THE BUHARI INTERVIEW AND THE ECONOMY
Early last week, President Buhari granted an interview to the editorial team of a major Nigerian newspaper and TV stable. The President spoke on a variety of topical issues, but it is the economic matters addressed by the President that attracts our focus this week.
Arise News: What can you do to make Nigeria a more competitive and more attractive destination for Foreign Direct Investment (FDI)?
President Buhari’s response: The President approached the question by referring to EndSars protests. He then went on to say he asked the members of the Federal Executive Council (FEC) who are drawn from each state of the federation to return to their states and speak to the Governors, traditional rulers and the business community that there are no more vacancies at the FG level. The president also believed the same situation of no more vacancies exists at the state and Local Government (LG) levels too. The President concluded that nobody is going to invest in an insecure environment and as such the youths must behave themselves to make sure Nigeria is secured to attract FDI.
Commentary: In the pecking order of factors considered by investors before deciding on an investment destination, security is at the top, but it is not the highest consideration. I worked for a multinational oil company that operated in regions where there were wars or serious conflicts, but it did not discourage them from investing in these regions. Rather they carefully planned and executed security protection architecture for their people and assets in places such as Iraq, Afghanistan, Algeria etc!
What investors are more particular about is the rule of law and the independence of the judiciary because unlike security where they can take care of the protection of their staff and assets, they cannot appoint their own Judges to sit on any litigations they are involved in. Therefore, a country where the judiciary is not independent, and the wheels of justice grind so sluggishly as we have in Nigeria is a major turn-off for investors. Unfortunately, the President did not address the efforts of his government to ensure the independence of the judiciary. The midnight raids on Judges’ residences and the unceremonial removal of the Chief Judge of Nigeria under the President’s government has further dampened the enthusiasm of investors. The President missed the opportunity to assure the nation and the international community including investors of his government’s commitment to the independence of the judiciary which is the one of the highest attraction factors for FDIs. The FG’s recent altercation with Twitter is a big red flag for investors in terms of stability of government policy and reaction to disputes.
Still on security, a tourist stands a higher chance of becoming a victim of knife crime in London or Johannesburg compared to Lagos or Abuja. Statistics show that there in 2019/20 the number of knife crime offences recorded in London reached almost 16,000. The numbers in Johannesburg are even higher yet tourists choose these cities as holiday destinations over Lagos and Abuja which are relatively safer because they believe that law enforcement is stronger in the UK and South Africa compared to Nigeria. Law enforcement thus should be a major pre-occupation of President Buhari if Nigeria is to create the enabling environment for FDIs. Investors are also looking to the independence and strength of the legislative arm of government which acts as a check on the executive branch. The current faint-hearted attitude of the national assembly whose leaders emerged with the fingerprint of the executive branch written all over the process cannot engender confidence in the investing community.
Arise News: How do we deal with the subsidy question of petroleum and power?
President Buhari’s response: The President alluded to Nigeria producing her own oil so the citizens won’t want to pay expensive prices. He lamented that Nigeria’s petrol is sold along the West African coast all the way to Ghana. He expressed anxieties that if the market forces are allowed to drive the prices of petrol that Nigerians will seek to overthrow his government. The solution according to the President is to strengthen the borders with customs and border guards.
Commentary: The two biggest drainpipes on the Nigerian treasury are subsidies on petrol and the dollar! The President seems to be oblivious of the fact that subsidies have been removed on diesel which is the fuel for the productive sector of the economy. Kerosene which is fuel used mostly by the poor has also got subsidy removed! By succumbing to scaremongering that his government will be overthrown, the President is keeping subsidy on petrol which is fuel used mostly by big men in their gigantic SUVs which amounts to taxing the poor to fund the lifestyle of the rich! The President must show courage to tackle the subsidy issue in a more systematic and pragmatic way including in the short-term full liberalisation of the downstream sector and in the medium/long terms the full privatisation of all the refineries which are currently refining zero barrels but guzzling tens of billions in costs annually. These steps will not only assure petroleum products availability, but Nigerians will pay cheaper prices than what is currently obtainable under the government subsidy regime.
More troubling is that the President totally ignored the most important economic driver — power supply — which he did not address. Nigeria’s economy by global standards needs 200GW of electricity but is currently being supplied with 4GW! No economy will do well with such abysmal levels of power supply! Mr President must understand that it is sufficient power supply that will solve the other issues bedevilling the economy such as unemployment, high inflation, naira depreciation etc!
In his democracy day speech, the President again did not mention the power deficit thus relegating it to the background of issues being tackled by the government to boost the economy. Mr President has to realise that without power supply all the beautiful policies he stated in his speech will not flourish including the Anchor Borrowers Programme, AgriBusiness/Small and Medium Enterprise Investment Scheme, the Non-oil Export stimulation Facility, the Targeted Credit Facilities, BOI N200 billion facility to finance the establishment and operations of 60 new industrial hubs across the country, N50 billion Textile Sector intervention Facility, National Social Investment Programme, Development Bank of Nigeria 324 billion Naira in loans to more than 136,000 MSMEs, all these initiatives will require adequate electricity supply to power it before they boom! The motto of the FG on electricity should read — SEEK YE FIRST SUFFICIENT ELECTRICITY SUPPLY AND ECONOMIC GROWTH WILL BE ADDED ONTO US! The FG must as a matter of urgency declare an emergency in the electricity sector and setup a presidential task force on power in the same mould that COVID attracted attention, if our economy is to be rescued back from the brink and placed on the firm route to recovery!
Arise News: Debt service to revenue ratio has risen from 40% to 90% under the Buhari government. Because of the heavy debt burden, it is becoming difficult to fund infrastructure. What measures is the Government putting in place to diversify the economy and to further increase revenue?
President Buhari’s response: The President blamed the infrastructural deficit on previous governments that sold more crude oil at higher prices but did not invest to expand the infrastructure.
Commentary: The President is right that previous governments did not deliver much in terms of infrastructural development, but this should not be an excuse to go on a borrowing spree. In 2020 the FG earned N3.9 trillion in revenues but spent N10.08 trillion leaving a deficit of over N6 trillion which was 150% of revenues. The picture in 2021 has not changed with total revenue projected at N7.99 trillion and expenditure at N13.59 trillion leaving a deficit of over N6 trillion again! Debt service in 2020 was N3.27 trillion and 2021 is projected at N3.32 trillion. We are effectively paying all the revenue we earn to lenders and then borrow to fund the budget! These are unsustainable levels of debt, and the FG must change the strategy of infrastructural financing from debt to privatisation!
When government borrows to fund infrastructure, it leaves a heavy debt burden on the FG’s balance sheet. If the government changes strategy and privatises as it was done for telecoms, the investors bring in their capital, technology and expertise and develop the infrastructure, offer services, bill consumers, generate revenue, pay their costs and retain a healthy return for the investors. Privatisation will not leave debt on government’s balance sheet rather government’s revenues will be shored up with taxes that will be accrue to government from the from the economic activities generated by the private sector using their own capital! The assets that have been created by the private sector will also remain on Nigerian soil and cannot be easily moved away by the investors. Thus, the infrastructural objectives of government will be achieved without government spending any monies and hence have no need for borrowing.
CONCLUSION: President Buhari may mean well for Nigeria but his economic policies are not working with inflation currently at an all-time high of over 18%, unemployment at over 33%, Naira depreciated to over N500 to a dollar etc are tell tale signs of the failure of the economic policies to ignite growth as hoped. The President must focus on the structural and systemic foundations of the economy — rule of law, power supply, privatisation etc — if we are to reverse the economy from going over the cliff back on the road to recovery!