By Olu Fasan
PRESIDENT Muhammadu Buhari recently constituted a high-calibre Presidential Economic Advisory Council, EAC, chaired by Dr Doyin Salami, former adviser to the IMF and, for eight years, a member of the Central Bank’s monetary policy committee, with other members, including Professor Chukwuma Soludo, former CBN governor. For a president who largely shunned economic technocracy in his first term, and who only recently appointed an entirely political cabinet for his second term, this was a pleasant surprise.
So, how did we get here? Well, given the president’s long standing antipathy towards economists, it’s difficult to say that his decision to establish what he calls an “independent body” of economic advisers was borne out of a Damascene conversion to economic technocracy. Surely, he hasn’t suddenly fallen in love with the use of technical economic knowledge and analysis to address policy problems, rather than reliance on personal predilection or ideological whim as it’s his wont!
Therefore, the only plausible explanation for President Buhari’s decision to constitute the EAC is that it was forced on him by the harsh reality of Nigeria’s continuing economic decline. As the president himself said when inaugurating the EAC, “our reported growth rate is still not fast enough”, although in other climes many would be alarmed that after more than four years in power he’s still blaming “the mess we inherited” for Nigeria’s anaemic economic growth rather than his poor management of the economy.
Furthermore, it’s a massive understatement to say that the economy is not growing “fast enough”. Truth is, it has flat-lined at under two per cent! The president said his government’s “goal is to lift 100 million Nigerians out of poverty in ten years”. But to achieve that, the economy must be growing productively and consistently at about seven or eight per cent annually. Yet, short of another oil boom, which creates jobless growth, there is little possibility of that happening because of Nigeria’s anti-growth economic model.
Notwithstanding that reality, President Buhari has tasked members of the EAC to “come up with home-grown ideas” to turn the situation around. But can they pull off that miracle? Well, it’s a tall order!That said,it’s their job, as economic technocrats, to judge which institutions and policies are needed to turn Nigeria’s ailing economy around. But to succeed in that task, they must start by telling the president some home truths.
Indeed, as a first task, the EAC must organise tutorials for the president on economic fundamentals or what you might call “Economics 101”. And the first module should be on the universality of economic principles. They should tell President Buhari that there are no “home-grown economic ideas”, but universal economic laws. They should let him know that economics is based on theories that, while not perfect, have strong predictive powers.
Take, for instance, the simple law of demand and supply. If a country doesn’t have enough supply of foreign exchange and yet faces a high domestic demand for foreign exchange, the value of its currency would fall relative to other currencies. And if that country then decides to fix or peg its exchange rate, rather than allow it to adjust to its market-determined level, the country would haemorrhage foreign exchange as investors take money out of the economy or refuse to bring money into it. So, the EAC members must tell the president that there is wisdom in having a flexible exchange rate system rather than operating multiple foreign exchange windows, which distort the market and discourage foreign investments.
Another thing the EAC members should tell President Buhari is that a good economy must promote business and jobs while also protecting the most vulnerable. To date, his government has only prioritised supporting the most vulnerable through social interventions. But unless an economy is generating growth and creating jobs, more people would fall into the “most vulnerable”category and the government would never have enough money to protect them. So, it’s absolutely important that the government creates a hospitable environment that boosts business confidence, investment and jobs.
Sadly, Nigeria’s economy is asphyxiated by excessive state control rather than oxygenated by openness and competitiveness, which are needed to attract significant private capital and investments, both local and foreign. Few foreign investors think of Nigeria as one of the best places in the world to do business because its economy lacks the institutional and policy incentives to attract a significant amount of foreign capital.
Think of it. President Buhari has repeatedly said that the “underlying philosophy” of his government’s economic policy “is to promote import-substitution and self-sufficiency”. But the policy tools for achieving such objectives are exchange controls, import bans, prohibitive tariffs and excessive regulations and interventions – all elements of a closed economy that stifle innovation, productivity and competitiveness. The EAC should tell the president that these are recipes for economic disaster. They should tell him that import-substitution industrialisation destroyed the Latin American economies in the 1950s and 1960s, and that collective or state-led agriculture, designed to achieve self-sufficiency, proved in the old Soviet Union and elsewhere to be catastrophic experiments.
In sum, the eggheads in the EAC must tell the president that economies do not respond to good intentions, or presidential wish-list, but to specific incentives. And the best incentive, the best model, for creating wealth, reducing poverty and raising living standards is free enterprise capitalism, based on strong institutions, market reforms and the rule of law.
The EAC members certainly have a historic task, but unless they succeed in changing President Buhari’s economic world view and altering his government’s dirigiste policy direction, they can’t revive Nigeria’s comatose economy. Good luck to them!