NIGERIA’S ECONOMIC CRUNCH: RADICAL PROGRAMMES NEEDED TO END CAPITALISM-INDUCED CRISIS
NIGERIA’S ECONOMIC CRUNCH: RADICAL PROGRAMMES NEEDED
TO END CAPITALISM-INDUCED CRISIS
1. Nigeria’s economy is in serious
dire strait, no doubt.
a. By
the end of this month, ten manufacturing businesses will close shop according
to Manufactturers’ Association of Nigeria (MAN), while over 50,000 jobs have
already being lost in Abuja, according to Chair of Abuja Chamber of Commerce
(Punch, 24/02/2016), all due to inability to access forex for raw materials and
business activities. In fact, in December 2015 when dollar sold for less than
N260 at parallel market, non-oil export fell by 25% month-on-month and 75%
year-on-year, mostly driven by fall in food and mineral export (ProShare,
16/02/2016). By the end of this quarter, there are expected mass layoffs across
boards.
b. The
current economic crisis exemplified by the revenue fall and foreign exchange
crisis, is a product of many years of neo-liberal and anti-developmental
policies administered by agents of global finance capital, and massive looting
of the nation’s wealth at all levels of governance and by all ruling parties. In
the last 16 years of civil rule, Nigeria earned over $700 billion from crude
oil exploitation; yet the level of development of the social infrastructures
and economy is at abysmal level. Nigeria was plundered by politicians in power
of all hues and coloration, and big business people (including their
international partners and masters).
c. Every
year since 2005, less than 18, 000 political office holders at all levels and
in all political parties cornered N1.3 trillion annually as emoluments. This is
more than a tenth of annual national budgets of all tiers of government. That
means in the last ten years, at least N13 trillion or $65 billion has been
officially handed over to 18, 000 politicians (0.01 % of population). This is just
official emoluments. According to a World Bank estimate some years back, about
20 kobo out of every N1 budgeted for any project is actually spent, while some
estimates claimed that over $140 billion has been looted since emergence of
civil rule in 1999. This is aside the looting under Jonathan government.
d.
On the other side, public wealth
was used to ensure huge wealth and profits for big businesses. While waivers
worth over N1.3 trillion was granted by the Jonathan government, the Obasanjo
government before it also gave trillions of naira worth of waivers, tax breaks
and monopoly to import for many big companies. This is aside billions doled out
in form of government’s issuance of treasury bills and bonds, which guaranteed
unmerited wealth for banks, financial institutions and big businesses (local
and foreign), at the detriment of local and small businesses. In 2010,
government used N2.5 trillion of public funds to bail out ten banks owned by a
tiny clique of multibillionaires, while social infrastructures are in decrepit
state.
e.
While public funds are given to
politicians and big businesses, the same money, instead of being invested in
productive and manufacturing activities, were again invested in government’s
businesses that ensure huge profits e.g. privatization of state properties at
rock-bottom prices, sale of oil blocks, inflated contracts and government’s
borrowing. In situation where some productive activities were undertaken by big
businesses like Dangote, Honeywell, etc., the government would have given
several billion-dollar worth of waivers and dole outs to these private
businesses.
f.
The state governments were not
left out of this racket as politicians at state levels embarked on projects
that were aimed at cornering public funds for private use, with little impact
on economic and social development. The result is total depletion of public
wealth. Excess crude account that was around $23 billion in 2012 was depleted
to less than $2.5 billion by 2015, with little impact on the wellbeing of the
majority of the population.
g. Not satisfied
with this, governments at all levels developed a strong appetite for debts. Under
Jonathan, the 3 tiers of government shared over N29 trillion ($145 billion)
(Guardian 21/06/2015), yet social and public infrastructures are still in
parlous state while poverty and unemployment still thrive. At the same time,
the country's debt profile increased to over $66 billion (with foreign debt
increasing to over $11 billion from less than $6 billion in 2011). While the
Jonathan government mismanaged more than 52% of the N29 trillion that accrued
to the country, the state governments run by all the major political parties
also mismanaged over 40% of this revenue.
2.
The
implication of all this is that:
a.
There is little development of
social and physical infrastructures to support productive economic activities. This
implies that the country is permanently stuck to import-based economy, while
exporting only raw materials like crude oil, which constitute over 80% of
export earnings. For instance, the country spent billions of dollars on
importing fuel and food items like rice. At a period of huge earnings from
crude oil sale, this may not strike any danger, but with crude oil hovering
around $30 per barrel, as against more than $80 two years ago, the naira is
expected to continue to dwindle in value. Even if government uses external
reserve to save the currency, it will not go far enough, unless there is a
shrink in consumption or the country develops productive capacity.
b.
There is huge wealth gap between
the very rich and the poor. This means public wealth is concentrated in fewer
hands, whose luxurious lifestyle, denominated mostly in hard currencies, put
more pressure on the currency, which drive up cost of living for the majority
poor, whose income hardly increase. At a point, Nigeria became the destination
for all kinds of luxury goods including exotic wines, cars, jewelries, and
aircrafts. In fact, the number of private jets was more than commercial
aircrafts. Also, during the 2015 elections, the two main capitalist parties
spent millions of dollars for “campaign”. In fact, dollar became unofficial
legal tender of the rich.
c.
This coupled with collapse of
public infrastructures and services, and fall in the income of workers, will
means working and poor people spending their meagre money on fewer things,
which drives up inflation and reduces purchasing power. Businesses are also
affected leading to mass retrenchment or at best no new employment. While not
all consumables and products are imported, the fact that many of the country’s
daily needs including foodstuffs, drugs, raw materials, industrial additives,
etc. are imported shows that other goods produced internally will share in the burden,
as inflation is contagious.
d.
The pressure on naira also implies that there will be very
little development of the country, as businesses that want to invest will scale
back investment, while governments’ spending will shrink, leading to serious
cut on purchasing power. For instance, the planned completion date of the oil
refinery being built by Dangote has been shifted from 2018 to around 2020,
while seeming permanent deflation of crude oil price poses threat to that
business.
e.
To solve the problem, government
need to reverse the causes of the economic crisis by:
i.
Stopping further devaluation of
the currency by ending the senseless currency speculation by banks and Bureaux
De Change (BDCs)
ii.
Increasing production of goods
that can reduce imports and thus ease pressure on naira
iii. Increasing
production of exportable goods
iv. Retrieving
huge public funds looted either directly or indirectly, and stop further
hemorrhaging of the public purse
v.
Increase purchasing power of the
majority of the population by reducing wealth gap and redistributing social
wealth to the majority
3.
Buhari
Government’s responses
The government
has stated that it is not disposed to further devaluation of the naira which
has been pegged at around N198 to a dollar. This would have been a welcome
development if it was implemented. However, this sounds more like a doctrinaire
and propagandist pronouncement than any serious economic policy.
a. In
the first instance, government banning of some goods, especially food items and
industrial products, from using government’s hard currencies without serious
programmes and policies to ensure production and availability of these products
internally is more or less implementation of a neo-fascist monetary policy. It
enforces compulsory suffering on the people, on the basis of maintaining the
president’s rightwing nationalistic instinct.
b. While
government fixed naira-to-dollar at N198/dollar, it allows previous
manipulation of forex by banks to continue while directing anger against
parallel market, which was supposed to hold less than 20 percent of the forex
market. Meanwhile, banks continue to aid currency devaluation through
round-tripping (i.e. buying dollar at N198 from government but selling at parallel
market prices). The government’s policy of withdrawing dollar support for BDC
is wrong and counterproductive. It is a middle-of-the-road approach that can be
more ruinous. If government wants to end the BDC business, it should have done
so directly and organized a more pragmatic approach to retail sale of dollar to
end users, at affordable or official cost. Withdrawing CBN's dollar support to
BDCs, while banks' forex business is enmeshed in corruption, round-tripping and
ineptitude has led to BDCs becoming a major market for end users and thus a
major decider of naira value. Allowing BDC to operate on free market approach
under the above scenario has led to disaster for the economy. Alternatively,
government can continue to supply BDCs dollars, and directly monitor and
control their activities and tailor them towards government activities. With
this, government can reverse the laisser faire arrangement in the BDCs and
banks' forex activities.
c. It
is funny that government will fix foreign exchange at official market, but make
dollar scarce at the parallel market where law of demand and supply applies.
Meanwhile, the parallel market is more accessible and active than official
market. To worsen already bad situation, the official forex market could not
meet demand, even after government’s regulations. Furthermore, the government
refused to release more hard currencies from external reserve to meet the fixed
exchange rate and at the same time allows access to foreign currency. The
summary of all this is that the government, while hiding under officialdom, has
unofficially devalued the naira, and worse still deregulated the process of
further devaluation of the currency.
d. In
order to make naira gain real value, and become a tool of development,
government has to implement some immediate and long term fiscal policies as
highlighted in paragraph 2(b) above. But the fiscal responses of government
does not show any sign of providing any serious clue out of the ensuing crisis
that may get worse in the coming period.
4.
2016
‘Expansionary’ Budget
Of course, the Buhari government claims
to be planning about N2.3 billion spending on infrastructures and social
programmes, but this seems more like piecemeal political project than serious
economic revival project. Firstly, the over N6.05 trillion budget with a
deficit of N2.2 trillion will be financed by N1.88 trillion debt from local and
foreign borrowing, while the government will, at the same time, be spending
N1.3 trillion to service existing debts (a significant part of which is for
local lenders). This means government will be borrowing back the same money it
pays to service existing debts, or better put, will be borrowing to pay debt.
This is clearly not sustainable.
a.
Most part of the N1.8 trillion
capital vote will be spent to fulfill existing contractual obligations on
existing projects, while smaller amount is for new projects. More than this,
the important aspect of the capital votes i.e. those for Ministries of Power,
Housing and Works, and Transportation will gulp N660 billion out of the N1.88
trillion. With many contractors already indebted, the capital vote will only
have marginal effect on purchasing power.
b. The
so-called special social interventions that will gulp some N560 billion (N300
billion and N260 in the capital and recurrent sectors respectively), is not
tailored towards some serious or long term economic improvement. For instance,
some of these social programmes like payment of N5, 000 benefits to 1 million
poor people will be run on pilot scheme, and rely on support of credit and
donor agencies, which will make such programmes limited in scope and elitist in
nature. More than this, it does not provide holistic approach to improving
export capacity of the country or long term economic development.
c. Possibly,
the school feeding programmes, mass employment of 500, 000 teachers and
conditional grants to the most impoverished, will be the most impactful of
these social programmes. If implemented, it will have some minimal impact in
improving living standards of some Nigerians. However, this is too little to
make needed impact to reverse the economic quagmire. Over 3 million young
Nigerians are reportedly thrown to the labour market yearly, while over 30
million people are jobless. Therefore, employing less than 500,000 young people
over the tenure may not really address the problem. Worse still, the teaching
jobs will only be a part-time job where beneficiaries are paid peanuts. This is
similar to the Federal Teachers’ Scheme (FTS) of the Jonathan government which
ended in fiasco as beneficiaries were unpaid for months. Furthermore, the
social programmes will be carried out in conjunction with state governments.
This is an assured failure, as most of the states are bankrupt and
dysfunctional.
d. Moreover,
the ability of the government to meet the revenue collection in the budget is
highly doubtful. Currently the crude oil price is below the $38 per barrel,
envisaged in the budget, while the ability of the country to sell 2.2 million
barrels per day is uncertain, as there is a glut in the crude oil market. Therefore,
over N800 billion in revenue expected from sale of crude oil may be hard to meet.
Of course, there is possibility that crude oil price may rise again, after
reaching a trough; but aside the fact that it is doubtful whether it will reach
$38, the question of quantity supplied is another issue.
e. On
the other hand, government’s plan to rake in over N3 trillion-worth revenue
from non-oil sector and independent sources, as much as this will be welcome, is
not premised on any serious economic plan. For instance, as a result of the
government’s tumbling monetary and forex policies, the non-oil export has
fallen significantly by 25% fourth quarter of 2015 and 75% year-on-year.
Although, the decline is driven mainly by fall in food and mineral sales, while
manufacturing and industrial exports grew. However, on the basis on growing
inflation, high cost of dollar, inability to access forex market and falling
purchasing power, non-oil sector export and possible revenue for government
will seriously reduce in the coming period. Already, there are talks of
possible mass layoff of workers before the end of this quarter. Government’s
plan to raise N360 billion from anti-corruption is also doubtful based on the
haphazard approach to anti-corruption campaign. It is our contention that
government can recover trillions of naira from anti-corruption campaign, if the
right and radical approaches are taken, as will be shown subsequently. Ironically,
the 2016 budget itself is already tainted with corruption as several fraudulent
allocations and votes have been and are being discovered from the budget.
According to BudgIt, a budget tracking non-governmental organization, over
N111.3 billion has been discovered as hidden and fraudulent allocations in the
2016 budget (www.yourbudgit.com). Also, as against the previous posture of the
government, the 2016 budget and the burgeoning political population in the
federal government, shows that there will be little change in term of reducing
wasteful spending, even if more revenue is made.
f. All
of these government’s policies in the monetary and fiscal areas will do little
to lift Nigeria out of economic quagmire it is, neither will it engender
long-term development of the country. More than this, it is our contention that
the new government had the ample opportunities to make significant improvement
in the economic situation of the country within the last 6-7 months, which could
have raised the productive capacity of the country, improve the purchasing
power of the majority poor and reduce inequality. However, the government is
still committed to pro-rich policies that have held the country down, while
launching austerity for the working and poor people. Of course, some minimal
structural changes like the implementation of Treasury Single Account (TSA),
and removal of monopoly of some import licence by big businesses have been
carried out. However, these are too little for any major positive change. In
fact, these piecemeal and minimalist reforms have the capacity to create bigger
problems that the previous ruinous policies of the Jonathan government. Neither
moving forward nor moving back can be more disastrous than either of the two
directions. Ample example is the Treasury Single Account (TSA) implementation.
g. While
government claim to be saving money through TSA and Zero Budgeting by
centralizing revenue collection and disbursing expenditure centrally, the 2016
budget and all the crazy allocations and votes tend to encourage pilfering of
public till. This shows the limitations of piecemeal reforms. Politicians,
contractors and senior technocrats, while accepting TSA and Zero Budgeting
found another route through bogus allocations to circumvent the policies and
continue with the past. Without total and radical anti-corruption reform at all
levels, no amount of piecemeal reforms can make serious change. Interestingly,
it was the National Assembly, generally adjudged as the most wasteful of the
government’s three arms that exposed the frauds in the 2016 budget. Even if
government implements the TSA and Zero Budgeting, politicians and contractors
will find limitations in the policies to sabotage any gain that can accrue from
it. For instance, with the sluggishness and tardiness in policy implementation,
TSA can be used to slow down government’s revenue collection effort, by
ensuring that revenue generating agencies that draw their expenses from revenue
they collect are starved of fund which will stunt their activities.
5.
What
can be done?
a. Government
should invest in social and public infrastructures in order to raise purchasing
power. For instance, massive investment in education, healthcare, road, mass
housing, etc. will lead to employment of millions, reduce cost of accessing
social services (with government subsidizing social services) and by extension
raise purchasing power. This will spur economic activities that can raise
government revenue and reduce pressure on forex. Unfortunately, the much-touted
'expansionary' 2016 budget contains arguably the worst capital allocations to
education, health and housing. For instance, according to president of Nigeria
Medical Association (NMA), just 3.65% of the budget is for health as against
expected 15%; while less than 10% of what teaching hospitals needed to operate
is given to them (Punch, 20/02/2016). This means further commercialization of
health, collapse of health facilities, inadequate medical staff and expected
industrial crisis. According to
university lecturers’ union, ASUU, “the total capital appropriation to each of
the federal ministry of education headquarters and 19 federal secondary schools
is more than the capital vote of the 39 federal universities, 24 polytechnics
and 21 colleges of education” (Thisday 24/03/2016). The special fund for
universities, agreed to by Jonathan government in 2013, which requires
government spending N200 billion each year for the next 5 years, was not
included in the 2016 supposedly ‘expansionary’ budget. It was only in 2014 that
the agreement was implemented.
b. Government
should directly invest in mass production of exportable goods, and imported
products that can be produced locally. For instance, specific agro-products can
be mass produced locally by government. Also, imported food items like rice and
fish can be mass produced locally. Government can directly invest in large
scale farming and/or provide inputs (seedling, fertilizer, etc.), machineries,
market and extension services to farm cooperatives comprising mostly small
farmers, under cost/profit sharing or equity arrangements. With this, forex
will be saved, millions of direct jobs will be provided and economy boosted.
c. Government
should also renationalize privatized public assets like power companies and
others that control the mainstay of the economy, as a way of planning a serious
economic revival programmes for the country. All companies that have been
involved in shortchanging the country and participated in looting of public
funds should also be nationalized. There is no way the country can develop when
her economic mainstay are in private hands, where the rule of profit
maximization prevails.
6.
Where
will the money come from?
a. In
the real sense, if government is serious about improving the economy, radical
wealth redistribution will have to be carried out. This will mean government
reversing the pro-rich policies of the past that had made the rich few richer.
For instance, by introducing progressive tax such as property and luxury tax on
the rich (especially in Abuja and Lagos, where federal government has tax
coverage) and recovering withheld taxes by rich few, trillions of naira can be
raised within a short time. There are so many unoccupied and underutilized
properties and wealth across Abuja and Lagos from which government can raise
hundreds of billions. The recent discovery of how a manager of Abuja
Electricity Distribution Company earned over N36 million monthly to reduce tax
on the company's profit reveals how several billions of naira in taxes are
being avoided by the rich. Businesses that cannot pay up their withheld or
evaded tax should be taken over and in support of government's economic
programme.
b. Government
should also recover N1 trillion owed government through AMCON. According to
AMCON MD, many of those owing government are living extravagantly. By taking
over their wealth, properties and companies, government can get enough
resources to save the economy.
c. There
is over N5 trillion in pension fund. If government take (or borrow) N2-3
trillion out of this fund to invest in its agro-allied programmes and social
and public infrastructures, results in just six months will be seriously
positive on the economy. For instance, government giving more than N500 billion
to small farmers' cooperatives, and small (productive) businesses at around 2%
interest through BoI or BoA or under equity and cost/profit-sharing
arrangement, will undercut the exorbitant and cut-throat interests from
commercial banks, and seriously drive
down cost of borrowing. If CBN could dole out N2.5 trillion in 2009 to ten
banks owned by handful of multibillionaires, getting N2-3 trillion from pension
fund to save the economy cannot be a problem. The current technical approach of
CBN of reducing MPR and CRR by 2% and 5% respectively in order to encourage
banks to lend to local businesses is a worn-out approach. The same government
will be borrowing over N980 billion from local market to fund the budget, while
also paying the same market over N1 trillion in debt servicing (a case of
borrowing your money back). With this, banks and financial markets are assured
of quick wealth; therefore, they can 'sacrifice' for now by holding back
lending to 'risky' businesses in a depressed economy.
d. Government
can also recover hundreds of billions, if not trillions, from genuine
anti-corruption campaign. For instance, instead of government's politicized and
piecemeal anti-corruption campaign under EFCC, genuine and holistic fund
recovery can be undertaken. The trial of Senate President by Code of Conduct
Bureau (CCB) and Code of Conduct Tribunal (CCT) shows that if government commits
some focus on building capacity of CCB and CCT to prosecute corrupt public
officers, trillions of looted money. By providing synergy with other agencies
like EFCC, ICPC, Police SFU, customs, CBN and local banks, CCB and CCT can
recover (and could have recovered) trillions within short time, and avoid
unwarranted sensationalism currently associated with EFCC campaign. Many of the
corrupt elements are public officers. This does not mean that EFCC activities
are not necessary, but through integrated and holistic approach to
anti-corruption that links all the agencies and aimed at ending all regimes of perfidy,
we can recover more money within short time.
Conclusion
But it seems the government is only
interested in scoring political points against its equally corrupt PDP
colleague, as any genuine anti-corruption campaign will expose the fraudulent
basis of this government, which emergence was bankrolled by stolen funds from
public till. All this shows the uniformity of all capitalist political groups in
Nigeria. Only a radical government premised on revolutionary overhaul of the
capitalist system, by mobilizing the working and poor people to the political
and governance arena can make any tangible and long-term changes needed to move
the country forward. It will be wishful thinking to believe that the current
political structure comprising various elements who have played various role in
the rot that has defined Nigeria will make any serious change to the political
economy of the country.
The labour movement should wake up from
its slumber and demand a radical reforms that will liberate the working and
poor people. All austerity programmes should be rejected by labour movement.
Ultimately, labour movement should build a mass working political party that
can provide alternative social, economic and political programmes premised on
socialist ideas, to the capitalist agenda of all the ruling political parties
in Nigeria.
Conclusively, the current economic
impasse in Nigeria reflects the crisis and fundamental failure of global capitalist
economy. Since 2008, the world has not gotten out of economic maelstrom that
has led to frailty of global economy. China and other big economies have not
recovered from pre-2008 production. This is background to Nigeria’s economic
crisis which is tied as a latecomer to the apron string of global capitalism,
which is premised on obscene inequality not only among nations, but also
between the richest 67 people (who owns more than half of world poorest) and
the majority working and poor people. Therefore, the permanent solution to
global misery lies not only with working people of Nigeria and Africa, but of
the world, by ending the rule of capital and established a democratic socialist
order.
Kola Ibrahim
(Author and
Labour Activist is the State Secretary of the Socialist Party of Nigeria (SPN)
in Osun State, Nigeria. He is the author of Boko Haram in Nigeria: Historical
and Political Economic Exploration)
Kmarx4life@gmail.com, +234 8059399178
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