Former President Olusegun Obasanjo’s concerns about the economy regarding poverty, rising unemployment and corruption when some women’s leaders visited him the other day are worthy of a close look for the benefit of politicians in this campaign season and for the country at large. Obasanjo expressed the belief that the country was meant to be rich and great but lacked that status at present. He said that the national failure in that regard and the current economic problems were not because of the absence of sufficiently intelligent and knowledgeable Nigerians but were caused by the country’s leadership. He also said that the high volumes of external reserves and Excess Crude Account (ECA) which his administration left behind in 2007 had been heavily depleted while the current oil price slump has resulted in the devaluation of the naira and its attendant harsh effect on the people.
Two days after Obasanjo spoke, the Federal Ministry of Finance issued a statement denying that the ECA and the external reserves had been squandered. According to the statement, the funds were “used appropriately in the course of normal transactions required for the development of the Nigerian economy.” The issue, however, is whether there has been truly any development of the economy that was commensurate with the available resources either under the Obasanjo administration which accumulated the “surplus” resources in question or when they were used up under the present administration.
The country has been experiencing chronic under-performance for over four decades excepting the short-lived post-1974 oil boom economy which peaked in 1977. The absolute poverty level, which stood at about 35 per cent at the time has climbed steadily to above 70 per cent today. The conversion of many erstwhile factories to places of worship and event centres underline the unemployment rate of over 23 per cent. During the visit, Obasanjo recommended that focus be placed on agriculture rather than oil and gas in order to help solve the problem of rising unemployment. But there is no denying the fact that modern and productive agricultural sector sheds labour to the manufacturing and other sectors, all of which are at present crying for attention. In the wake of the slump in oil prices, Obasanjo, the Goodluck Jonathan administration as well as other commentators have called for the economy to be made less and less heavily dependent on oil export receipts for revenue. But has the Nigerian economy been truly dependent on oil revenue?
The way public sector oil proceeds accruing to the Federation Account (FA) have been handled since the 1970s is stated in relevant CBN reports. FA forex allocations are surrendered to the CBN. The apex bank proceeds to print and substitute purported naira equivalent to finance the budgets of the tiers of government. That amounts to unsolicited and illegal CBN deficit financing. Thus the amounts for financing the combined annual budgets of the tiers of government comprise, firstly, non-oil revenue which since 1974 has been consistently below 50 per cent of the total; secondly, deficit funds printed by the apex bank proportional to surrendered FA oil accruals which have exceeded 50 per cent of the total since 1974; and thirdly, any other duly approved fiscal deficits incurred. It is, therefore, erroneous to describe the Nigerian economy as oil-dependent. An oil-dependent economy is productive; its industrial sector is vibrant; and it records fast growth rates that are job-inclusive. However, it is correct to say that the Nigerian economy is dependent on excessive fiscal deficits that in a given year are not less than the proportion of FA oil accruals surrendered to the CBN in the overall budget expenditure. (In fact, the ECA was fashioned by the IMF as a means of not letting the cat out of the bag by lessening the adverse impact of the high fiscal deficit levels the then rising oil receipts would have created contrary to economic expectation.)
In effect, the under-performing economy presents a case study in subjecting an economy over several decades to persistent fiscal deficits tailored to the level of public sector oil receipts in its budgets. By means of what may be better termed apes-obey directive handed down by the political leadership, the economy has not enjoyed the benefits bestowed on the world’s successful economies by the scrapping of the Bretton Woods system of fixed exchange rates as far back as 1971. The country’s economic indicators attest to the regime of excessive fiscal deficits. There is persistent excess liquidity. The naira exchange rate is artificial and depreciates monotonically. Together with high inflation, unending monetary tightening and high lending rates, there is no better way to describe a hostile production environment. The banking sector fares no better and it is kept on life support through the non-investable national domestic debt of over N10 trillion worth of sterilized mopped-up excess liquidity funds that attract double digit interest rates. And there is the phenomenon of CBN’s external reserves. The transformation of surrendered FA oil proceeds to CBN’s external reserves is the worst form of corruption. The reserves also are not investable locally but fund dollarization, prompts treasury looting and fuel the growth of foreign economies. The oft-told national economic bungling by incompetent hands entrusted with high offices is a big shame!
The proper and beneficial handling of the country’s oil receipts demands putting an end to the political leadership’s economic progress-retarding apes-obey fiscal and monetary practices such as the surrendering of FA dollars to the CBN, transforming of the surrendered FA dollars to CBN’s external reserves, the setting of arbitrary naira exchange rate and the operation of excess crude account. Instead, FA beneficiaries should collect dollar allocations (preferably in a secure form) for conversion to non-inflationary naira revenue through deposit money banks using the dirty or managed floating exchange rate fixing system.
The resulting conducive conditions would facilitate domestic production. Access to cheap bank credit would promote private sector investments cutting across all economic sectors. While bank credit as a proportion of GDP climbs (it is 100 per cent in our quondam economic peers of Malaysia and Singapore), the diverse bank-financed private sector establishments would provide government with huge tax revenue. Therein lies the ultimate fiscal buffer that not only banishes the so-called rainy day petty budgeting via the ECA but also absorbs any shocks arising from commodity price slumps as routine cyclical events.
Clearly, any oil-dependent country possesses the means to build and maintain a strong economy and achieve national greatness.
