In recent opinions published in various newspapers, Ashiwaju Bola Tinubu has critiqued the Federal Government’s policy of pegging national expenditure to the actual amount of forex earned. He points out that because Nigeria has the sovereign right to issue unlimited quantities of its own currency, government expenditure should be governed, not by the supply of foreign exchange earned by Nigeria, but by the need to create jobs, and increase economic activity in the country. He accepts that the ‘currency photocopy’ policy runs the risk of currency devaluation as well as inflation but concludes that those side effects will be well worth the benefits of job creation and economic growth. He concludes by saying, ‘When I speak of a common sense revolution, this is what I mean.’
Since his policy recommendation, oil revenues and Naira values have continued to plummet and with budget projections lying in shreds, this policy might well be the only recourse of any government that occupies Aso Rock with effect from May 2015. It is therefore important to engage with those ideas.
The idea of sovereign states ‘overissuing’ their own money is not new, whether in Nigeria or elsewhere. While the Babangida dictatorship massively devalued the Nigerian currency, the Cameron’s conservative British Government pursued the policy which found its apogee in Mugabe’s Zimbabwe. The Britons called their electronic variant ‘quantitative easing’. The Zimbabweans were stuck with more analogue and undeodorised terms. What is important is that within the context of a well-run administration, it is a valuable fiscal tool that can achieve the ends of domestic growth by fostering economic activity.
The emphasis is of course on ‘well-run administration’. On its own, ‘expansionary deficit, but non-debt, spending at the federal level’ has its place in the policy arsenal of a forward-looking government. Yet, in countries with endemic corruption, mismanagement and cronyism, ‘economic growth’ does not necessarily equal ‘development’. This is the elephant in the room that is not addressed by the Ashiwaju’s opinion. Nothing makes a stronger point of this than the Zimbabwean experience, extreme though that is. The inflation was so bad that by the time the local currency was proscribed in favour of foreign currencies in 2009, 100 trillion zim dollar currency notes were in circulation and a citizen could starve if he had only a billion zim dollars in his pocket. The Zimbabwean government’s current position is that a local currency can only be contemplated when the industrial output of the country improves. The Zimbabwe case is therefore a textbook illustration of How Not to Spend One’s Way to Economic Health. Yet, our macro-economic conditions are different and it will be paranoid to compare the Nigerian economy to 2009 Zimbabwe, for the present.
Still, we cannot wish away the Jemide Presidential Monitoring Committee on the Niger Delta Development Commission (NDDC) which reported that 46 percent of the 609 contracts awarded in three core delta states had been officially abandoned, with the NDDC refusing to recover its funds from the contractors either independently or with the aid of the anti-graft agencies (http://www.pmnewsnigeria.com/2013/03/05/over-46-nddc-projects-abandoned-says-panel/). To make matters worse, of the balance 54 percent, most of the water projects were no longer functional, meaning that the resources expended on them were wasted.
We cannot wish away the Kotangora Panel which, in 1993, reported 4,000 abandoned federal projects which had cost Nigeria N300 billion. Nearly 20 years later, the Bunu Presidential Projects Assessment Committee (PPAC) reported 11,886 ongoing and abandoned projects which cost close to N8 trillion. (The coordinating minister for the economy’s figure, in August 2011, is 20,000.) These abandoned projects represent hundreds of thousands of abandoned jobs and prosperity, hijacked from the working classes by the light-fingered and incompetent contractors and government administrators. With this track record, infrastructure projects provoked by the deficit budgeting proposed by the Ashiwaju will merely inflate the number of abandoned projects to 30,000 in another decade or two – with corresponding improvements to the fortunes of delinquent contractors and their cohorts in government. On the other side of the tracks, however, what is guaranteed to the man on the street is – not necessarily development, but – an economic boom he can observe from a distance, with jobs as imaginary as those in the largely abandoned Ajaokuta Steel Mills. That, and the beast of inflation waiting at the supermarket door.
Even when trillion-naira projects are completed, they have little or no multiplier effect on the economy because they are often ill-conceived and irrelevant, having been awarded by people more interested in the rogue benefits of ‘awarding contracts’ than in serving the people. Billion-naira silo projects stand empty. Gas power stations are built without the requisite gas pipeline that will enable them to function. River ports are dredged and built without the road or rail networks to service them.
Currency values depend not only on the amount of notes in circulation, relative to goods and services, but in the public – and international – perception of their value, which influence trading behaviour. Such a perception is affected by the published policy on which it is ordered, with a policy of frugally constraining expenditure to income likely to influence more naira confidence and put an upward pressure on the currency’s value. Older Nigerians will remember a season when the naira was twice the value of the dollar. When the naira went into freefall, they will also recall the ‘Essential Commodity’ (Essenco) era, when too much naira went chasing after too few goods and queues of the common man stretched outside empty supermarkets. The historical reasons for the devaluation of the naira does not bear autopsy in this response, what is important is that before we adopt another cycle of ‘structural adjustment’ we need to appraise our administrative ability to adroitly manage such a policy.
The main question is, of course, whether the positive dividends of deficit budgeting will actually come down to the masses, or be abducted much higher up the feeding chain. The primary beneficiaries will be the contractors to government whose contract books will continue to grow despite the fact that less funds are coming into the treasury. The Ashiwaju favours ‘public works infrastructural projects’ which will employ people and which are needed as a prerequisite for economic growth. But major infrastructural contracts involve a lot more than salaries with substantial forex requirements (unless they are in the mould of Governor Fayose’s recent N1.2 billion award to local carpenters), and whether the benefits trickle down depends on the levels of corruption in the system. Every time, for instance, a delinquent contractor absconds or a corrupt governor abducts a billion naira from his budget, that is another tranche of provisioning that will not get to the masses. And stolen money behaves strangely: it generally prefers to hide abroad, with negative multiplier impact on the economy. Yet, beyond corruption, the most egregious miscalculation made by the Ashiwaju in his recommendation is the focus on the economy as an arbiter of good governance.