FEB 23 polls: A victory for the Keynesian school?

The outcome of the recently conducted Presidential election confirmed the prediction of many that it would be a two-horse race between the candidates of the ruling party’s All Progressives Congress, and the Peoples Democratic Party, the major opposition party. With majority votes just shy of 4 million in favour of the APC, the Independent National Electoral Commission declared Muhammadu Buhari, the APC candidate, as the winner of the Presidential election. Although the PDP has expressed intent to challenge it in court, the result seems to be a referendum on the electorate’s choice regarding the pathway to their economic wellbeing as enunciated in each party’s campaign messages and economic blueprint. Whereas the PDP’s plan of ‘getting Nigeria work again’ reflects a huge dose of ideas espoused by the classical school of economics; the APC, in its ‘Next Level’ roadmap, tilts more to the Keynesian school of thought. To be sure, the Classicals and Keynesians are both schools of thought that are different in approaches to the attainment of macroeconomic goals. The Classical school, which is regarded as the first school of economic thought and pioneered by the 18th Century Scottish economist Adam Smith, stresses the importance of a free market economy. On the other hand, Keynesian economics, the brain child of John Maynard Keynes, makes a compelling case for greater levels of government intervention for an economy to succeed.

Consistent with the Classicals’ stance of limiting government intervention and ensuring that markets are free from potential barriers to their efficient operation, the presidential candidate of the APC, Atiku Abubakar, had canvassed votes on the premise of establishing a more liberal economic space and market-friendly business environment. According to the Atiku’s Plan titled ‘Let’s get Nigeria working again’ the major planks of the PDP economic development strategy, if voted into power, would entail ‘a firm commitment to the promotion of a private sector-driven competitive and open economy’ including through the privatization of State-Owned Enterprises among which are all the government-owned refineries as well as the ‘concession of Nigeria’s sea and airports to reputable buyers’. The PDP strategy also includes the ‘liberalization of the downstream sector of the petroleum industry to among others, allow market determined prices for Premium Motor Spirit and eliminate subsidies for its consumption’. To this end, it provides for the privatization of the Nigerian National Petroleum Corporation, the oil company through which the federal government participates in the country’s petroleum industry. Contrariwise, the APC’s ‘Next level’ document makes no allowance for the privatization of government-owned refineries, the sale of NNPC or the concession of Nigeria’s sea and airports. Instead, it will continue to entertain government interventions in critical sectors of the economy including transport infrastructure where it plans to ‘provide finance for the upgrade of existing airports to international standard as well as complete all airport remodeling projects across the country’. Apparently, the PDP takes the view that the power sector will perform better if left completely in the hands of the private sector. Part of this strategy includes ‘accelerating the privatization and decentralization of the Transmission Company of Nigeria’ as well as ‘creating an environment that will enable distribution companies recover full costs for power supplied to their consumers’. In contrast, the APC plans to ‘embark on nationwide expansion of transmission network for electricity through TCN projects and provide access to power in key economic clusters/markets around Nigeria through the Energizing Economies programme’.

Further, Atiku Abubakar is in support of the IMF recommendation to float the naira and completely allow market forces hold sway in the foreign exchange market. In an interview with the ‘Africa Report’, he was quoted to have said ‘’I would prefer to float the naira because I believe that will bring about a more stable exchange rate. We have to create more incentives for foreign investment and relax conditionalities, remove regulations as much as possible’’. While reacting to this statement, Godwin Emefiele, Governor of the Central Bank of Nigeria, had warned that floating the naira would have negative consequences for the nation’s economy. According to him “the implication can better be imagined. It will certainly lead to capital flight, lead to massive depreciation of the currency and ultimately to currency crisis in Nigeria”. So, it is safe to conclude that the two parties differ in their approach to determining the exchange rate. Also, while the PDP strategy includes running an open economy and quickly signing the African Continental Free Trade Area agreement, the APC government is in no hurry to do this. Rather, it hopes to scale up efforts to stem the import of items that can be produced in the country in line with the import-substitution strategy. To this end, the CBN would sustain the implementation of the ‘’not valid for forex items’’ policy.

Another point of departure between the two schools has to do with accumulation of public debt. While the classical school stresses the importance of reducing government borrowing and balancing the budget, the Keynesian view suggests that government borrowing may be necessary not least because it helps to increase overall aggregate demand especially for an economy struggling to exit a recession. Contrary to the stance of the ruling party which has always argued that the country is not facing any debt crisis given the low debt-to-GDP ratio and therefore has room to borrow, the PDP’s plan is to ‘slow down the rate of debt accumulation by promoting more Public Private Partnerships in critical infrastructure funding’. Again, consistent with the Classical school which focuses more on the long run, Atiku Abubakar’s plan emphasizes long run solutions including restructuring and the ‘policy priority of building a broad-based, dynamic and competitive economy with a GDP of approximately US$900 billion by 2025’. The APC ‘Next Level’ document seems to be more concerned with short term solutions stating no target beyond 2023 when the four-year term is expected to lapse. This is in line with the Keynesian focus on short-term problems that the government must deal with to assure the long-term growth of the economy. Indeed, the Keynesians believe the short term challenges need to be targeted first because as argued by John Keynes, ‘’Long run is a misleading guide to current affairs. In the long run we are all dead’’. This perhaps explains the seeming emphasis by the APC on Social Intervention Programmes and the raft of stop-gap measures the government has embarked on such as the monthly stipends to support the N-Power beneficiaries and the assistance to the poorest and the most vulnerable through the National Cash Transfer Programme as well as the Tradermoni and Marketmoni schemes.

By and large, both the APC and the PDP have drawn up plans that are in sync with macroeconomic goals of any economy. Both parties recognize that improved living standards for Nigerians can only come from sustained GDP growth, enhanced job opportunities, low and stable prices as well as healthy external balance. They only differ in their approach to attaining these goals. Going by the outcome of the February 23 polls, the Keynesian approach, ceteris paribus, resonated more with a majority of the citizens. Hence, the challenge for President Muhammadu Buhari is to prove to Nigerians that, by giving him a second mandate, they chose the better route.