• Tuesday, July 23, 2024
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Homegrown model as replacement for the Washington consensus

Privatisation of government in Lagos State

In the course of time, Nigeria has been made to adopt most of the reforms pioneered by the Bretton Woods institutions. Whether fiscal, trade or monetary reforms, these policies have produced varying degrees of results. In terms of socio-economic indicators, it is indisputable that, Sub Saharan Africa, as well as some developing economies in Latin America, remain very poor. So much for the so-called reforms.

According to economist John Williamson of the Peterson Institute for International Economics(PIIE) who coined the term Washington Consensus in 1989, the term simply refers to the adoption of polices that will enhance tax reforms, fiscal discipline, trade liberalisation, market economy, privatisation of state-owned enterprises, free trade and security of property rights.

Williamson was moved by the large budget deficits in Latin America in the 1980s, and subsequently came up with the recommendation that reducing budget deficits through marked reduction in public borrowings would restore economic stability. He says further that economies that implement this recommendation will have the resources to channel to sectors with higher returns.

Developing economies such as those in Africa have low tax to GDP ratios, with South Africa, Seychelles and Tunisia being the exemptions. Tax reforms offer developing countries the opportunity to increase government revenue and to correct the politically motivated tax waivers granted to individuals who are close to the corridors of power. This will increase tax collection and reduce tax evasion.

The Washington Consensus opines that countries should liberalise their financial sectors, towards having market-determined interest rates. Implementing this policy will serve as a pull factor that will mobilise deposits for onward allocation to the deficit sector in the economy.

By virtue of the results Nigeria has recorded by implementing the recommendations of the Washington Consensus, poverty in Nigeria today is higher than a decade ago

Another recommendation is the need to have a competitive exchange rate, to avoid the overvaluation and undervaluation of national currencies. This is very essential for countries that are export-oriented. Related to this is the abolition of barriers to trade, that make international trade uncompetitive, as some firms will enjoy undue advantage through the protection of state.

Read also: Nigeria’s power sector stuck at 4000mw 8yrs after privatisation

In addition, the government in any state is expected to create conducive business environment. This presupposes that any government-owned enterprises should be privatised to shrewd private sector investors who are better managers of scarce resources. What is more, government must secure and provide affordable property rights.

Based on the foregoing, how has Nigeria fared with regards to the prescriptions above? In respect of budget deficit, Nigeria has had more of budget deficit than budget surplus since the country returned to democratic rule. In the aftermath, Nigeria has piled up more local and foreign debts. Elsewhere, there are other African countries today at the verge of debt default.

While nothing is bad if a nation genuinely borrows to quicken its growth trajectory, the recent debt defaults by some African countries indebted to China sends the warning signals that foreign debts, if not well managed, could spell a doom for any nation.

What this implies is that the frequently cited debt to GDP ratio as basis to determine debt threshold is no fool-proof meaning that even when it is low, a nation may fail to meet its obligations its creditors. A structural shock to a nation’s commodity prices could change the fundamentals in a model used in determining when a country should borrow or not.

Tax reforms are a welcome idea. It was reported that thousands of Nigerians evade tax especially the rich. But instead of raising the tax rate, government’s focus should be to increase the tax base. Nigeria has about 70 million individuals in its labour force but only 41 million pay taxes. That is about 59 percent that pay tax while 41 percent or 29 million individuals evade tax annually. Capturing the tax evaders into the tax systems could make the difference in the budgetary system of any developing nation.

Thus far, mixed results have hallmarked Nigeria’s privatised enterprises. The successfully private enterprises are churning out fantastic results. However, there are other privatised enterprises that make mockery of us as nation. The ones we lack the political will to privatise such as the state-owned enterprises currently constitute a clog in the wheel of Nigeria’s progress.

By virtue of the results Nigeria has recorded by implementing the recommendations of the Washington Consensus, poverty in Nigeria today is higher than a decade ago. It was just recently Nigeria became the poverty capital of the world. Nigeria, and by extension, other Sub Saharan African countries are still dependent on the sale of primary commodities for survival. Any downward movement in commodity prices usually causes the abandonment of government programmes and projects. Fiscal and trade deficits are still high, resulting in serious debt overhang in Sub Saharan Africa.

Based on the foregoing, it is high time African governments supported homegrown policies and strategies to break the vicious cycles of poverty. The Washington Consensus has not produced the magic wand. Therefore, viable homegrown alternatives are urgently required. It is time to look inwards with a view to generating homegrown solutions to our economic problems.