Wobbling Economy

Professor Emeritus Uka Ezenwe has been an academic for 42 years. The first 30 years he spent teaching Economics at the Ahmadu Bello University before transferring his services to the University of Abuja 12 years ago. In this interview with Economic Confidential, he argues that contrary to official postulations, the Nigerian economy is not doing well.

 

How would you assess the Nigerian economy generally?

First of all, Nigeria is a very rich country in terms of human and material resources. In fact, there are very few countries in Africa that can boast of the kind of human and material resources that Nigeria has but we have not been able to make the best use of the resources available to us in many ways.

 

Immediately after independence- from 1962 to 1968 when we had our first development plan- we started planning and there was some kind of focus about the way we were going. We had the first, second, third and fourth development plans. It was after the fourth development plan that things fell apart and since that time, we have been on trial and error in our economic management and that has not been the best. We are singularly lucky that we have oil and that is why people talk about economic growth; that we are one of the fastest growing economies in the world with an average of 7% annual growth rate in the last few years, which is by all intents and purposes, a very high growth rate. But that is what we call growth without development because what it means is that we are getting a lot of resources by selling crude oil.

 

How do you compute growth rate? It is the monetary value of goods and services you produce and you compare it with the previous figure and then you say that this year, you have grown by this percentage. That is the end of the story. It does not translate to improvement in the material wellbeing of the average Nigerian. If you talk to the average Nigerian, his material wellbeing has not improved in the last 10 years or so even though the price of crude oil rose from about $1 to about $2.75 in 1973 and since that time despite gluts and falling prices on two or three occasions, the price has continued to rise. We are getting an average of $100 per barrel presently. Also, even though volume output has not been steady because of oil theft, sabotage and other problems here and there, we have been selling an average of 2 million barrels per day and if you compute it and see the figures, it is whooping. Every country that manages itself well will have enough resources to improve the material wellbeing of its people but that has not been the story of Nigeria. So, on the surface we can agree with the Finance Minister that the economic fundamentals are good and the economy is doing well but that is just political. It is just the government version. The actual picture is that the economy is wobbling, the economy is going through difficult times and it may get progressively worse if certain things are not handled properly.

 

You said Nigeria is lucky to have oil but considering how it has been managed, has it not actually turned into a curse?

Well, we have made it to look like a curse; it’s not supposed to be a curse. That is what other countries have used to improve the wellbeing of their people, develop the economy, grow their economy, provide infrastructure, improve education and provide electricity, build roads, build factories, support agriculture and all that. It is not supposed to be a curse. Its better put that we have not made the best use of the resources nature willingly placed in our hands.

 

Your analysis apparently contradicts what government functionaries give all the time. They insist the economy is doing well but Nigerians say no, the economy is not doing well. Is it that Nigerians don’t like their government or that the reality for them is different from the rosy picture that government paints?

I don’t think you should be surprised that the government is putting out rosy picture because that is what a government is supposed to do. If you are marketing a product, you cannot say your product is not good. You have to say that your product is the best in the market so that you can get buyers. That is understandable but the average Nigerian doesn’t hate the government. On the contrary, the average Nigerian very docile, the average Nigerian is patient. It is just that our leaders are not compassionate, our leaders are just interested in their personal wellbeing, our leaders don’t consider the interests of the masses, and they don’t put in the forefront, the interest of the masses. The interest of the masses to them is secondary but the masses know what they are going through. Take for instance electricity; you know in this country we are toying with 3,000 to 4,000 megawatts of electricity for the whole country but you know that South Africa generates more than 40,000 megawatts with a population that is less than one third of Nigeria and even in Abuja here that is the federal capital, a lot of people do without electricity that is those who cannot afford to buy generators. And if you are going through this, you cannot say that you are happy or that you are enjoying anything. It is the normal thing for an average individual to state the way he feels. People have been ventilating their experiences and not that they have government. I don’t think that they hate government.

 

Figures being churned out by government ministries and agencies put a lie to statements that the economy is not doing well. In Asia, Europe and America, economies are growing negatively, stagnant or at most around 3% but this year, Nigeria’s economy has grown at an average of 6.5%, official statistics show. Why are people not feeling the impact?

People are not feeling it because this growth centre in one enclave, centre in one sector- the oil sector. That is what we call an enclave economy. A sector that is on its own, it doesn’t reflect so much on the rest of the economy because if you compute the number of people employed in this sector, you will find that it is a very capital intensive sector employing very few people but it is true that they produce the crude oil which we sell and realize a lot of money but at the administrative level, ideally, government is supposed to make use of this resources in such a way that it will trickle down to the masses but it has not been working that way.

 

Take for example budget implementation; I don’t think that there has been any year in the last 10 years that you had up to 60 percent implementation of the budget. Sometimes it is far less and it is through that budget that the average Nigerian can feel the impact of government when you build roads, provide light, when you fund education, when you provide security, this is how you can improve the welfare and wellbeing of the average Nigerian but that is not the case because budget implementation is always flawed. Sometimes they say that implementation is 6o% and at times it is far less because most of the time, you start budget implementation from April. The National Assembly and Executive arms will start fighting and quarrelling from October to about March/April and start implementing from May and before you know it, the year has come to an end and you are now saying ok, you managed 50% implementation or so. Even when the money is approved, to release it becomes another tug of war. There are many challenges that are making it difficult for the ordinary Nigerian to feel the impact of government. Resources are not prudently managed with a clear plan to address the problems affecting the ordinary Nigerian and so long as you have that kind of scenario, there is no way that you can improve the material wellbeing of the people. The essence of any government, the justification for any government is the welfare of the governed. The government exist to look after the welfare of the governed- to provide security, to provide protection, to protect life and property- that is the essence of government and if you have a situation where government is finding it difficult to do all these then one might as well consider not having a government in the first instance.

 

Since 1999, it has been tug of war between the executive and legislature concerning budget implementation. Is it that we have not made enough money to implement budgets and if we do and there was a problem like delay in commencing implementation, why is it that we still complain of lack of money the following year? What happens to the money that was not spent in the previous year?

I must be honest with you that I cannot explain that. I have also been asking this question. I don’t know whether they roll it back. To be honest with you, I don’t know. But one would have thought that when you have such a situation- although I do know that sometimes, they block further spending once it is getting to the last days of the year so that officials don’t share the money and go home but what happens to the blocked money when the year is coming to an end I do not know because the ordinary Nigerian doesn’t get to feel that impact.

 

There are impressive figures coming out of government ministries and agencies but when you look at international index especially the UNDP Human Development Index, there is a contrast because life expectancy is low, maternal/child mortality is high, number of children out of school is high. What is your view concerning official figures and reality in this country?

Quite frankly, this problem is not peculiar to Nigeria. You see, when you are collecting data, you make certain assumptions. Again, the quality of data you are collecting depends on your respondents. For example if you are conducting a survey, you put down a number of questions, which you ask people to answer and return to you. Somebody can fill in whatever he likes to fill and at the end of the day, you are going to use it but if people put nothing but the current figures for what you are looking for, chances are that the final figure will be representative of what you are looking for. On the contrary, if people fill what they like, your figures may not be representative. So, data gathering and data quality is very crucial in determining the representative of the final figure you present. Like you said, even the Federal Government accepts that 10 million children of school age are out of school in Nigeria. That is a fact but this is based on certain assumptions. May be you have gone to the 774 local governments and maybe you took a sample of some of these local governments and after working with the samples, you approximate and came up with this figure. But if you actually go to all the 774 local government areas and count, you may have more than 10 million, you may even have less. So it very much depends of the assumptions you are making and the nature of your sampling size.

 

Right now, Nigeria with 174 million people is the second largest economy in Africa while South Africa with about 51 million is the largest economy. The National Bureau of Statistics is conducting a rebase year of the Nigerian economy and the exercise may catapult Nigeria into the position of number one economy on the continent. What is in that for the common man?

I don’t know what this base year thing is going to achieve. It is a statistical exercise anyway as far as I am concerned. You can use anytime as your starting point, that is not what matters. What matters is the reality on the ground and not your base year. The base year can increase the figure but what if- I think at the last count, per capital income was about $2, 000 or so- even if you change your base year or do some statistical gymnastics and end up with $4, 000 so what? So long as it has not reflected on the material wellbeing of the individual, the lifestyle of the individual, the perception of the individual, the availability of goods and services in the society, what difference does that make? I am not so sure that changing the base year will materially change much. It could change figures but it will not reflect… what every government is trying to do is to improve the material wellbeing of its people. That is the end of government. The end of any good government is the welfare of the people. That is the beginning and ends of any good government- the welfare of the governed. As long as your people are not happy, your people are not well fed, your people are not properly clothed, your people are not provided for, no light, no water, no good roads, no infrastructure, and you are talking of statistics, then you are on your own! Although psychologically, it can boost your morale but if you are hungry and there is music around and you are dancing, after the dancing, the hunger will return. There is a difference between what is on the ground and the picture you are painting, flying from the east to the west, north and south.

 

Officially, inflation is in the single digit but the currency continues to lose value sharply. How possible are these two scenarios?

Inflation is the average rise in the general level of prices. A lot of people don’t know that inflation is a pragmatic instrument of a development policy. This thing about single digit inflation; people think that when your inflation rate is one digit, then you are on top of the world. It is not so. Albert Hirschman made this point that inflation is a pragmatic instrument for a development policy. What matters at the end of the day is the purchasing power of people. It is not whether it is a single digit. Brazil recorded one of its greatest growths when its inflation rate was 40 percent.  What is important is not necessarily the rate; the most important thing is production and availability of goods and services. If prices are rising and supply of goods and services are rising, there is no problem. The problem arises when prices are rising, when you go to the market but cannot find the goods and services, which is what we are going through because the level of investment is very low, interest rate is high, people are not borrowing, banks are not lending and because banks are not lending, investors are not investing at the rate they want to be investing and because they are not investing at the rate at which they are divesting, the number of product output is low. Production is falling and if production is falling, no matter what interest rate is, whether it is single digit or not, the price of goods and services will be high. That is the way it goes. It’s not really the rate that is important. The crucial factor is availability of goods and services. If supply of goods and services are rising faster than the rate of inflation, even if rate of inflation is jumping faster, there is no problem. The problem arises when prices are rising and there are no goods and services and that is what we call too much money chasing too few goods. So, all these things about single digit inflation are not the issue. The major issue is that the goods and services are not increasing at the way they are supposed to increase.

 

Now, I did not bring money supply side into the scenario. I am assuming that all things are equal but of course you know that in this life, things are never equal. Now, if money supply is fixed and supply of goods and services are rising, there should be no problem but it becomes worse when goods and services are not increasing and money supply is increasing then prices will definitely be rising very fast. At the moment, the central bank feels that because of election in some parts of the country, that people have started jumping around for 2015 elections when we are still in 2013, which shows you the nature of the country we are. Nobody should be talking of 2015 elections now because we just finished elections in 2011but since then, the next topic had become 2015 and now, people have started jumping around and you know during election time, there is a lot of money thrown around, CBN is suspecting that people are already importing foreign currencies and spending in the night so there is so much money outside the financial system circulating and that is why CBN asked them to put a halt to the extent of 50% of money deposited by government agencies so as to checkmate the rate of money supply.

 

What would you advice CBN to do in this situation. How should things be balanced?

It looks like CBN is over regulating. They need to regulate but it’s a balancing thing. After all, why are you doing all these? You are doing all these to help the economy to grow but is the economy growing?  No, the economy is not growing because investors are not accessing bank loans and if investors are not accessing bank loans, they cannot invest and if they cannot invest, they cannot increase supply of goods and services and if productivity is not increasing, the economy will remain on ground. So you have to strike a balance between regulating to ensure that there is no excess liquidity in the system and then creating a window for private sector to access money for investment purposes so it’s a delicate balance that must be maintained all the time.

 

You have spent 42 years in the university system and now you are Chairman of a micro-finance bank. What are you now seeing differently?

I have not really left the university. I am still in the university in the sense that I still do my research, supervise my students and I relate with eBarclays Microfinance Bank as Chairman, Board of Directors on a part time basis but it has opened my eyes to many things. One is that the average Nigerian borrower sees bank loans as his national cake. When he applies for loan and you do the risk analysis and all other due diligence, you ask him to provide collateral, sometimes he will even forge documents and all that. When it is time to pay, it’s not the same story. I used to blame banks but now, I am more sympathetic to bank managers because of what I have seen in this couple of years I have associated with this bank. Can you believe that one customer who borrowed some money and defaulted in payment leading us to sending our staff from time to time to nudge him to repay or even restructure his facility sued us for interfering with his human rights?

 

There is a lot of education we have to do for people to understand that in real life, there is no free lunch, which you have to work for whatever you want to become. Banks collect peoples’ deposits and give it out as loans. These depositors can come asking for their money anytime and so you must be in a position to pay them on time and of course you have the shareholders in the middle to help you balance the two. It has been a mixed experience because before I got involved, I was being critical of banks in the way they treat people who borrow money from them but I have discovered now why they do that. They have to do that to recover the money of depositors because this is the money of depositors. It has been a very good school for me.

 

Will you then be advocating for a special court to try banks’ or financial cases?

No. If you start establishing special courts, it will be endless because there are other sectors that will demand their own special courts. I will rather say that we need to do something about our legal system. Do you know that we had to take another customer to court to recover our money because after all entreaties he failed to pay his debt but the case has so dragged that we are now even begging to settle out of court. If you spend five years prosecuting a single case, what can you do? And these are straight forward issues. And so I think something must be dome to review the way courts operate. We certainly cannot go on like this.

 

We appear to be in a season of strikes with so many unions on strike demanding a betterment of their sectors and government says it has not enough money. How do you advise that the situation be handled?

It is unfortunate really. I have a feeling that government is in a tight corner financially. They don’t want to openly admit it but I think it’s true because if you look at what they have been getting from Federation Account, Commissioners of Finance from the states walked out of the last two meetings because the story was not what they expected and this tells you that things are not rosy. Our problem in this country is lack of vision, lack of planning, lack of selfless leadership. Everything is self centred. Take that of the Academic Staff Union of Universities. There was an agreement between ASUU and Federal Government in 2009 to do certain things and we are now in 2013. One would have expected any serious minded government to, if what ASUU was asking in 2009 was so much, stagger the implementation.  But government went to sleep until ASUU started another strike and now they are calling ASUU for another negotiation. What are you negotiating? Look, government should have credibility.

 

A government without credibility, without integrity is not a government. A government is a sovereign entity and that is its bond. That is why investors rush to buy sovereign bond because you can go to bed. It is not about individuals, it is about a system but look at what happened. So it must be with the other groups. It has to do with the inability of government to be conscious, to be serious minded. These people are not asking for too much and if you look at the extent of waste in government, you will marvel. It is about prioritisation. For the government to be organising conventions, organising parties and useless things and then you are not addressing germane issues concerning the survival and well being of the society then there is a problem somewhere. A lot of people not think ASUU members are being mindless, irresponsible and not considering the interest of other Nigerians. That is not the case because some of them have children in the university and so are not happy to have their children at home when they are supposed to be in school but the fact is that they have been pushed to the wall. When you are dealing with somebody, try and not push him to the wall and this is something that could have been avoided by being pragmatic. I think l blame government largely for all these and they know too that they are to blame. Now they are asking for N92 billion and you gave then N30 billion, does that make sense?

 

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