…it will matter that we understand both the dynamics of our economy, the dynamics of the changing global economy, and how both interface if the resulting disruption is not to challenge everything this country has stood for… As this process gathers momentum, it will help that those who are saddled with this responsibility are honest people. But it will matter more that they are informed, if we are to improve the resilience of our economy over the next three decades.
A big conceit of the Buhari administration is its persuasion that integrity trumps all. Across every encounter with fans of the government, its incorruptibility is advertised as if this is all that matters. And, in a very broad sense, it does — and it is. For much of the support for the administration, including its victory at the 2014 general elections, owed to a public sense of the debauchery that had become synonymous with the Goodluck Jonathan administration, and the hope that a more righteous government will redress this. This year, the All Progressives Congress-led government ran roughshod over its opposition on its way to re-election. Once more, largely because the electorate were not persuaded of the bona fides of Atiku Abubakar, the opposition party’s flag-bearer.
As a governance principle, however, this article of faith appears to have fallen well short of the targets originally advertised for it. In order to enhance domestic growth and development, a country often needs to borrow. Long-term borrowing is to be preferred to short-term ones, especially when one takes into cognisance the gaping hole in extant estimates of the economy’s infrastructure needs. Investment in factories and buildings matter more than in money market instruments. Private sector monies are often more efficiently deployed, and less risky to the sovereign than government borrowing. And when governments borrow, better to spend on infrastructure than on salaries.
The list goes on. But having prioritised integrity over all else, the Buhari government continues to thumb its nose at these verities. Nowhere is this more obvious than its disregard for the rules of economics. True, the dismal science ain’t a “science” in the way in which physics is. Nor does the “law of demand and supply” enjoy the same cachet as does Albert Einstein’s theory of special relativity. But surely, were a shock in any sector of the economy to lead to a falloff in the supply of a given commodity, while demand remains unchanged, prices for that commodity will rise – and vice versa. And where governments have responded to such price disruptions by legislating caps on the movement of prices, a black market, and mafia-type involvement in such industries have emerged.
Better, therefore, to tackle the structural or secular causes of such shocks than to look to the integrity and good intentions of the policy maker as panacea. Two features of the economy, today, describe the new dilemmas arising from this mindset. Incidentally, the Central Bank of Nigeria has done the most to describe this new philosophy. Not surprisingly, its policy suite – multiple currency windows, multiple fixed income securities windows, a retail loan book that now rivals the combined loan books of what it calls “deposit money banks”, and a fervent priming of the press to help government hold up its books – is at the core of the new heterodoxy.
Yet, a perfunctory look at the exchange rate, cost of government borrowing, inflation, and the structure of our economy – still largely dependent on crude oil exports – reveals that nothing has changed over the last five years. As usual, we remain one oil shock away from a serious economic (and social and political?) crisis. Some would, indeed, argue that we may be in a worse position. i.e. that the economy ekes out its current existence at the edge of a precipice and might not need any external nudge to topple over. Government’s huge debt (and the increasingly onerous conditions for servicing it), the dependence of the balance on our gross external reserves on non-resident portfolio investors’ continued interest in the economy, and the central bank’s distended balance sheet, all mean that the buffers that would have helped cushion future shocks no longer exist.
The meeting, early this month of the Organisation of the Petroleum Exporting Countries (OPEC) underlined how precarious an economy as dependent on fossil fuel exports as ours has become. OPEC considered how “uncertainties…including trade-related negotiations, macroeconomic developments and other factors” would affect “global inventory levels, as well as overall market and industry sentiment”. And forecast global economic growth in 2020 at 3 per cent, growth in oil demand at 1.1mb/d, while revising expectations for non-OPEC supply downwards. In the short-term, then, on the back of these numbers (even with the global excess of supply of crude oil over demand currently estimated at about 2mb/d), the outlook for the domestic economy remains positive.
Yet, there was an uninvited guest at OPEC’s December 5 meeting. The main goal of the UN Climate Change Conference – COP 25 – which started on December 2 and is expected to end on the 13th in Madrid, Spain is to get the countries of the world to negotiate more ambitious plans to hold down global warming to 1.5°C, in line with the Paris Agreement. Fossil fuels, especially how to wean global economies of these, will be a key consideration at this meeting. Renewables are taking up a growing share of global energy production – between them, both wind and solar now account for 7 per cent of global electricity generation, two times as much as they made up six years ago. Both no longer need subsidies to do this, even as better storage technologies solve the intermittency problem. Along with potential supply shocks, then, oil suppliers should worry about the implications for demand threatened by the growing salience of electric vehicles.
OPEC’s big wigs “deliberated on the current status of negotiations at the COP-25 United Nations Framework Climate Change Conference in Madrid and underscored that all OPEC member countries are actively engaged and supportive of the Paris Agreement.” And why not? Much of the threat to big oil is still down the lane. But as with the movement around the privatisation of Saudi Aramco shares, even the Kingdom of Saudi Arabia senses that its cheese will soon move. Ours will, too, and far sooner, if not more rapidly. And it will matter that we understand both the dynamics of our economy, the dynamics of the changing global economy, and how both interface if the resulting disruption is not to challenge everything this country has stood for.
As this process gathers momentum, it will help that those who are saddled with this responsibility are honest people. But it will matter more that they are informed, if we are to improve the resilience of our economy over the next three decades.