Loots, recoveries, and a recession

Can recoveries from looted funds be applied to get the Nigerian economy out of the current recession? While many may be quick to answer a strong yes, the answer lies less in recoveries and more with the objectives, capacity and hence the effectiveness of our fiscal policy choices. To get the economy back on track, the focus, structure, and transmission mechanisms for government spending is a more critical factor than how funds are sourced. This point is worth emphasizing in situations where the funds in question comes at no real cost to the government. Nevertheless, with respect to recoveries and the recession, a few points deserve our attention.

First, what are the primary causes of the current economic recession? Are we here primarily because of lack of liquidity on the part of government? Or are we here due to shortage of foreign exchange? Does the level of investor confidence in our fiscal and monetary authorities play a part? Is it due to declines in our competitiveness as an economic entity? While slowdowns and recessions reflect shrinking aggregate demand (from government, households, and businesses) with an adjustment for imports and exports, in an economy where government is the largest spender, we can for a moment ignore other explanations for the recession and focus narrowly on the capacity of government to “spend our way out of the recession”. Yet, other questions remain and make it necessary to consider a few more points.

Secondly, what is the gap in government revenues that we seek to bridge? The best proxy for this is the budget deficit. Here, we need to ask if actual or potential recoveries come close to the quantum of ‘sand’ we need to fill our self-dug ‘hole’. The budget deficit we need to address is not just at the federal level. And it goes beyond single-year deficits. A three-year cumulative budget deficit is a useful starting point, as this coincides with the length of our medium-term expenditure framework (MTEF).

It may also help to understand what portion of our hole is in foreign exchange or naira. Based on available specimen, we know the ‘sand’ we are getting is coming in both FX and local currency. Yes, it is very possible that the recovery specimen seen so far is just a tip of the Iceberg and that there remains a significant portion of looted public funds that is not yet visible but is nonetheless traceable, accessible, recoverable and whose application is sufficient, or can, at least, make some quantum contribution as we seek to restore growth in the economy. Only hard evidence will suffice but this leads us to another point.

Thirdly, how far is the government ready to go in prospecting for, and to recover, looted funds? In the energy business, the largest deposits of high-grade mineral resources are often found in some of the earth’s toughest-to-reach locations- in terms of depth and horizontal distance. In the search for looted funds, are we just exploring onshore fields or limiting ourselves to the swamps and shallow waters? How much more ‘treasure’ can we find and bring to surface if the EFCC decides to ‘explore for oil’ in deep offshore locations or in ‘ultra-deep waters’? Does the agency have the operating license and political backing to go that far? Will the operatives be able to touch what they find in those dark places of the earth? How much of the ‘discovered treasure’ will be recoverable given political and economic realities?

Fourthly, if we assume that the government will and does demonstrate the necessary willpower and makes the social, political and economic sacrifice to recover treasures in such abundance, does the government also have the vision, focus, and the institutional capacity to make the highest and best use of the ‘additional’ resources? It would be great to see government at state, and federal levels demonstrate these levels of dexterity with the funds they already have if we must become truly confident that recovered loot will not be recycled to where they came from, directly or indirectly. Again, the skillfulness, integrity and hence effectiveness with which fiscal policy is both crafted and executed remains the critical factor in managing both current fortunes and recovered loot.

Both logic and business history show that it takes more than a large quantum of wealth to create an economic dynasty. The House of Rothschild in 18^th century Europe provides a useful example. The Rothschild’s first four sons, ‘first-rate’ business resources were assigned to the major economic centres of Europe (Nathan to London, James to Paris, Salomon to Vienna, and Amschel, the family’s “general manager”, to Frankfurt). The family was careful not to entrust economic opportunity to the fifth son, Kahlman, who exhibited no superior industry or skill. Instead, he was sent to a royal court, Naples, where there was no business – where he could do no harm to the family’s strong and growing fortune.

Government spending policy is neither designed nor executed in a vacuum. And the work is not undertaken by angels. Hence, it is important to have in place, men and women (with the right level of skill, integrity and regulatory backing) to whom if earned or recovered wealth is entrusted, the nation will be sure to earn a decent social and economic return.

While recovery of looted funds remains a social, economic, ethical, moral, and legal obligation of government, so is putting in place policies, systems, measures, processes, and practices to prevent further or fresh looting. We must ensure that the institutional and arrangements and practices that made such large-scale looting possible in the first place are not preserved.

Adeoye David, a deal adviser, corporate strategist, and business economist is a director at Fritova Economics.