Avoiding the Mistakes of the “Old” Buharinomics. By Proffesor Charles Soludo.

 Nigeria desperately needs the moral force/Spartan discipline and leadership of PMB at this time to fight corruption, terrorism, and hopefully begin to reconstruct the values of a people gone astray. On the economy, it is not going to be an easy transition for PMB. Igbos have a proverb that one does not learn to use the left hand at old age, but my prayer is that for the sake of Nigeria, he would have to do so and quickly too. Many great world leaders have had to undergo this personal transformation to adapt and exploit the levers provided by how the real world economy actually works in order to prosper their people. The former socialist/communist regimes of China and Russia are making tremendous progress on the move to competitive market economies. Many of us started off differently, and I actually made a career (with several books and articles) as an unrepentant critic of the IMF/World Bank’s structural adjustment programmes (SAP) in Africa even while doing my hard core economics work. But we have remained pragmatic intellectuals!

When PMB first came to power in 1984-85, the nation was as well in crisis. He did so much within the short time especially on anti-corruption and restoration of national discipline. He inherited a command and control economic policy regime and deepened it (capital, exchange, and price controls; import licensing; indiscriminate ban on imports, rationing of essential commodities; government ownership and control of so-called ‘commanding heights of the economy’—banks and insurance, telecommunications, airline, refineries, roads and transport, even manufacturing companies, etc). I recall that it was something like a criminal offence then to be in possession of foreign currency. Exchange rate, interest rate, petrol price and several other prices were largely fixed. In the face of continuing shocks especially the fall in oil prices (in the face of huge debt service payments), relative prices were not allowed to adjust to restore internal and external balances. Rather, even more controls were imposed with all the gargantuan distortions in the economy (and industrial capacity utilization was largely below 20%) and as government could not pay salaries, massive retrenchment of workers was undertaken, but the economic crisis worsened and Nigeria was on the brink of bankruptcy. The economy imploded big time. Unemployment and poverty worsened. It did not work. The successor government faced little choice but to liberalize the economy under the structural adjustment programme (SAP) and Nigeria began the journey to a modern market economy. Of course, the journey has been chequered, and naturally is still a work in progress.
Since 1986, Nigerian economy has changed a lot and my reading is that there is a broad consensus on continuing progress towards a competitive (probably also compassionate) market economy framework. From the snippets of policy since the new government came, there is a growing perception of nostalgia, reminiscing of the ‘old good days’ pre-1986. There seems to be a growing tension between a tendency to return to the past versus a progressive match to the future. I am not sure how the new wine will fit into the old bottle. T
Let me illustrate with a few examples. First, there is this sense of ambivalence as to whether to remove petrol subsidy or not; and whether government is going to run refineries in competition with the private sector under a subsidy regime or deregulated pricing. I am convinced that PMB has the moral authority and legitimacy to quickly remove the subsidy and privatize the refineries. The fundamental case against subsidy removal is not economic: it is the fact that the citizens do not trust government to optimize the use of the proceeds for their welfare. If PMB does not deal with these issues NOW, I wonder when, if ever. Now that private refineries are coming up, it is time to privatize public ones. It should have been done years ago. The huge benefits are not only economic, but also an anti-corruption move. Let government produce a credible agenda of reforms for the sector and let us have another focused public debate on this subject. You may be amazed that even the so-called ‘man in the street’ now understands that it no longer makes sense. The fiscal cost of keeping it is unjustifiable and unsustainable.
Second, one hopes that the report in the media about plans to resuscitate the moribund Nigerian Airways is not true. One thing the economy cannot afford at this time of crisis is to invest scarce resources on prestige or white elephant projects when most federal highways are not motorable (certainly none in the South East is motorable) or when we need to be investing tens of billions of dollars per annum on critical infrastructure. Third, the treasury single account (TSA) is a great initiative, and I congratulate PMB for that. However, we don’t have to return to the past of having every penny of government largely redundant in the central bank. For an economy desperately in need of stimulation, piling up idle cash at the CBN is not sound economics. We should deploy technology and transparent rules to implement a hub and spoke model of TSA whereby CBN is the hub while the commercial banks remain the spoke. Of course there are some benefits of keeping it at CBN, including possible anti-corruption outcome but as a proverb says, you don’t set your house ablaze because of the irritation of a rat in the house. We can rid the system of corruption and realize all the benefits of TSA but still not starve the economy of the necessary liquidity.
Another minor point relates to communication and body language that jolts the market and undermines confidence in the monetary and financial system. When it was widely publicized on two different occasions within three months that “presidency directs central bank to …..”, it got many players in the economy seriously worried. For sure, Central Bank is not a government unto itself, and despite the statutory ‘autonomy’ or ‘independence’ of the Bank, it must work closely with the Presidency and economic agencies to coordinate macroeconomic policy. Everyone knows that the central bank or INEC cannot survive without the support and active collaboration with the presidency but no one wants to hear that the president has directed INEC on how to conduct an election. There is a reason the APC promised in its manifesto to ensure CBN independence. A central reason is to give the market confidence that the CBN will always act professionally and independently to ensure price and financial stability. It is to avoid the Africa’s Idi Amin phenomenon whereby the government of the day may ‘direct’ the central bank to ‘print’ money or to take other steps injurious to the economy because it wants to retain power. When the market knows or believes that the central bank is merely an extension of the presidency and takes daily ‘directives’ from there, the Bank loses credibility and its monetary policy committee meetings become meaningless. My fear is the precedence: we can never imagine how far future presidents can go in ‘directing’ the central bank on what to do with our commonwealth.