IDEAs 9th February 2024
One Year after the vote: IDEAs in the ECONOMY
Ayo Obe said that this fourth programme in the One Year After the Vote series would look at the Economy, for which she was happy to welcome back to the programme, Bismarck Rewane, Managing Director and Chief Executive Officer of Financial Derivatives who is an economist and a banker and was a member of President Buhari’s Economic Advisory Council.
Ayo said that there is no doubt that we are going through some extremely difficult times from an economic and financial point of view, but that while listeners might love to know whether Bismarck thinks that the policies are working, what IDEAs Radio is concerned with is the role of Integrity, Ethics and Accountability in the administration’s assertions that we have to go through these very difficult times in order to reach the sunlit uplands of economic stability, and asked his view about that.
Bismarck said that Nigeria had got to a point where we have to come to terms with our reality as a country with a high population and declining income; a country where we seem to know what the problems are, but where we have varied ideas about how to handle them and in what sequence. We are also a country where there is a crisis of false expectations and a crisis of confidence.
Analysing these realities, Bismarck said that Nigeria is a country with high debt, high poverty, low productivity and very high expectations. We had the erroneous belief that the country’s problems could be solved instantly with a silver bullet: for example that once the Dangote Refinery or the modular refineries are working, once we stop corruption with the stroke of a pen, or have price control, all would be well. That was not true, and the truth was that there is a lot of hard work to be done – mental and intellectual work that has to be done at the highest level, and to be tested.
We must also understand that there is a lag between the time when policies are made, and when the impact is felt, and that once there is no credibility in those who are making the policies and indeed, a trust deficit, it makes the time lag even longer, because people doubt them. Rather than have faith that we are going to reach equilibrium, that doubt makes the economy a speculator’s paradise for people who just want to go in and take advantage in the expectation that things will continue to deteriorate.
The main question is how we can overcome these major issues. Bismarck advised that the first thing to do is to come clean about the challenges Nigeria faces because there is a big difference between propaganda and analysis. So Government must prove empirically that these are the problems, and that such and such was how it was going to deal with them. Secondly, the team that was going to manage the economy must be long in competence, character and Ethics.
Ayo asked whether that wasn’t really where the problem lay, because even if the team was in fact squeaky clean, it would be a hard ask for Nigerians, but in reality we start off with the mindset that because they are politicians, they are ipso facto corrupt. Whether or not we voted for them, we don’t think they are perfect, and so we reject being asked to tighten our belts when we don’t see their own belts being tightened (for example when we look at the Budget). Although Bismarck had said there was a time lag between policy implementation and effect, the impact of the removal of fuel subsidy and the fall in the value of the Naira had been felt instantly. She asked how we could get over the trust deficit that Bismarck had identified, because although the saying was: “When you are going through hell, keep going”, many are now thinking that maybe we need to turn back.
Bismarck responded that there is not one single solution. Even if the team were shining examples of Integrity etc., there would still be the question of how competent they were in understanding the extent of the rot, and how much confidence people would have in their capacity to take the necessary steps. It is always a question what was being rewarded: competence and Integrity, or loyalty to political office? Those in charge must reach out, and across the aisle to win support, because we are facing combination of problems. But in tackling them, leaders cannot be living in splendour and ostentation as a way of attracting political opponents to your side, and at the same time, be calling on the masses – the voters who gave them the mandate – to make sacrifices.
Again, Bismarck said, palliatives or public expenditure cannot solve the problem when government has argued that an investment-led strategy is the key to success. Once there is a crisis of confidence, investment flows will reduce while investors wait to see whether the administration can stay the course, whether it knows what it is doing, and whether the people will believe in it. Things must run by regulations and policies that are market-friendly rather than confusing, and there must be timelines for performance, as well as a readiness to change course when policies fail to have the desired effect within a given time frame.
Bismarck noted that a major difficulty was that people don’t believe in their government, especially when what it is saying is different from what they are seeing. He gave the analogy of taking one’s car to a mechanic who kept on trying different solutions that didn’t fix the vehicle. At a point, one would tell him to just put the car back together and leave it, because he clearly doesn’t know what he is doing and is merely guessing. And right now, nobody believes that those trying to get the car of the Nigerian economy back on the road have any idea what they are doing, despite all the different remedies that they have tried or are trying.
Ayo said that when Bismarck talked about the confidence, it was not just that of the Nigerian people to put up with the hardship in hope of something better, but also that of investors, foreign and local. She wondered whether there was Integrity in what the government was saying. For example, we were told that fuel subsidy was gone, yet one way or another, there seems to still be fuel subsidy, and now we are seeing the same thing with electricity because it seemed as though the foreign exchange regime was spreading its tentacles into every aspect of our economy. She wondered why the Government didn’t come clean with us, because it is as though it is trying to both run with the hares of satisfying Nigerians with low (or lower) prices for some goods and services such as petrol and electricity, and at the same time to hunt with the hounds of international economic policy wisdom that market prices should prevail and there should be no government interference. Surely that inherent contradiction made it inevitable that there must be some deception – lack of Integrity – in how that was presented to the Nigerian people and the world at large?
Bismarck reminded Ayo that when the President had said that “Subsidy is gone!”, he had observed that subsidy never went: it was only reduced. Nobody really has a problem with the reduction of the subsidy because that is not where the issue lies. But if the subsidy is reduced by say 60%, then one should expect to see a corresponding 60% improvement in the quality of other things. However, what had happened was that the subsidy was reduced, but there was no improvement elsewhere: all other indices continued to deteriorate. There was convergence (rather than complete unity) in the exchange rates, but we had seen deterioration in other areas.
He felt that government had been working on a partial equilibrium basis, wrongly thinking that dealing with issues one and two meant that everything else would move in the desired direction, but forgetting that the country is saddled with a rent-seeking interest-peddling oligarchy that feeds off an extortionary economic system. So it is not enough to tackle one or two issues and leave the others. The entire package has to be overhauled. But, he warned, doing that comes at major political cost.
So where we are now, is asking ourselves how do we get out of this quagmire? However, Bismarck was hopeful that now that we know that subsidies can be sequenced, and that the official and parallel rates have only a tiny gap between them; now that we know that customs rates are moving in the right direction; now that we realise that we don’t know which comes first: exchange rate or local currency inflation. He continued that now we know no matter how many guidelines are issued (as had been happening over the last few days) that we must create a supply chain for foreign exchange – no matter how small it is, by having an auction at which the amount of FX available for that day is stated (whether it is $50 million or $20 million) and invite people to bid for it, so that they have a basis on which they can plan. But, he emphasized, there was no point in petty regulations like insisting that PTA must not be in cash, but could only be loaded onto electronic cards, asking what happens if the card fails? In theory it is a good idea, but in practice, the reality is that there is a big cash market for foreign exchange in Nigeria and the only option is to increase the supply. Although such ideas may make sense, what they do is send a signal to the market that there might be a gap or shortage. And once the market perceives that, it’s like putting blood before sharks, making a speculators’ paradise.
Ayo said that the demand by the President of the Nigeria Labour Congress for a minimum wage of N1m might have been made a bit tongue in cheek, but what it signified was the growing frustration that many feel with the apparent unwillingness or inability of Government to hear people and recognise that they are hurting.
Bismarck revealed that he had chaired the Minimum Wage Review Committee in 2019 and knew the numbers involved like the back of his hand. It was important that the review should be approached with seriousness – i.e. not by going into the negotiation on a current minimum of N30,000 and asking for N1 million. However, that statement was a symptom of the crisis of confidence. People did not believe what Government is saying, or that Government itself believes what it is saying, let alone that it would do what it had promised to do. So it came back to Integrity, Accountability and Ethics. You cannot be in the leadership space (whether Government, Trade Unions or Traditional Rulers) without credibility, or come with a questionable pedigree if people are to follow you because they trust you.
Ayo thanked Bismarck for coming back to the programme. She then wrapped up by recalling the saying: “It’s the Economy, stupid!” and said that we really need to see some IDEAs in that field.