By Adisa Adeleye

LAST week, I recalled an article written in 2002 from my book entitled THE AGENDA.  The conclusion was that any government wishing to pursue a policy of FULL EMPLOYMENT should embark on massive public works – activities which would stimulate effective demand. The mechanism would be through a budget deficit that is, spending more than the normal income generated during the period.

Nigerians before the era of Structural Adjustment Programmes (SAP) of the 1980s (President Babangida‘s baby) would be familiar with the sight of Kingsway Stores, Leventis, UTC, CFAO, Chanrai Stores and many other big trading companies in many principal cities of Nigeria.  These firms offered employment to many thousands of Nigerians, down from messengers to the graduate managers.  Under SAP, many of the companies collapsed and others moved to other countries where the economic policies were more favourable.

Economic policy

The wrong economic policy at that time was devaluation of the naira and unfavourable monetary policy stance of the Central Bank.

Since the Babangida era, no government (military or civilian) has been able to address the imbalance in the economic equation that could favour job creation from a more flexible exchange rate and friendly domestic bank lending rate.

Unemployment gap widened and devaluation of the naira continued arbitrarily.  Between Obasanjo‘s time and the present time of Jonathan, the value of the naira to the US dollar has fallen from N80 to N151.

The implication has been serious for an import dependent nation like Nigeria whose incipient manufacturing industry continued to rely on imported machinery, spare parts and in many cases, raw materials.  Thus, the successive governments after Babangida have done nothing substantial to bring back the glorious days of large foreign enterprises, or done more to promote indigenous replacements.

It may be said, and gratifying too, that the Central Bank under Lamido Sanusi has embarked on the capital reconstruction of selected manufacturing companies.  The problem is the limitation of such help in the face of cost of power, cost of borrowing funds, cost of imported necessities and other hidden disincentives on the operations of such companies in terms of prices of goods produced and competitiveness in the world market.

Many analysts advised against unjustified but continuous devaluation of the naira during those dark days of economic foolishness, but none listened in the official circles.

I will refer to my own contribution on Devaluation in 2002 during the time of President Obasanjo and Mallam Adamu Ciroma as Finance Minister.  The script is taken from ‘The Agenda‘

DEVALUATION (lowering the value) of the Naira has been rated as one of the main factors affecting the competitiveness of Nigerian products at home and abroad.  Nigeria, being an import dependent country has to pay more for its raw materials, spare parts and machinery.  The high cost of imported inputs added to increasing local cost of productions (because of poor infrastructures) tends to affect the price of locally produced goods.

On Devaluation, Alhaji Sheu Shagari, a former President was bold and categorical in his 1983 Budget Speech when he said, “I have followed with keen interest the on_going debate on the devaluation of the Naira, I am convinced that given the present structure of the Nigerian economy which depends largely on one export commodity on the one hand and places heavy reliance on imports of capital goods and now materials on the other, devaluation will not be in the best interest of the country.

I therefore wish to state without any equivocation that under the present circumstances, this administration has no intention of devaluating the Naira”.  Nigeria has operated a fixed foreign exchange system at the time.

However, a former Head of Civil Service, Chief Allison Ayida noted in his ‘Reflection on Nigerian Development‘ that ‘the way out is to evolve a new strategy involving less dependence on imports and the promotion of local manufactures and agricultural production.  Oil revenue should be seen as providing the fuel for engineering the growth points.

If we can manage the domestic economy properly and efficiently, the external sector will gradually assume less importance and the Naira will find its level in the floating basket of currencies‘.  Ayida‘s theory, no doubt, would depend on a lively and fully employed economy with all hands on deck.

Sustainable growth

The bloated but discarded 2002 budget caught the misgivings of the officials of the Central Bank.  The Governor of the Central Bank, Chief Joseph Sanusi was reported to have said that ‘the full implementation of the 2002 budget as approved by the National Assembly would dampen prospects for re-establishing macro-economic stability for sustainable growth during the year.  We vouched on the need to sterilize the resultant excess liquidity by raising interest rates‘.

This threat smacks of undiluted classicism.  Indeed, the classical economists of 1920s and 1930s would officially rise from their graves to sing ‘Halleluyah‘ to one of their surviving disciples in the corridors of power, and a likely apostle of a dreadful slump in the 21st century.

The Finance Minister agreed that, ‘the size of deficit (N437 billion) would be larger than the conventionally acceptable level and could be inflationary, thereby negating the objective of poverty eradication‘.  These statements represent half_truths and comical misunderstanding of the most relevant principle of modern economic thinking, which is growth without inflation through near full industrial utilization of factors of production.

It should be realized that economic activities cannot be stimulated by mere moral suasion and pious sermonisation but by massive injection of funds into the dormant economy and taking necessary steps to maintain stability.  Excess liquidity should not be frozen but released for productive investments.  It is contradictory to wish for improved utilization of industrial capacity and at the same time, engage in a policy of high interest rates through freezing of excess liquidity.  You don’t freeze but you release funds to productive sectors of the economy.

The importance of the article published in 2002 is quite relevant to the present scenario where the government is embarking on expansionist policy (supporting full employment) in an atmosphere of tightened monetary stand embarked upon by the Central Bank.  There is that fear that the golden lady from the World Bank might advise a restrictive line of approach.