News Column

The Problem With Our Economic Model

May 21, 2014

President Goodluck Jonathan was visibly angry at the way the World Bank recently categorised Nigeria as one of the five countries with the largest concentration of poor people in the world. How can the World Bank say an economy with a rebased GDP of $510 billion and with its businessmen harassing the poor citizens of Kenya with their myriad of supersonic private jets be numbered amongst the poor? How can the World Bank say that Nigeria which has produced an Aliko Dangote, one of the 25 richest men in the world be classified as poor? Quite often, institutions like the World Bank are too quick to insult developing countries. Instead of congratulating Nigeria for an upgraded GDP, they have found another measure to burst Nigeria's balloon.

President Jonathan scored another high point in his response to the World Bank pessimistic classification of Nigeria when he said the problem of Nigeria is that its wealth is concentrated in very few hands and that the challenge of his transformation agenda is how to redistribute this wealth to the poor and downtrodden people of Nigeria. The president's statement means that he fully understands the saying that Nigeria is a rich country with poor people. We must make Nigeria a rich country with rich people. An internally consistent economic model that suits Nigeria must be developed. As things stand, the current model is paralysing the economy.

A hidden agenda of the World Bank Group, and the IMF is to ensure that some countries remain essentially poor and on the receiving end of donors' mercy. This hidden agenda is behind every conceivable policy prescription of the World Bank and the affiliate institutions. It is the policy plank of the Bretton Woods institutions. World Bank/IMF staff is taught the one best way to solve economic problems in developing countries.

The standard prescription is: cut down on the size of the public service, privatise the public enterprises, remove subsidies on commodities, open the market for free and unimpeded flow of capital and goods, embrace globalisation and market forces, remove government from production sector and cut off the budget deficit. Personnel from the Bretton Woods institutions do not have any degrees of freedom of initiative. They must follow the prescription not minding local conditions. Nigeria's Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, the de-facto prime minister, is a product of the Bretton Woods. The World Bank model is in her blood stream.

For President Jonathan to achieve a redistribution of Nigeria's wealth within the period of his presidency requires that another type of thinking should jointly guide the management of the economy. The country needs a strong fiscal policy advocate to challenge the debilitating assumptions of the monetarist.

There is a better way to run the Nigerian economy and achieve macro-economic stability, a non-inflationary growth, and a sustainable, steady and qualitative rise in the people's quality of life and an all-inclusive participation in its development. The OECD countries are true experts and controllers of their destiny. When their economies face a crisis, they blend both monetary and fiscal policy prescriptions to solve their problems. They stimulate spending, put resources in the hands of households and organisations, expand their public service employment potential, reduce taxation, ease credit extension by reducing interest rate and make resources available to small and medium scale industries through the specialised (not the political) small business agency created for that purpose.

These OECD countries continue to subsidise agricultural production, give food subsidies to the poor, make available subsidised housing to citizens, pamper their citizens with social security benefits, provide free medical services to the poor, insure and subsidise their security personnel and grant student loans to their undergraduates. However, in the case of Nigeria, with the massive unemployment and economic crisis it has which has led to 60% of its people living below the poverty line, the policy prescription of the finance minister is to allow things gradually fall in place as determined by the private sector and via the invisible hand principle of the legendary Adam Smith.

The ability of the invisible hand to achieve allocative efficiency in Nigeria is totally compromised by corruption and funds misappropriation, idleness and excessive consumptive behaviour of the legislature, a retreating public sector, a debased educational system, a disconcerting absence of infrastructure and a destructive political system. A fiscal policy minded finance minister would apply policy prescriptions to turn Nigeria into a project site. Regular long term five-year national development planning, not the World Bank short-term perspective plans, is crucial for Nigeria. The federal government funds must be applied for development not embezzled or misappropriated. A finance minister must know when funds are lost in government.

In this dispensation, pension scam is rampant. Missing money in NNPC! The National Assembly expenditure is increasing because of unhealthy allowances, the share of the capital budget estimate in the annual federal budget remains at less than 30% not because of public sector salaries but because of mind-boggling emoluments of political office holders, legislative staff, over-priced capital projects and excessive overheads. Where are the proposals from the finance minister to tame these excesses in government? Her answer is to move the nation's funds into a Sovereign Wealth Fund (SWF) for future use by the Nigerian people who can barely live today.

Just as she paid $12.8 billion to Nigeria's foreign creditors in 2005/6, the next is to ensure that the SWF is in place. Bretton Woods institutions will be happy with her for this. A fiscal policy minded finance inister would be at the forefront of the anti-corruption war and apply funds being warehoused in the SWF into special economic development and regenerative programmes at state and federal levels to create jobs and redistribute wealth.

Nigerian furniture makers have packed up because of used furniture imports. In public markets, Lebanese traders hawk rubber slippers, Chinese sell plastic buckets, Indians sell used clothes, Syrians trade in sachet water and the Pakistanis sell jerry cans. The local petty trading jobs have been taken over by low quality foreign labour because of Nigeria's free market economy.

The domestic market must be protected from dumping and mindless competition otherwise the nationals will become scavengers. The government policy that any foreign investor investing certain amount in Nigeria will be given 20% foreign labour quota in the company cannot be helpful for the economy. The consequence will be foreign labour squeezing out Nigerians and the joblessness rate will only soar with the permission of government.

Furthermore, the new automotive policy that requires local assemblage of vehicles through the importation of completely/semi knocked down parts is highly commendable. But the aspect that allows a company to import two fully built up vehicles at a highly reduced import duty for every one locally assembled vehicle is counterproductive and undermines the job creation potential of this policy. It is like the Nigerian economic thinkers are forever apologising for taking initiatives to grow and give meaning to the local economy. Allowing the importation of fully built ups by local assembly plants at lower duty will open the floodgate to corruption and customs manipulation. It will negate the intentions of government in job creation. The finance minister must see Nigeria as her main concern.

I have continued to maintain that the N2 trillion Nigeria spends on petroleum subsidies annually must be removed. It is very clear that subsidy removal in an election year will have a backlash on the incumbent government. But this fuel subsidy should go 48 hours after the presidential election.

Savings from subsidy removal should not be used to import buses and cars for government officials but must be channelled to job creation initiatives and in expanding the public sector. It is a pity that the nation's old refineries still produce at 30% of capacity and new refineries that will aid job creation are yet to be built. Again, the state of Nigeria's educational system must be an embarrassment to the finance minister. Pupils sit on bare floor in classrooms that have no roofs. Students take lessons under trees.

Undergraduates prostitute and rob to raise money to pay fees and feed. Yet under the watch of the finance minister the federal government establishes political universities to produce hopeless graduates. A workable proposal is to convert some of these universities to trade centres and thereafter set up more of skill acquisition/technical centres and vocational training institutions.

Help must come for the true undergraduates. Like in OECD countries, Nigerian undergraduates should have access to federal government loans repayable on gainful employment after graduation. These students should pay adequate tuition fees in the universities, which will now have independent funds to execute projects.

A fiscal policy minded minister is sympathetic to the poor and has a welfarist orientation. The OECD countries care for their weak and poor people and manage their public sector enterprises efficiently. Nigeria's finance minister studied in the United States and knows that it is better to grow the Nigerian youth properly rather than putting funds away in the SWF.

As finance minister, Okonjo-Iweala must forget her Bretton Woods garb. She must be conscious of how jobs can be created for the Nigerian. She must be ready to finance and intervene in ventures that can create jobs. No department of government must escape her watch. Even the Independent National Electoral Commission (INEC) cannot contradict the full employment goals of government. INEC must be told that it should employ graduates in the street as ad hoc staff for the Osun and Ekiti elections and for subsequent elections in Nigeria.

INEC should not use NYSC members as election officers. Furthermore, NYSC members are already fully engaged and so the jobless graduates in the streets should receive the stipends that INEC has to pay for elections. Managing an economy that has such massive rate of joblessness requires policy dynamism. The minister must argue for more fiscal policy measures rather than surrender to the private sector.

- Chief Omokhodion was former MD/CEO, Liberty Bank Plc.

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Source: AllAfrica

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