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Minster of finance, Usman Shamsudeen
For a nation struggling under huge capacity underutilization and massive infrastructure deficit, the Nigerian nation today needs massive spending to grow the economy.
A few weeks ago, I published an article in the news papers entitled ‘IMF - the Good Doctor’ in which I criticized the recent warning of the IMF against increased public sector spending in Nigeria as well as the agreement of the CBN with the advise on the grounds that such spending could lead to inflation and macroeconomic instability and perhaps negatively affect foreign investment flows. While a good number of persons called me to say that they agreed with the thrust of my argument, I received flak from some quarters which I welcomed also. A top functionary of the CBN actually told me that I merely criticized without offering recommendations. This is perhaps what has fired me to engage in today’s discourse.
In the said article, I did admit that I am not a trained economist so I could be pardoned for possible economic fallacies however, I was elated this morning when I read something written by no less a person than a Nobel Prize Winner in Economics, former chief economist of the World Bank and Former chairman of the Council of Economic Advisers under President Bill Clinton, Professor Joseph E. Stiglitz on the subject matter and I would quote him copiously before moving on to my focus for today. ‘In several cases when countries understand what needs to be done to stabilize the economy – and even have the resources with which to do so – the IMF has pressured them to adopt policies that actually worsen economic downturns. I saw this vividly in Ecuador and Bolivia in the recessions and depressions that marked the late 1990s. For seventy-five years, the standard prescription for an economy facing recession has been expansionary fiscal policy – spending money on education and especially infrastructure badly needed in any case for growth. Typically, developing countries have difficulty financing the required stimulus but Ecuador and Bolivia were lucky – they had massive amounts of oil and gas resources that would soon become available, which they could have used as collateral for borrowing. The Bolivians and Ecuadorians argued –rightly, I thought-that the return on investing in the recession was far higher than it would be when global conditions returned to normal levels and their economy was nearer to full employment. In addition to the direct return, there would be a multiplier effect, as the spending would stimulate the entire economy, which was marked by huge underutilization of productive capacity, and help it move toward full employment. Spending money, with natural resources to back the loans made good economic sense. But the IMF, always worried about government overspending, pressured Ecuador and Bolivia to follow a quite different course. Not only did the IMF not want these countries to stimulate their economies through increased expenditures; they actually demanded cuts in spending in order to offset the decline in tax revenues from the recession. These Andean countries felt they had no choice; they gave into IMF pressure and the policies did, indeed, worsen the downturns.’
If one cannot see the similarity between the Andean countries and Nigeria and the IMF positions, perhaps the case of Chile lays it to rest. In their case, they had built up resources from favourable price of copper for the rainy day through a stabilization fund. When the rainy day arrived, the IMF was on hand to prevent spending from the fund which it regarded as deficit spending, and what followed was a more marked slowdown in growth than would have obtained otherwise. The above came from his book “Making Globalization Work.” Why IMF exercises such immense powers over the development agenda of developing countries is a subject that should interest all readers.
It is clear that what makes economic sense and what I was taught in my macroeconomics lectures in the university is that increased government spending has a multiplier effect on the gross national income, leading to full employment. For a nation struggling under huge capacity underutilization and massive infrastructure deficit, the Nigerian nation today needs massive spending to grow the economy. How to manage this while containing inflation should be the challenge for the Central Bank. The CBN cannot shy away from this challenge by attacking expansionary fiscal policies.
Economics is not an exact science and that is why they usually preface their conclusions with the phrase ‘all things being equal.’ We have to examine those factors that need to be equal for the expected outcome to be realised. One such factor is that the public spending should be productive, that is, it should be on goods likely to stimulate further investments and spending within the economy. On the other hand, where the spending merely increases the economy’s imports of consumable goods, then the expected economic growth arising from increased government spending is counteracted by the effect of the imports because it is a withdrawal from the national income cycle. What this means is that the nature of the spending should be the critical concern rather than the fear of the spending.
Once this is agreed, the next concern should be the identification of the growth-inducing activities upon which we must focus our public spending and which should be the basis for our future evaluation of the economic management efficiency and effectiveness of our political leadership. To decide on these, perhaps we should benchmark other fast growing economies such as Dubai, China, Singapore, and Malaysia for the factors responsible for their growth which are missing in our own economy. To underscore this point, I will focus on Delta State as an example. Such a benchmarking exercise was done by candidate Dr Emmanuel Uduaghan in preparing his manifesto for April 2007 Delta State gubernatorial election based on which he anchored his campaigns on a three-point agenda of Peace and Security, Infrastructure Development and Human Capital Development.
Let us take peace and security for instance which is complemented by President Yar’Adua’s commitment to law and order. This is the basic platform upon which investments rest. In the economies mentioned above, security, law and order are taken for granted unlike in our own. Therefore, we must invest considerable resources to achieve it. By resources, I do not mean public expenditure alone because some of the actions necessary to achieve it do not actually require huge financial outlay. Rather, we need broad minded, out-of-the-box thinking and a strong political will to change what has not worked in the past. Is the structure of our law and order machinery delivering peace and security in the nation? Of course the answer is negative. Then, we need deep structural reform of the entire machinery which could involve constitutional amendments.
The Nigerian Police Force as currently structured is unwieldy, inefficient, poorly funded, poorly organized, poorly trained, ill-equipped for intelligence gathering and management and alienated from the Nigerian public. The corruption which it has become synonymous with is but a manifestation of the above characteristics. What would be the impact on law and order if the police force were decentralised so that the national police could become compact and specialized dealing with interstate and other specialized crimes while the state police would deal with intra state crimes beyond the capacity of the local community police? What would be the impact on law and order, if the judiciary has an enforcement agency reporting directly to the various levels of courts rather than the police who would restrict their activities to investigations and assisting the state in prosecutions? First, I envisage under this arrangement a dramatic drop in the cost of intelligence gathering, greater accountability in law enforcement spending and power management and improved confidence in the law enforcement. The judiciary would then become more independent. Someone may ask at this point what this has to do with the economy. My answer is everything.
A more effective law and order management system would lead to a drop in crimes, increase faith in our law enforcement and the sanctity of contracts. These are the necessary ingredients for accelerated investments from both domestic and foreign sources. I can cite an example. In Dubai, the Sheikh dreamt of building the world’s largest man-made island that would become both a shopping and residential paradise. He then invited planners to work on the project and before the plan was off the ground, a good number of the properties had been paid for thus providing much of the development capital. All this was made possible by the confidence of global investors in law and order and peace and security in the Emirate. Need I say more?
The clear inference from this is that the determination of the Delta State Governor, Dr Emmanuel Uduaghan to provide peace and security in the state as a necessary factor to accelerate investment flows into the state needs to be complemented by a national reform of our law and order management machinery which goes beyond Mr. President’s avowed commitment to an unfettered judiciary and enforcement of judicial pronouncements. A comprehensive reform of the entire system is not only desirable but necessary.
In the said article, I did admit that I am not a trained economist so I could be pardoned for possible economic fallacies however, I was elated this morning when I read something written by no less a person than a Nobel Prize Winner in Economics, former chief economist of the World Bank and Former chairman of the Council of Economic Advisers under President Bill Clinton, Professor Joseph E. Stiglitz on the subject matter and I would quote him copiously before moving on to my focus for today. ‘In several cases when countries understand what needs to be done to stabilize the economy – and even have the resources with which to do so – the IMF has pressured them to adopt policies that actually worsen economic downturns. I saw this vividly in Ecuador and Bolivia in the recessions and depressions that marked the late 1990s. For seventy-five years, the standard prescription for an economy facing recession has been expansionary fiscal policy – spending money on education and especially infrastructure badly needed in any case for growth. Typically, developing countries have difficulty financing the required stimulus but Ecuador and Bolivia were lucky – they had massive amounts of oil and gas resources that would soon become available, which they could have used as collateral for borrowing. The Bolivians and Ecuadorians argued –rightly, I thought-that the return on investing in the recession was far higher than it would be when global conditions returned to normal levels and their economy was nearer to full employment. In addition to the direct return, there would be a multiplier effect, as the spending would stimulate the entire economy, which was marked by huge underutilization of productive capacity, and help it move toward full employment. Spending money, with natural resources to back the loans made good economic sense. But the IMF, always worried about government overspending, pressured Ecuador and Bolivia to follow a quite different course. Not only did the IMF not want these countries to stimulate their economies through increased expenditures; they actually demanded cuts in spending in order to offset the decline in tax revenues from the recession. These Andean countries felt they had no choice; they gave into IMF pressure and the policies did, indeed, worsen the downturns.’
If one cannot see the similarity between the Andean countries and Nigeria and the IMF positions, perhaps the case of Chile lays it to rest. In their case, they had built up resources from favourable price of copper for the rainy day through a stabilization fund. When the rainy day arrived, the IMF was on hand to prevent spending from the fund which it regarded as deficit spending, and what followed was a more marked slowdown in growth than would have obtained otherwise. The above came from his book “Making Globalization Work.” Why IMF exercises such immense powers over the development agenda of developing countries is a subject that should interest all readers.
It is clear that what makes economic sense and what I was taught in my macroeconomics lectures in the university is that increased government spending has a multiplier effect on the gross national income, leading to full employment. For a nation struggling under huge capacity underutilization and massive infrastructure deficit, the Nigerian nation today needs massive spending to grow the economy. How to manage this while containing inflation should be the challenge for the Central Bank. The CBN cannot shy away from this challenge by attacking expansionary fiscal policies.
Economics is not an exact science and that is why they usually preface their conclusions with the phrase ‘all things being equal.’ We have to examine those factors that need to be equal for the expected outcome to be realised. One such factor is that the public spending should be productive, that is, it should be on goods likely to stimulate further investments and spending within the economy. On the other hand, where the spending merely increases the economy’s imports of consumable goods, then the expected economic growth arising from increased government spending is counteracted by the effect of the imports because it is a withdrawal from the national income cycle. What this means is that the nature of the spending should be the critical concern rather than the fear of the spending.
Once this is agreed, the next concern should be the identification of the growth-inducing activities upon which we must focus our public spending and which should be the basis for our future evaluation of the economic management efficiency and effectiveness of our political leadership. To decide on these, perhaps we should benchmark other fast growing economies such as Dubai, China, Singapore, and Malaysia for the factors responsible for their growth which are missing in our own economy. To underscore this point, I will focus on Delta State as an example. Such a benchmarking exercise was done by candidate Dr Emmanuel Uduaghan in preparing his manifesto for April 2007 Delta State gubernatorial election based on which he anchored his campaigns on a three-point agenda of Peace and Security, Infrastructure Development and Human Capital Development.
Let us take peace and security for instance which is complemented by President Yar’Adua’s commitment to law and order. This is the basic platform upon which investments rest. In the economies mentioned above, security, law and order are taken for granted unlike in our own. Therefore, we must invest considerable resources to achieve it. By resources, I do not mean public expenditure alone because some of the actions necessary to achieve it do not actually require huge financial outlay. Rather, we need broad minded, out-of-the-box thinking and a strong political will to change what has not worked in the past. Is the structure of our law and order machinery delivering peace and security in the nation? Of course the answer is negative. Then, we need deep structural reform of the entire machinery which could involve constitutional amendments.
The Nigerian Police Force as currently structured is unwieldy, inefficient, poorly funded, poorly organized, poorly trained, ill-equipped for intelligence gathering and management and alienated from the Nigerian public. The corruption which it has become synonymous with is but a manifestation of the above characteristics. What would be the impact on law and order if the police force were decentralised so that the national police could become compact and specialized dealing with interstate and other specialized crimes while the state police would deal with intra state crimes beyond the capacity of the local community police? What would be the impact on law and order, if the judiciary has an enforcement agency reporting directly to the various levels of courts rather than the police who would restrict their activities to investigations and assisting the state in prosecutions? First, I envisage under this arrangement a dramatic drop in the cost of intelligence gathering, greater accountability in law enforcement spending and power management and improved confidence in the law enforcement. The judiciary would then become more independent. Someone may ask at this point what this has to do with the economy. My answer is everything.
A more effective law and order management system would lead to a drop in crimes, increase faith in our law enforcement and the sanctity of contracts. These are the necessary ingredients for accelerated investments from both domestic and foreign sources. I can cite an example. In Dubai, the Sheikh dreamt of building the world’s largest man-made island that would become both a shopping and residential paradise. He then invited planners to work on the project and before the plan was off the ground, a good number of the properties had been paid for thus providing much of the development capital. All this was made possible by the confidence of global investors in law and order and peace and security in the Emirate. Need I say more?
The clear inference from this is that the determination of the Delta State Governor, Dr Emmanuel Uduaghan to provide peace and security in the state as a necessary factor to accelerate investment flows into the state needs to be complemented by a national reform of our law and order management machinery which goes beyond Mr. President’s avowed commitment to an unfettered judiciary and enforcement of judicial pronouncements. A comprehensive reform of the entire system is not only desirable but necessary.
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