"The $3.6 billion in the Excess Crude Account is not enough to sustain the economy for any period of time".
Dr Ngozi Okonjo-Iweala, Coordinating Minister for the Economy, CME, April 12, 2012 in Abuja.
By Dele Sobowale
Introduction
We are at the end of Jonathan's first year in office since he was re-elected in May last year. And, the questions every Nigerian should be asking are: is the economy better than last year? And has my lot improved since last year? The CME provided some of the answers to the first question on April 12, 2012.
(http://vml1.s3.amazonaws.com/wp-content/uploads/2012/05/One-year-logo.jpg?9d7bd4) (http://www.vanguardngr.com/2012/05/insurgency-and-utilitarian-value-boko-haram-is-helping-nigeria-to-review-its-foundation-uma-ukpai/one-year-logo/)With the exception of GDP growth, everything else was a catalogue of failures. Even GDP presented a picture of growth without job creation. After revealing that the Excess Crude Oil Account, an illegal account it must be pointed out, had been drawn down to $3.6 billion, she then proceeded to warn the nation that we are going broke. Her answer, which includes continuing violations of our constitution in order to save for the future would strike many analysts as self-serving and a veiled admission of lack of creative ideas. Later, in that address, she pin-pointed the major causes of our predicament, which had been characterized by "growth without development", as lack of transparency and proper accountability; and, she was one of the culprits. Perhaps she got distracted by her bid for World Bank Presidency.
For the purpose of this one year assessment, this report will focus on a few key drivers of the economy and a few key result areas. The foci of attention are presented in the table below. The figures represent the actual or estimates as at April 2012. The side comments indicate whether there has been an improvement or a decline.
The areas of attention for this assessment will be the following: power supply, debt profile, Excess Crude oil Account/Sovereign Wealth Fund; Subsidy; Corruption; job creation; water supply; poverty alleviation, monetary policy, capital and money markets; budget implementation and security. For obvious reasons, we will start with the two real engines of national development and progress – security and power; although they are not directly related; as well as the number one impediment to progress in the country for more than sixty years –corruption.
Security
Just before the request to make this contribution was made by the SUNDAY EDITOR, a general survey had been conducted involving 1,125 people in several states and the Federal Capital Territory. The same survey was conducted last year just before the 2011 elections. The respondents were asked to list the nation's three most important problems.
The results were as follows:
Problem April 2011 April 2012
Corruption 55% 32%
Security 37% 60%
Power 4% 3%
Others 4% 5%
The most obvious change highlighted by this survey is the sudden emergence of security as the single most important issue having economic significance in Nigeria today. A deeper probe in selected interviews revealed that some prospective domestic investors have actually shelved planned projects in various parts of Nigeria –especially the violence-prone areas.
Shortly after resuming duty last year, the Finance Minister organized a retreat; Jonathan was there. The participants, all Federal government employees, were asked to write down what they considered the nation's leading problem. Over 70 per cent named corruption. President Jonathan got up and announced that he disagreed. That is the perfect example of a leader who has stopped learning. The President should not have taken that poll as a personal indictment; it should have been a guide to action. He, after all, did not create corruption. On that note, the year started.
Three sectors, all vital to Nigeria's efforts at diversification from crude oil exports, now particularly feel the impact of escalating violence the most. The first is solid minerals, the second is housing and the third is education. And nowhere else are the problems more acute than in the Northern states which need all three the most.
It has long been established that most of our solid mineral deposits are in the North; it is also a matter of commonsense that to exploit those potential resources will require massive capital investments as well as skilled manpower. Unfortunately, most of the skilled workers are southerners and few can now be induced to work in several states of the North for any amount of money. Indeed, those already employed there want to leave. Even those who once adopted a "wait and see attitude" are no longer waiting; they've seen enough.
With the annual growth of population estimated at 3.2%, but higher in the Northern states, construction of new houses has become a race against calamity for years. Here again, private investors, northerners and southerners alike, have provided virtually all the additional residential and commercial buildings in the north. The governments of the nineteen states, controlling less than 30 per cent of Federally-allocated revenue, have been able to do little.
With increasing violence and incipient ethnic and religious cleansing, new housing starts are slowing down everywhere – even in Abuja and the Federal Capital Territory. In some places buildings that have been razed by bombs or fire are no longer re-built.
The owners are moving on. A massive internal migration is underway; disrupting business everywhere. When we now turn to education, and again focus the North, the heart melts completely; on account of the resources that had been destroyed since May 2011 and May 2012. Resources include not only physical structures (buildings, teaching aids, school buses, etc) but the human resources as well –which represent the most important resource of all. Entire schools are now without qualified teachers because survivors have fled for dear lives. Many more are packing their bags. Mindless and intractable violence has not only devastated, in one year, what it had taken decades to build, it had set back the region by many unknown years in the future.
(http://vml1.s3.amazonaws.com/wp-content/uploads/2012/03/1000-naira-notes1.jpg?9d7bd4) (http://www.vanguardngr.com/2012/03/n10000-note-cbns-cashless-project/1000-naira-notes-2/)
Furthermore, with respect to education, the on-going and spreading violence is affecting education, not only in the core North, contrary to what most people believe. Stories, true or false, reaching several university campuses nationwide have disrupted classes in our already declining citadels of higher education.
There is hardly a federal or state university which is better today than last years. Continuous and un-arrested decay has become the norm not the exception. What time and official neglect had not corrupted, violence might ultimately demolish. Bayero University Kano might be only the beginning.
Unfortunately, there are no metrics in economics to measure the financial impacts of wrecked education systems. But, certainly, the repercussions will be felt in the future; a future which will surely come and will be as challenging as the present which we are managing badly.
Is the economy better today than last year? Based strictly on our appraisal of the security situation and its debilitating effects on three sectors the answer is obvious.
Corruption
Anyone feeling relieved that corruption had taken a distant back seat to insecurity would be mistaken to stay in that comfort zone. A further probe of some of the participants revealed that their main reason for selecting security first is survival at all costs. They have stopped worrying about public and private officials robbing them – in the face of possible violent death. But, for that, corruption would be their first choice among problems impeding rapid development and social progress.
Our assessment of our fight against corruption will focus on the obvious two – fuel subsidy scandal and pension fund scam. Incidentally, the two shocking revelations have, once again, placed the banking sector in jeopardy. How, they have embroiled the banks in their destructive activities will be discussed at length later. For now, we focus on the magnitude of the amounts involved, the direct impact on the economy and the collateral damage done – all in one year.
The Minister of Finance, reportedly at the meeting, said that the government "did not explain itself well and did not wait long enough before removing the subsidy in January". That, is the Finance Minister's equivalent of plea bargaining. She admitted a smaller charge so she would not be carpeted for the far bigger assault on the economy encouraged by the Federal government between May 2011 and May 2012. She actually confessed that her Ministry did not know how much subsidy was actually involved. That is not only an admission of irresponsibility; it also carries the hint of intellectual dishonesty.
In December 2011, when she led her colleagues to the Muson Centre in Lagos, she was categorical that the subsidy was N1.314 trillion; so certain she published a document to indicate how she would spend the money more effectively – if subsidy was removed. To now tell us that she does not know, after the economic and social disruptions and the imposition of N97 per litre fuel is totally unacceptable from the standpoint of basic economics.
Nobody needs to remind the Minister that economic management is all about allocation of scarce resources to meet unlimited needs and each expenditure must be weighed against other options. Governments collect and allocate these resources on our behalf and they are expected to know where each naira goes and for what reason. As it turned out N1.1 trillion of fraud was classified as SUBSIDY and charged to citizens' accounts. That's official robbery and mal-allocation of our resources. Until May 2011, the subsidy, even then disputed, was under N300 billion per annum or N25 billion per month.
A serious government and competent Ministers of Petroleum and Finance should have raised queries the first month they had to pay N100 billion or more in any month. Surely, Okonjo-Iweala knows that with limited income the increase in price of any commodity affects the consumption function of citizens; it forces them to re-allocate their funds in disruptive ways. More for fuel means less for food; it's that simple. And government is forcing people to starve, even when they don't know how much, if any, subsidy is there.
So, once again, the questions are: is Nigeria better off today than last year? Are Nigerians better off than on May 2011? The answer is again obvious.
Pension Fund embezzlement will require a whole book to deal with the economic and human tragedies that it brought about. To start with, over ninety per cent of pensioners would be classified as lower middle class to lower class and perhaps even poor. The most cursory glance at economic-demographics would demonstrate that the people in those income groups spend virtually all their income; and some even more. They also patronize locally manufactured goods more and spend a higher proportion on food and basics. By contrast, the rich and the wealthy spend a smaller percentage of their income on current consumption and save more. They also spend more on imported items and transfer money abroad more.
Salting away N2 billion, in cash, which would have otherwise been paid to pensioners denies the economy of the multiplier effect of the N2 billion, or almost N10 billion, in goods and services which would otherwise have been purchased. Multiply that by the close to N300 billion, so far documented, cases of pension fund embezzlement and it is easy to understand why 7.5% annual GDP growth has failed to make any dent on unemployment. The people who would spend the money here in Nigeria are not getting their money because those who would spend it at Dubai and South Africa have stolen it. So, the fraudsters not only impoverish the majority; they export jobs as well. It is economic sabotage – by any means defined.
To think that all these revelations came in just one year is to answer the question: are we better off? Even the Minister of Finance knows the answer to that one. Not only was the money stolen, it has been mal-allocated in a manner that does the Nigerian economy no good whatsoever. Hundred room mansions in Abuja for a family of four, built with stolen funds, thus tied down, do not represent investment by the economists' definition of the word; they represent a colossal waste – which is not productive. Yet several mansions went up in the last year financed with embezzled funds. Some of them, now seized, are lying idle. Filling stations might be excused to some extent; if one subscribes to the Machiavellian principle of "the end justifies the means". But, even those investments do not represent the manner the real owners of the funds would have spent them. Fron that standpoint they remain flawed.
Irrespective of the motives or the short term gains corruption invariably undermines the efficient allocation of resources in a free economy such as ours. And from all indications, it has got worse since May 2011.
Power
All economies from time immemorial hum along on power supply. From coal, during the industrial revolution, to petroleum and then electricity in the modern age – however generated—power has held the key to progress. Our economy moves along at 7.5% simply because Shell, Mobil, Chevron, Agip etc don't depend on our power supply. If they did, the nation would have ground to a halt long ago. The table speaks volumes of our failure to move one megawatt forward since May 2011. But, the Minister of Power, Professor Nnaji has "explanations". According to the Minister, on hydro plants:
"It is our tough luck we are experiencing our worst water levels in 10 years. Because of the poor rainy season last year in neighbouring countries, from which we derive black flood for the hydro plants. The white flood refers to flood derived during the rainy season in Nigeria which gets to its climax in July of every year, unlike the black flood which gets to its peak in November".
And for the thermal he said that they were "built in the past without proper arrangements for either gas pipelines or the molecules". He also revealed that there is "little coordination between the Ministry of Power and Ministry of Petroleum Resources
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