Happy Independence Day!

Happy Independence Day!

Monday, 13 June 2016

Forget the 2016 budget; it’s no longer realistic

The news report then went on to mention various individuals making the suggestion. It is the sort of report which makes one to wonder if it is intended to be taken seriously or as a joke.

But then, one is reminded of the Hubert Humphrey, 1911-1978, late Vice President of the United States, who in Madison, Wisconsin, on August 23, 1965, left the world with the gem: “The right to be heard does not automatically include the right to be taken seriously.”

The experts were wasting their time for several reasons. But before going into those reasons, it is vital to remind Nigerians of a new phenomenon in our economic landscape.



For the first time since the illegal Excess Crude Account was created by President Obasanjo and Okonjo-Iweala, crude oil is trading at far in excess of the benchmark price used in our budget. Yet, the country is not generating any excess revenue.

Why? The answer is simple, and it is one of the paradoxes of known to “so called economists” (to use Buhari’s dismissive words for my fellow professionals), but unknown to so called African leaders, that the price of a vital commodity might go up, yet the country responsible for the price increase would not benefit from it.

Nigeria’s increasing failure to produce and export has induced a global supply shortage of crude oil. And,   as every so-called economist knows when supply goes down prices go up. Nigeria is not, and will not, benefit from the global price recovery as long as pipelines continue to get bombed.

That is the greatest challenge facing Buhari’s economic management team – which is also largely out of their control. Is the advice to them wise or even needed? Let’s examine the issue in light of the 2016 budget which is now only fit for the dustbin.

It is to be assumed that anybody appointed to the exalted position of Vice President, Minister, Special Adviser or Governor of the Central Bank of Nigeria, unless a saboteur, does not need anybody to ask him to sit up.

If anything, given their generally busy schedule, their individual and collective need is to find time to sit down and think – particularly when the economic environment is so dynamic.

When Harold Wilson, British Prime Minister announced that “A week in politics is a long time”, (VANGUARD BOOK OF QUOTATIONS, VBQ p 271), the world had not yet experienced the upheaval caused by the Organisation of Petroleum Exporting Countries, OPEC, when in 1973, the price of crude oil, hitherto relatively stable changed several times in one week of embargo.

At the risk of being accused of defending Buhari’s economic team, who all have their paid defenders, the truth is, the managers of the economies of weak nations today have less control over the destinies of their nations than those of the 1960s when the wind of change blew over Africa and black rulers replaced white men.

The change has largely been for the worse – even in South Africa which came much later. The problem of economic management team, such as Nigeria’s, is made more difficult than it should be because most African leaders are economic illiterates. It is bad enough that they don’t know a thing about economics, it is worse that they don’t want to know.

Irrespective of who constitutes the members of the Economic Management Team, including instances when one person is tagged the Economic Czar, the variables that can be manipulated are very few, although the combinations are infinite.

The economy stands on two pillars – the fiscal and the monetary policies. Generally, the elected national leader is in charge of fiscal policy – even if the function is delegated – because it is mainly through the deployment of fiscal policy that he attempts to fulfill his election policies and to establish his legacy as a leader.

Monetary policy largely is determined by an autonomous or semi-autonomous Central Bank. The mandates of Central bankers worldwide are the same. They struggle to maintain stable exchange rates, interest rates and to achieve full employment. But, those mandates presume the economy is productive and competitive with other economies.

Once a country loses competitive advantage, with respect to other nations, and imports more than it exports, it faces enormous challenges. Possible devaluation of the currency is one of the options as well as one of the challenges that must be addressed.

Elected officials abhor devaluation during their tenure of office – even if it is inevitable and the best approach according to the monetary policy managers. Invariably, when the President, like Idi Amin in Uganda, is adamantly opposed to devaluation, he has removed from consideration one of the variables that need to be considered for maximum result.

The repercussions are almost always negative on the economy. The Nigerian economy, depending as it does on the production and export of crude oil for a large proportion of its export earnings was in trouble from as far back as 2014 when the price of crude oil first dipped below the benchmark price.

In addition, actual production and volume of crude exported were below projections for 2014. The decline continued and accelerated in 2015 and that resulted in the gradual depletion of the Excess Crude Account and the External Reserves.

By the time President Jonathan conceded victory to Buhari, his world class “so-called economists” must have told him to go home and leave his successor holding to the empty bag. Okonjo-Iweala must have engaged in some forecasting and told her former boss “It’s time to go”. The 2016 budget is now a worthless document and none of us should expect it to be implemented.










Vanguard

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