By Olu Fasan
Bola Tinubu, Nigeria’s self-regarding president, says he deserves an entry in the Guinness Book of World Records for his economic reforms. Speaking at the 10th German-Nigerian Business Forum in November last year, Tinubu said: “To me, if you didn’t mention me in the Guinness Book of Records, I would find a way to insert myself because I did it (the economic reforms) without expectations.” But whether he said that in jest or in earnest, the truth is that he goofed spectacularly, displaying a hubristic detachment from reality.
Think about it. When, as president, your policies inflict untold suffering and misery on the citizens, it’s utterly arrogant and insensitive to beat your chest and demand global accolades for your “achievement”. It is also inconsiderate and out-of-touch to tell the citizens to endure excruciating pains now for some pie-in-the-sky gains in the future. Thomas Jefferson famously said that “the care of human life and happiness is the only legitimate object of good government”. But Tinubu’s economic “reforms” immiserate and dehumanise ordinary Nigerians!
Yet, some have dubbed Tinubu’s economic approach “Tinubunomics”, implying
that there’s a philosophy behind it. But there’s no philosophy behind his
economic “reforms”. Of course, the removal of the fuel subsidy and the
scrapping of the naira peg are liberal economic policies. But Tinubu is not an
economic liberal at heart. He is a Keynesian, who believes in state
intervention, massive public borrowing and fiscal activism, which fuel
inflation and are anathema to free-market economics. Truth is, he introduced
the “reforms” not because he instinctively believed in them or understood their
mechanics and wider implications.
So, why did he introduce them?
Well, to win over the international community. Given the negative international
reactions to his controversial election, Tinubu decided to attract the positive
attention of the world. Nothing could be more attention-grabbing than ditching
the costly fuel subsidy and the market-distorting fixed exchange rate system,
which foreign governments and investors had long called for, but unheeded by
the Buhari government.
It worked spontaneously. For
instance, the Financial Times, which had described Tinubu’s election as “deeply
flawed”, later praised him after he introduced the two policies, saying Tinubu
“gets off to a dramatic start”. This week, the British High Commissioner to
Nigeria, Richard Montgomery, echoed the international sentiments when he said:
“Recent big and bold reforms by the Federal Government of Nigeria and the
Central Bank are boosting optimism amongst international investors that the
country is on the right path.”
But there are two problems.
First, the international endorsement will not automatically translate into
foreign investment inflows. Indeed, foreign investors are leaving Nigeria;
they’re not investing in the country. Second, the domestic effects of the
“reforms” – collapse of the naira’s exchange rate and skyrocketing inflation –
are harming Nigeria’s economy and making lives unbearable for most Nigerians.
Unfortunately, the international and domestic effects feed each other: with
continued shortage of foreign exchange, the naira’s value will fall steeply,
and inflation will rise sharply; and with high inflation, foreign investors
will ditch the naira, precipitating a further rout against the dollar, thus
requiring high interest rates to tackle the run-away inflation. But rising
interest rates would further damage the economy.
Here, then, is the question: Why
have the withdrawal of the fuel subsidy and the elimination of the fixed
exchange rate failed to produce the intended outcomes? Well, because they are
mere enablers, not drivers, of growth. Drivers are the direct causes of growth;
enablers are factors that help overcome barriers to growth. Withdrawing the
fuel subsidy allows market forces to determine the pump price of petrol;
scrapping the currency peg lets demand and supply dictate the value of the
naira, thereby enabling foreign investors to obtain dollars and repatriate
their profits. They are necessary enablers, but neither is a driver of
growth.
The drivers of growth are strong
macroeconomic fundamentals – low inflation, low interest rate, stable and
competitive exchange rate, low unemployment – and diversified economy and
export base. But Nigeria’s macroeconomic fundamentals are extremely weak, and
the country is a mono-economy that exports virtually nothing of worth besides
crude oil.
Now, when a country doesn’t
refine its crude oil but imports expensive refined products, it will import
inflation and, without fuel subsidy, will punish its own people. Similarly, a
country that doesn’t export any value-added product must know that floating its
currency would decimate its value and lead to imported inflation. A weak
currency is not necessarily bad if a country is export-oriented as it will make
its exports attractive. But for a country that exports little of value but
imports most things, a weak currency is almost suicidal. One solution, short of
exporting value-added products and curbing imports, is to attract significant
foreign capital. But foreign investors won’t rush into a country whose
macroeconomic fundamentals are not strong and business environment are not
investor friendly.
Of course, diversifying
Nigeria’s export base, and reducing its import bill, cannot happen overnight.
But government has a duty to stabilise the macroeconomic environment. It must
rein in public spending and borrowing and tackle inflation to prevent capital
flight and incentivise investment inflows. Floating the naira, without capital
controls to stop money leaving the country, means that any irresponsible fiscal
or monetary policy will trigger capital flight and discourage capital inflows.
Yet, Tinubu’s government is fiscally reckless, borrowing heavily and spending
profligately. The CBN’s recent decision to ban payment of remittances in
dollars is also misguided. It’s a form of exchange control and sends the wrong
message.
To be clear, the fuel subsidy was expensive, costing about $10billion
annually. But subsidy scams probably accounted for half of that amount; government
should have tackled the corruption instead of abolishing the subsidy. As for
the currency peg, it had to go. The arbitrage that allowed powerful people to
buy dollars cheaply at the official rate and sell them at the parallel market,
scooping millions, even billions, of naira was utterly corrupt and
unsustainable. Equally, a fixed currency regime that resulted in the rationing
of dollars, thereby preventing investors from taking their money out, damaged
investor confidence.
Yet, the scrapping of the fuel subsidy and the naira peg won’t transform
Nigeria’s economy without strong macroeconomic fundamentals and a diversified
export base. Thus, Tinubu’s chest-beating, while his half-cooked “reforms”
devastate lives, is grating. He truly deserves an entry in the Guinness Book of
Records. Well, for economic illiteracy and immiseration!
*Dr. Fasan is a commentator on public issues
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