Everybody in Nigeria believes agriculture is the easiest way to diversify the economy. Without doubt, it is, but it goes beyond agriculture. Weaning Nigeria from over-dependence on crude oil will result in building an innovative economy.
•Gbenga wrote from Lagos