By Dele Sobowale

We must therefore not shrink from accusing our friends, or praising our enemies; nor need we be afraid of praising or blaming  the same people at different times since  it is impossible that men who are engaged in public affairs should always be in the right and unlikely they should always be in the wrong  (underlining mine). We must therefore detach ourselves from the actors in our story; and apply to them only such statements and judgments as their conduct deserves.” Polybius, c200-118 BC.

Polybius, Greek and one of the greatest historians ever in world history, provided me with one of my guiding principles in life, long before I started writing columns. Since then, Professor John Kenneth Galbraith, a Nobel Prize Winner in Economics, had added this: “Those who deal in ideas, if they are wise, must welcome attack. Only a peaceful passage should dismay them for it proves that the ideas do not affect anyone very much.” (VANGUARD BOOK OF QUOTATIONS, VBQ, p 97).

So attacks are more than welcome.

Then Malvin Kalb capped it all by admonishing media people in these words: “A journalist should be pursuing a fair rendition of truth, without regard to popular moods, the journalist should not be swayed by public opinion, only by the pursuit of truth, as close as he or she can get to it.” (VBQ, p 109). I fully intend to be guided by all the three “heroes” of my life.

The Nigerian economy, as currently operated, is like a crippled eagle flying with one wing. It will never go far. I learnt this lesson in a practical way, in my “country” home in Oyo State, where there is a large orchard and two dogs whose favourite past time is to chase birds coming to feed. Talk of “dogs in a manger”, Juliet and Lucy don’t eat insects and droppings from trees, but they are determined that no bird should eat them either. They have perfected their strategy. Juliet, the older dog, would drive a bird towards Lucy, who is more agile. Once in a while, they succeed in killing a bird – which they don’t even eat.

One day, I was working in the yard when they went after an eagle which had descended to snatch a lizard. They could not kill it, but they damaged one of its wings. So, instead of soaring to the sky, the poor eagle could just manage to reach the upper branches of a mango tree where it stayed for hours unable to move.

NIGERIA: AFRICA’S EAGLE ECONOMY IN DISTRESS

The eagle and its damaged wing is an apt metaphor for the STATE OF THE NIGERIAN ECONOMY which, having been declared the largest in Africa, should be the Eagle Economy of Africa. Unfortunately, just as economic calamity is around the corner, in the shape of crude oil trending towards US$40 per barrel or worse, the African Eagle Economy is flying with only one wing – the monetary policy which is under the portfolio of the Governor of Central Bank of Nigeria, CBN. In reality, at the moment, the CBN Governor has become the economic czar of the Buhari administration in its early days. He alone makes the decisions that matter – just as the healthy wing is called upon to work extra hard to lift the bird off the ground.

The most recent measures taken by the CBN demonstrate, quite clearly, that our economy operates without a discernible second wing – the fiscal policy – which is supposed to be complementary with the monetary instruments of economic management. Without listing all, the following measures are now operational:.

• Banks listing and publishing the names of delinquent customers.
• Closure of domiciliary accounts.
•   Recovery of excess duty waivers
•   Tapering of exchange rate
• Closure of several Bureau De Change outfits

With the exception of the first one, individually and collectively, the other measures are aimed at arresting the free fall of the exchange rate which was N160/US$1 only about ten months ago.

Again, individually, they are steps in the right direction, if stabilizing exchange rate should be our top priority – which is doubtful.

But, collectively, they are strangling an economy already on its knees. No sector of the economy illustrates the downward trend better than the manufacturing businesses. In particular, the food and beverage sub-sector, which is import-dependent, had been experiencing drastic drop in sales and revenue. On Monday, July 27, 2015, a national daily published a report titled, “Naira fall: Consumer goods firms record huge losses”. Another report had it that manufacturers now operate at 50% of installed capacity. That is understandable given the high level of unsold inventory everywhere. That situation is likely to get worse as the year 2015 races to a close for reasons to be disclosed shortly.

Another report informed us that car imports have dropped by 70% on account of high tariff. That is only part of the story – high tariff alone does not discourage imports to that extent if aggregate disposable income is adequate.

Fuel scarcity promises to be with us for longer than we want as banks, which are themselves in trouble, deny marketers credit. But, if the petroleum sector is showing signs of distress at the filling stations nationwide, they fail to reflect the calamity which had befallen the crude oil producers which have shut down their platforms, sent away their staff, increasingly owe banks money they cannot possibly repay and form the largest group of bank debtors. Once upon a time, owning and operating an oil well amounted to licence to print your own money. Today, many owners wish they can give them away.

Power sector suffered its first casualty when the Federal Government took over the Yola Distribution Company. It will not be the last DISCO to go under in less than three years of the  privatization of the sector. When the Federal Government ordered the DISCOs, in July, to pay debts by July 24, 2015, it was obvious that somebody in Abuja is out of tune with the realities of DISCO life. They not only owe the Nigerian Bulk Electricity Trading Company, Plc, NBET, billions, which cannot be paid, they owe banks almost as many billions which cannot be redeemed. Again, those who clinked Champagne glasses when they were declared successful bidders for DISCOs two years ago must be forgiven for now wondering if they took leave of their senses when bidding – instead of leaving the money in fixed deposits. Many are at risk of losing their shirts.

Aviation sub-sector is the Cinderella of the transport sector. But, all of its operators have been living dangerously on hand-outs by government. They have weighed down the Assets Management Company of Nigeria, AMCON, with toxic loans which almost crippled the banking sector in 2008-2010. Even now, they are still ailing and unable to repay. They are once again requesting for more hand-outs. Nobody has any idea where the funds will come from for the bail out.

As if that is not bad news enough, the banks, the providers of credit to all and sundry, are themselves in deep trouble. Non-performing loans are rising because customers who obtained dollar-denominated loans are having difficulties servicing their loans. So the banking sector is heading for another crisis. Naming delinquent debtors might induce shame but it is unlikely to bring cash which is what the banks need very badly.

FROM PRIVATE TO PUBLIC SECTOR – SAME BLEAK PICTURE

If the private sector presents a bleak picture, the public sector is just as bad. Nigeria’s debt has escalated to N12.12tn or three years annual budget. States owe Nigerian banks N685bn according to the Vice President, Professor Osinbajo. In June 2015, the 36 states shared N111bn meaning that they owe banks, alone, six months revenue allocation. When the other loans are added, the states will be servicing debt with close to 40% of their revenue from now on. The debt stock is climbing everywhere at the same time that the price of crude is sliding downwards towards US$40 per barrel.

There is no need to discuss all the other measures CBN has taken – which will not solve our problems adequately and might even be counter-productive. One thing is clear, monetary policies, however elegantly designed, can never solve most of the problems listed above.

THE REAL PROBLEMS

“It’s a matter of cash” – TV Programme in the 1970s.

The Eagle Economy is suffering from insufficient cash and there is no way the measures introduced by the CBN can infuse more cash into the system.    Monetary policy alone, historically, can only address symptoms; it seldom touches on the cause(s) of the perceived ailment. That is why fiscal policies are as vital as monetary instruments if not more so at a time like this. Of the numerous causes of our present predicament, four are most important. These are: falling price of crude and absence of future revenue projection and planning; inadequate monitoring of actual performance against budget; corruption and failure to recognize time as an economic factor. Let us take the last first.

Regular readers of VANGUARD should remember that governments were warned as far back as December 2013 that crude prices were heading for the basement. The warnings were repeated several times last year. None took the warning serious. The FG and state governors sent to their legislators, who were all economic know-nothings, budgets for 2015 which can not now be implemented because the funds are not, and will not be available this year. Nobody was undertaking projections and nobody monitors the actual results versus budget as the year progresses. By now, every governor should have revised the budget for 2015 down. And, any state governor who does not base the 2016 budget on US$40 per barrel for crude should be called a saboteur.

Incidentally, nothing illustrates the fantasyland in which some governors reside than the stunt pulled by the governor of Akwa Ibom, Mr Udom Emmanuel, who took 60 people in a chartered flight to the US for an event which the deputy governor alone could have attended. This is an accountant, FCA, who still does not understand that at US$47 per barrel, his state will receive in September 2015 less than 50% of what was allocated in September of 2013. How does monetary policy address this sort of fiscal recklessness?

Last August, the price of crude oil was about US$80 per barrel; down from US$118 a year before. From May 2014, there had been a steady decline in the price of crude which was benchmarked in the budget at US$77. Furthermore, the budgeted quantities were never achieved except once in July of the year. Despite the discernible trend downwards, neither the federal nor the state governments revised their budgets downwards; no measures were taken to address the worsening revenue situation. By failing to act on time, all were guilty of dereliction of duty because any responsible government, faced with the increasing melt-down, can only ignore it if there is any chance that the downward spiral would reverse itself. In 2014 and now, there is no chance that will happen. So, if no action is taken now, the situation will only get worse. Monetary policy will not alone solve the problem.

WAY FORWARD

“Cut your coat according to your cloth.”

Two fellows went to the tailor for measurements carrying ten yards and three yards of woolen materials each. The first requested for a three-piece suit. The other, not minding the relative poverty of his situation, also asked for a three-piece suit. The tailor, with a keen sense of humour, asked the latter, “Where is your grand son for which the suit should be sewn?”

The first step in the fiscal policy measures is for the President and governors to accept that the Eagle Economy has become a lot poorer and will remain poor as long as crude sells for less than US$90 – which is now a long time away.

The second is to collectively cut their budgets drastically.

The third is to look inwards for more Internally Generated Revenue, IGR, and the fourth is to have a “Team Captain” in charge right away.

An indispensable corollary to the call for action now is the need to have a team captain leading the economic policy initiative to ensure coherence and compatibility between fiscal and monetary policies.

It is 24/7 assignment and not a part-time task because the damage to the “Eagle’s wing” is considerable. Those counseling waiting for 100 days or measured steps must tell the rest of Nigeria how they intend to hold the price of crude from going down further and imperiling the 2016 budgets of the FG and states as well as the economy as a whole. Nobody alive can tie up time as an economic variable. Governments must take measures now or we will all face a greater problem from January 2016. It is as simple as that.

Diversification of the Nigerian economy has always been presented as the Holy Grail of our economic problems; the ultimate solution. But, the United States of America and Europe experienced the Great Depression in the 1930s, not because they were mono-product economies, but in spite of being highly diversified. The US eventually climbed out of its hole on account of strong fiscal policy instruments put in place. At any rate, diversification is a medium (at least five to eight years) or long (ten years or more) term solution. It seldom addresses the welfare of the people immediately or in the short term.   So, the first ports of call are the immediate and short term needs of the people which fiscal policies should address – housing, food, health, transport, power, education and health. The short cuts to all these are power and fuel. Improve significantly on those two, and it matters very little how it is done, and the Eagle Economy is on its way to revival.