• Sunday, March 03, 2024
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BusinessDay

IMF SAP – The treatment Nigeria urgently needs but hates

Babangida and June 12: The magnifiers of Nigeria’s fault lines

The year is 1986 and the Nigerian government has just been given a list of economic and political reforms by the International Monetary Fund (IMF) to be implemented as the conditions for a bailout package. Known as a Structural Adjustment Programme (SAP), the reforms aim to reposition Nigeria from being a heavy spender of state resources with little value returned, to being a more decentralised, private sector-driven economy driven by the dynamism of its people instead of the price of Bonny Light Sweet crude.

The SAP proves politically unpopular and is shot down easily. Ever since the crafty fox, however, General Ibrahim Babangida introduces reforms that are the dreaded SAP in all but name. The reforms work. Over the next six years, an entire new economic paradigm emerges, driven by private participation in broadcasting and entertainment, banking, telecoms and technology.

The people, however, absolutely hate the not-SAP, blaming it for a painful 50 percent currency devaluation, galloping inflation, public sector job losses and brain drain as the middle classes get on flights to Heathrow and JFK. Maybe it is the IMF’s fault for introducing this horrible colonialist economic programme into Nigeria. Maybe it is Ibrahim Babangida’s fault for implementing it through the back door despite its unpopularity.

The only thing everyone agrees on is that they hate the not-SAP, and so when a freak event called the Gulf War spikes oil prices and gives Nigeria an oil windfall, Babangida immediately pares back on full implementation and starts throwing money at everyone once again. Not that it saves him, as the people essentially go into open revolt and force him to leave power in 1993.

It would have happened anyway

The thing people seem to have forgotten – and really need to understand – about SAP is that it was merely the IMF’s alternative to the chaos that Nigeria was set to descend into anyway. Nigeria had just come out of the most spendthrift, hideously wasteful decade and a half of its existence. Between 1970 and the early 80s, Nigeria had done everything from paying striking Jamaican public workers to building the world’s largest steel mill, to ordering up to 25 percent of the entire globe’s cement supply – leading to the infamous cement armada off the coast of Lagos.

In 1986, oil prices fell flat and Nigeria suddenly found itself with a glut of recurrences and debt, with no money to pay it off. Forex reserves were running out and overvaluing the naira artificially was becoming more and more impossible. The entire Nigerian government and economy was structured around the assumption of an everlasting oil-funded jamboree – and suddenly the party was over.

In other words, with or without SAP, the naira devaluation, consumer inflation, mass sacks and widespread emigration were going to happen anyway – SAP just made things slightly less disorderly and gave Nigerians the convenient hate figure of the IMF to blame everything on. It is very important to understand that it was not in fact the IMF that imposed suffering on Nigerians. Nigeria itself did that when it wasted an entire decade’s worth of revenues on conspicuous consumption, African liberation movements, inflated road contracts and a new vanity capital carved out of the Abuja bush.

Read also: Six forces pulling down Nigeria’s economy

It is coming again – thank goodness

37 years after Babangida’s seizure of power, Nigeria is once again having its early-1980s moment after a decade and a half of horrendous profligacy, followed by the explosive disaster fuel that is Buharinomics. Once again, Nigeria’s best skilled middle class “Andrews” are “checking out,” this time to Canada and Australia in record numbers. Once again, the country’s public finances are in the toilet, investment is running for the hills instead of coming into the economy, and the country has approached the IMF for “assistance.”

At least the DSS hasn’t sent a parcel bomb to a prominent public interest journalist this time. Well not yet anyway. Ahem.

The thing is this time, it is not just self-imposed economic adversity in play. The fallout of long-term downward trending crude oil prices and the coronavirus pandemic have come together in a perfect storm with the fact that another oil windfall looks very unlikely. This points to a scenario where Nigeria – starved of income and heavily beset by foreign and domestic debt far exceeding government income – will need help just to settle some of its recurrences like civil service wage bills and debt servicing. The IMF no doubt already knows what is coming and it has in fact already given Nigeria something that amounts to a test aimed at ensuring that another lazy statist policy somersault will not emerge mid-programme and derail it.

Along with a $3 billion facility, the institution extracted promises from the Nigerian government to stop spending forex reserves to pump the naira’s value among other things. This is likely seen as a litmus test for whether Nigeria will stay the course this time or revert to lazy populism as soon as any opportunity emerges.

Regardless of whether Nigeria actually implements whatever IMF-recommended SAP that looks to be on the cards, what is certain is that Nigeria’s public finances and wider governance system will face a moment of truth sometime within the coming decade. Hopefully this will come within the context of a guided programme like SAP.

If not, then we can be assured that something SAP-like will happen anyway, but it will structurally adjust the Nigerian economy the same way that explosion some days ago structurally adjusted half of Beirut – we really do not want that option at all! So, in the meantime, Buharinomics shows no sign of letting up any time soon, as Nigeria and Nigerians remain firmly committed to state-funded 5-star hotels in remote villages, $1 billion monorails to nowhere and 40-year-old steel mills in the middle of nowhere that have never produced anything, we can only pray that the inevitable comes sooner rather than later.

And while we are on the subject of prayer, death be unto oil windfalls that can empower postponement of such re-balancing, or enable Buhari’s successor – whoever that may be – to pull another ‘Babangida 1991’ on us.

In the name of a long-awaited productive Nigerian economy and economic development, we pray. Amen.