The Nation Newspaper

Category: Dapo Fafowora

  • Recession: Is the worst really over now?

    Recession: Is the worst really over now?

    Recently, the Finance Minister, Kemi Adeosun, had to admit what had long been known to both local and foreign analysts that Nigeria was technically in a recession. For an economy that was growing at over 5 per cent only two years ago, the recession, an encircling gloom, is much worse than expected. It was courageous of the Finance Minister to have made that admission, as captains of a sinking ship do not normally admit that their ship is sinking. Recent data from the Federal Bureau of Statistics showed that in the second quarter of the year, the economy declined by 2.6 per cent, making this possibly one of the worst recessions in Nigeria’s recent economic and financial history.

    The Buhari APC federal government says it is doing all it can to tackle the recession. Leading spokesmen for the federal government have been increasingly upbeat about the efficacy of the fiscal and monetary strategies being adopted to end the recession and how soon this objective can be achieved. However, I was startled by the overly optimistic forecast last week by the Finance Minister that the recession should bottom out in the second half of 2017. In fact, echoing the optimism of the Finance Minister, the beleaguered Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, was reported as being equally upbeat about the prospects of ending the recession sooner than thought possible by most credible financial and economic analysts. He was reported in The Nation of Monday, September 19, as saying that the worst of the recession was over. If by ‘over’ he means that the recession has bottomed out and that the economy can now return to growth, I have to say that his optimism is premature. There is still a lot of work to be done and more ground to cover before we can say the recession is over. We have to wait for the release of the economic data in the last quarter of this year to make that judgment. I personally do not think that the recession will end in the time frame being projected. Even with the most efficient strategies there is a time lag involved in the process of economic stabilisation, particularly as the basic problem is structural.

    Some of the commendable economic and financial measures being introduced by the federal government to end the recession include a stimulus package of which, so far, some N420 billion has been injected into the economy to provide it with an impetus. The Finance Minister has announced that another sum of N374 billion will be injected into the economy shortly in the hope of jump starting it. Other financial measures include an impressive social spending programme that could act as a catalyst for the depressed economy. But it is doubtful that in the short run these measures have the capacity to end the recession and bring the economy back to growth. The reason is that Nigeria’s recession is not merely cyclical but structural as well. Nigeria is not only wholly dependent on oil exports and revenues. It is also largely import dependent. Right now the external sector is weak. Until the global glut in oil supply and falling prices for oil exports end, Nigeria’s revenue from oil imports will not increase significantly in the short run. With the exception of China and India, the rest of the world is still in recession. In the EU, the average growth rate is less than 2 per cent. So, for Nigeria, improved oil exports and revenues remain a critical factor in its efforts to end the recession. As for food imports, there is obviously a need to reduce these, as it is putting pressure on Nigeria’s foreign reserves. But I do not think the way to handle this is to place a ban, or restrictions, on some food imports and industrial raw materials. These restrictions and bans are not likely to work. The goods banned will still find their way into Nigeria through large scale smuggling. The revenue that Nigeria should earn will go instead to corrupt Customs officials. Instead of the bans, high tariff instruments should be used to reduce our food import bill. Other countries use this strategy to great effect. But, like the MPC of the CBN, I also have some reservations about the possible negative consequences of injecting such a huge amount of money into the economy in so short a time. Nigeria, no doubt, needs a stimulus package. But it is important to calibrate and moderate this large cash injection into the economy as this will, no doubt, fuel the already high inflation rate, now averaging 17 per cent. And this could undermine growth. The proposed emergency spending bill, which seeks to short circuit the existing procedure for the award of public contracts, will also add to the rate of inflation. It can even fuel public corruption.

    There are other equally critical issues that have to be addressed urgently if we are to end the recession as swiftly as possible. The first is how to reduce the huge budget deficits to a more manageable level. Of course, Nigeria needs to increase its IGR urgently to address the huge budgetary deficits. But the country’s financing gap is about $30 billion annually and this financing gap is increasing steadily because of its inability or failure to widen its revenue base. The recent $I billion capital inflow is welcome. But it will not solve Nigeria’s basic economic problem. More funds should be generated internally. In this regard, the VAT, now 5 per cent, should be increased to 10 per cent to bridge some of the deficits. Because of global financial uncertainties, we cannot continue to rely indefinitely on foreign loans to finance our capital projects. At a time of a global economic and financial recession as we have now it will become increasingly difficult to raise such funds abroad. And successive federal governments are to blame for this difficult financial situation. When President Obasanjo left office in 2007, he left over $60 billion in foreign reserves, and this was after he had successfully renegotiated our foreign debts and paid the balance off. As reported by the Governor of the CBN, the foreign reserves stood at $68 billion in 2008. Today our total foreign reserves are down to only $25 billion, despite record oil exports and revenues accruing to the domestic economy. According to the Governor of the CBN, $62 billion was simply frittered away by Obasanjo’s successors, principally by the wasteful and corrupt Jonathan PDP federal government. It is being suggested by some analysts, including the Governor of the CBN, that some of the assets of the federal government in the NNPC and the NLNG be sold off to raise additional revenue for the government. In fact, the Governor of the CBN was reported as saying that had this opportunity been taken six months ago, the federal government would have made about $40 billion from the sale of these assets. But now, it will not make more than $20 billion. Much valuable time has been lost. But I do not support the idea of selling at these uncertain times such valuable assets. Much of these assets will only be sold to the government’s cronies at below their real market price. In any case, it is unwise to sell these strong financial assets now simply to reduce the budget deficits or finance the importation of unnecessary goods into our country.  Ultimately, the NNPC will have to be scrapped altogether. It is a major source of public corruption in our country

    A major critical imperative in the economic recovery programme of the Buhari APC federal government is the urgent need to restore stability in the macro economy. At the moment there is volatility in the naira exchange rate, banks’ lending rates (now 20 per cent) and hyper inflation (now 17 per cent. Unless we get our economic fundamentals back on track and restore the macro economy to stability, it will be difficult for the Nigerian economy to return to a stable, sustainable and modest growth rate. A kind of coherent structural adjustment programme is now urgently needed. Tougher measures to arrest the economic drift and recession are badly needed. President Buhari should not flinch from taking them. In fact, these tough measures should have been taken in the first 100 days of his government. But the government dithered and wasted much valuable time by refusing to bite the bullet when it became clear that the economy was in disequilibrium. Decisions on the naira exchange rate adjustment and the timely removal of the oil subsidy were some of the issues over which the government dithered. For any structural adjustment programme to have the desired impact, its sequencing must be absolutely right. In 1986 the Babangida military regime got its sequencing right. That was the reason for the impressive growth of the economy in the late 1980s when it recorded an average of about 6 per cent, about the highest in Nigeria’s economic history. Of course this high growth rate was also made possible by the significant increase in revenue from oil then selling at $120 per barrel. But the growth rate later fell due to policy slippages and flip flopping by the Babangida regime.

    I have to say as well that I have some reservations about the decision to allocate 60 per cent of the available forex to the manufacturing sector. The banks are already circumventing this. While I fully understand the reason for this, which is to enable the sector improve on its capacity utilisation and create more jobs, my view is that this measure undermines a liberalised foreign exchange mechanism, essential to our economic recovery strategy. It is all the more disturbing as the total contribution of the sector to our GDP is less than 10 per cent. The Lagos Chamber of Commerce, a member of the OPS, has already expressed its strong objections to this strategy. And if we have to fully exploit the opportunities and potential for growth in the mineral resources and agricultural sectors, then they need to be treated with special consideration also in the allocation of forex. These are the sectors in which real growth can be expected.

  • Does Buhari need emergency powers?

    Does Buhari need emergency powers?

    This paper, The Nation, reported on its front page on Monday, August 22, that, on the advice of his economic (advisory) team, President Muhammadu Buhari is seeking emergency economic powers to tackle Nigeria’s sluggish economy. An enabling economic stabilisation bill giving him wide emergency powers is to be sent shortly to the National Assembly for its deliberation and passage. The details of the enabling bill have not yet been made public, but the paper hinted that the emergency economic powers President Buhari is seeking will be sweeping and wide ranging, and could cover fiscal and monetary policies as well. The proposed emergency economic powers will be justified on the grounds that our economic recovery has been rather slow and that a shot in the arm, through emergency powers for the president, is now needed to move our country out of its recession speedily. The proposed bill will, of course, have an easy passage in the APC-controlled National Assembly.

    But I find the claim that the president needs extra powers to tackle our economic problems astonishing. It is perfectly understandable that his Economic Team, out of frustration with the sluggish economic recovery, should urge the president, who is just as frustrated, to seek wider emergency powers to tackle the sluggish economy. But are the new emergency and extensive powers being proposed for the president really necessary? Does he not already have all the powers he needs to move our country forward? Will the granting of such wide powers to the president by the National Assembly lead to a better management of the economy and turn it round? Will it create more jobs? I do not think so. In fact, I consider it dangerously delusional. It is a populist economic strategy that will attract some support from the public who, in their desperation, will clutch at any straw now in the hope for a dramatic transformation of the economy after decades of neglect and mismanagement. But I do not think that giving the president wider emergency powers and impunity over the economy now will produce any significant change in the economy. He knows he does not have a magic wand to accomplish that. The president has himself admitted several times publicly that there are no ‘quick fixes’ to the grave economic challenges facing our country and that more time is needed to tackle these challenges. In fact, in the absence of any clear and coherent economic strategy by the government, giving the president emergency powers now over the economy could be counterproductive and lead to more chaos and public frustrations with the management of our domestic economy. We should avoid having to act out of desperation.

    To start with, as is well known, Nigeria’s economic problem is really structural and deep seated. It has more to do with its over dependence on oil revenues and our failure over the years to make the necessary public investments to diversify our country’s economic structure away from its dependence on oil revenues which, recently, has fallen by over 60 per cent. It is unlikely that recovery from the decline in oil revenues will occur soon. There is a global economic recession and a consequent fall in the global demand for oil. Due to the insurgency in the Niger Delta, Nigeria’s oil production has fallen from 2.2 billion barrels a day to only 1.5b. Its main competitors in oil exports, such as Venezuela, Iran, Angola and Saudi Arabia are in full production even when global oil demand is falling. So, wider economic emergency powers for the president will not lead to more oil exports or revenue for Nigeria, even if the Delta returns to normalcy.

    In addition, some of the nagging economic problems for which the president is being urged to seek wider powers can more easily be addressed by mere administrative measures. These include the delay in the granting of Nigerian visas for prospective foreign investors, the education fund, mobilisation funds for local contractors, and the existing procurement process. All these do not require additional powers for the president. Where it is necessary to amend the existing constitutional procedures to deal with these problems, this can be done by the Executive presenting the necessary amendment bills to the National Assembly, rather than by seeking new and sweeping economic powers for the president.

    For instance, in the case of mobilisation fund for contractors, it was reported that the president will be seeking to increase it from 15 per cent to 50 per cent. I consider this proposal an outright prescription for financial and economic disaster in our country. Many contractors will simply collect the 50 per cent mobilisation funds and walk away from the project. It will be difficult for the government to recover such funds from the contractors, particularly as most of the beneficiaries of such funds are likely to be party hacks who, in the first place, secured the contracts on the basis of party political patronage. In most cases the governments award the contracts as a means of funding their political parties. They are then obliged to turn a blind eye to the failure of these political contractors to complete the projects for which they received mobilisation funds. It is rare in our country for the government to take defaulting contractors to court for defaulting on contracts. The matter is simply swept under the carpet in view of the political stakes involved, and its potential for generating political scandals. As we have seen recently from the ongoing EFCC investigations into public corruption, the Jonathan PDP federal government fraudulently awarded a vast number of such phony contracts to its political supporters. This is a situation that must be avoided at all costs, as increasing the mobilisation funds of the contractors will not solve the problem of lack of financial accountability. It will make it worse. The existing financial rules regarding the procedure for the award of public contracts are quite adequate and should take care of the concerns of the government about the non-completion of public contracts.

    With regard to the existing public procurement process that the federal government is now seeking to change, it should not be forgotten that the current process was introduced to curb the irresponsible and corrupt manner in which public agencies were making procurements. The whole business was riddled with corruption leading to massive loss of public funds. The complaint now is that the procurement process is too long and that it is responsible for delays in the implementation of public projects. But the problem really is that applications for public procurements are usually delayed by the bureaucracy so as to stampede the procurement agencies into granting hasty approvals. In some cases lack of funds causes the delay in procurement. But there is no question that the existing procurement process has worked reasonably well. Large savings of public funds have been made by the insistence that due process be followed in public procurements. Scrapping it now and transferring the responsibilities to the president, or his designated officials, is likely to cause more delay and worsen public corruption in our country.

    The Organised Private Sector (OPS) was reported as being in support of the proposed emergency economic powers for the president. This is not altogether surprising as the business community, which was apparently consulted on the issue of the proposed emergency powers, tends on the whole to support draconian measures in times of economic recession. But I know from personal experience that it is a decision it usually regrets later as sweeping economic powers for the president may be detrimental to the real economic and financial interests of industry. It is no guarantee for speedy economic growth and has the potential of even dividing the business community. During the long period of military dictatorship in our country the military rulers virtually enjoyed unlimited and untrammelled emergency powers over the domestic economy. Institutional checks and countervailing forces against public corruption and the abuse of such wide powers were simply swept aside by the military. This trend which was inherited by the succeeding civilian governments accounts to a large extent for the economic mess in which our country now finds itself. The truth of the matter is that because of its lack of accountability, military rule set our country back by several decades. Vital decisions on investments in our infrastructure were not made. For instance, the introduction of import licensing by the first Buhari military regime was grossly abused by senior military officials placed in charge of the Import Licensing Committees. The import licences went to the wrong people who then sold them to genuine importers at highly inflated prices. Recently, President Buhari claimed publicly that one of the reasons his military government was overthrown in 1983 was that he was going to deal with this abuse by some of his senior military colleagues. When Babangida was in power, he too introduced and fraudulently granted import duty waivers to the wrong importers as well. These selective import duty waivers killed many local industries. The concern here is not that, if granted, PMB will himself abuse his emergency powers. Rather it is that his subordinates cannot be trusted by the public to ensure a fair and level-playing field under such emergency powers. Giving the president such sweeping powers over the economy could undermine our fledgling and fragile democracy and our economic rights. In any case even without additional emergency powers the President of Nigeria is powerful enough to steer the economy in the right direction without demanding additional powers which will, almost certainly, be abused to our economic detriment. He is one of the most powerful leaders in the world.

    But the most compelling reason for urging the federal government to have a rethink on the issue of emergency economic powers for the president is the suggestion that he should be directly responsible for determining monetary policy. This could justifiably be viewed as another negation of fiscal federalism in our country. Specifically, it was mentioned in the media reports that exchange rate adjustment strategy will come under the President’s purview. This has to be speculative as I cannot imagine a more dangerous prescription for our economy than the proposal to transfer the constitutional responsibilities of the CBN regarding exchange rate management directly to the president. It is this kind of currency manipulation by the leaders of countries, such as Venezuela and Zimbabwe that has destroyed their economies.

    The world, including Russia, China and India, has moved away, rightly, from excessive state control of the economy to a more liberal strategy based on the effective functioning of state institutions. Awareness of this positive trend is reflected in our more recent economic plans and strategy, such as the MDGs and vision 2020. State controls are often arbitrary and tend on the whole to discourage local and foreign investors due to their inherent economic flip flops and uncertainties. The spectacular economic transformation of countries, such as India, China and Brazil is sufficient illustration of the efficacy of a liberalised and market-based economy in achieving faster economic growth.

    Even in Africa, more and more countries are moving away increasingly from state controls to a free economy with the necessary adjustments. If maintained, the war against public corruption in our country will restore some economic sanity to our country. Instead of giving the president wider emergency economic powers, what the country needs are reformed state and public institutions that can be relied upon to function more effectively. A continuation of the reform of state institutions to make them more effective and efficient is what is needed, instead of resorting again to a command economy that has not served our nation well in the past. It will be a case of one step forward and two backwards.

     

  • Tribute to Bankole Olayiwola Bolodeoku (1940-2016)

    The news of the sudden death last month of Venerable Bankole Olayiwola Bolodeoku was devastating to his family and all his friends. He would have been 76 this month. News of his demise came to me as a rude shock as well as I was totally unaware that he was even ailing. He always looked hale and hearty. The last time we met socially in Lagos a few months before his death he never looked healthier. My wife Bose and I were in total disbelief that ‘Layi (as his close friends called him) had indeed gone.

    Our thoughts immediately went to his beloved family in their grief, particularly to his siblings and his loving wife, Abimbola (nee Egerton Shyngle) to whom he was married for nearly 50 years. It was a blissful and happy marriage, blessed with five lovely children, all of whom are doing well in their various careers. To those who knew the couple well, the Layi Bolodeokus were a model and truly Christian family, whose beautiful and friendly Christian home in Idi Ishin, Ibadan, was always filled with laughter, much happiness, generosity, peace and love. It was always open to their family and numerous friends. Their warm hospitality was legendary and admirable, and their generosity to their friends and family was unstinted and quite remarkable.

    Layi had a distinguished Ondo ancestry of which he was immensely proud, with wide family connections to many prominent Ondo families, including the Akinkugbes.  But he lived in Ibadan virtually all his life. Ibadan was good to him. He had a successful career there and brought up his own large family there. After their own marriage Layi’s parents had settled down in Ibadan where they were hugely successful in business and in bringing up their large family. They were both devout Christians and I remember them worshipping regularly at St. James’ Pro-Cathedral Church in those days.

    My friendship with Layi dates back to 1953 when we first met as pupils of St. James’ Primary School, Oke Bola, Ibadan, where I was a year ahead of him in standard six. I had been sent to the school from All Saints’, Oshogbo, when my father, a civil servant, was transferred to Ibadan.  Layi’s elder brother, Ade, was my friend and classmate there. He is now a successful and retired chartered accountant. Layi was one of the few students to whom I was easily drawn in the school. He was very friendly and immensely likeable, a trait of character that stood him in good stead later in his long, outstanding and varied public career. Although we both attended different secondary schools later, we remained friends and met often socially in Ibadan during the schools’ holidays. Later, we met again at the then University College, Ibadan, where I preceded him by a year and renewed our old friendship. It was at the university that he and Bimbola, my favourite maternal cousin, met and soon entered into a romantic relationship. I knew they were both very much in love and encouraged them. There was another suitor, but Bimbola and I contrived to get rid of him. Soon after they both left the university they got married. This made the bond between Layi and me even stronger.

    I was sure Bimbo had made the right decision in marrying Layi. I knew he would make her a good husband and friend. He had a profound sense of duty and responsibility to his friends and family. From the early years of our friendship, Layi impressed me as someone who had a focus in life. He was diligent, hardworking, determined to be successful, very charismatic and charming. As he was not over bearing he made friends very easily with people. He was complemented in this regard by his wife, Bimbo, a woman of noble character. She is one of the most graceful, gracious, kind and charming ladies I have ever known, and with whom I have had a special relationship, not just as cousins, but as genuine friends.

    After graduating from Ibadan in 1965, Layi had a brilliant career, straddling the old civil service in the then Western Region, where he served as the Private Secretary of the military governor, General Adebayo, the Ibadan Polytechnic of which he was the Rector, and finally as the CEO of Evans Publishing Company in Ibadan for over 20 years. In all those places he rose to the top effortlessly and left an enduring legacy. If he had any tribulations in his varied career, he overcame them easily with the support and steadying hands of Bimbola, his wife, the granddaughter of the legendary Revd. Benjamin Ilowu Manuwa of Badagry fame. In her own right Bimbola also had a distinguished career as a university administrator, rising to the enviable post of a Registrar/Secretary in the College of Medicine at the UCH, Ibadan.

    After retiring from Evans, Layi decided with the full support of his wife to enter the priesthood, eventually becoming a senior vicar (Venerable) of the All Souls’ Church, Bodija, of the Anglican Communion in Ibadan. This did not come to me as a surprise at all. I had always thought of him as someone who was always searching and probing the source of personal fulfilment and happiness in life. He found both in the church where he and his wife, Bimbola, touched many lives positively. He was versatile and multi-talented. He was not one to shirk his responsibilities. He threw himself into this new task and challenge as a priest with characteristic energy and vigour, prompting his wife to complain sometimes privately to me that he was neglecting his health. But Layi remained undaunted until the very end.

    Layi was a good family man. His love for his family, particularly his wife, Bimbo, and their five children, was unstinted. His love for them was fully requited too. As they are now left to mourn his death, we his numerous friends pray that, in this their period of grief, God will comfort and continue to bless and protect them.

  • Varsity unions as threat to security and development

    Those who contend that Nigeria is a country of impunity certainly know what they are saying. From the crowded and unsightly streets to the spick and span corridors of power, impunity and lawlessness reign unfettered. This ruinous culture from the long years of the misplaced foray of the military into the business of governance has continued to inform the behaviour of both the ruled and the led towards bald-faced disregard for order and decency. What is more worrisome is that this virus of impunity attacks the core of many of the country’s critical public institutions and hamstrings them from functioning in ways that enable them to stimulate meaningful progress and sustainable development. Nigeria’s tertiary institutions markedly stand out among the country’s institutions that are being increasingly disabled and effectively beached in the peat bog of retrogression due to the unchecked reign of the culture of impunity, that malignant bug that ensures people get away with organised lawlessness and disconcerting infractions without appropriate retributions. Nigerian lighthouses of knowledge and learning are struggling to fulfil their lofty objectives of building round and sound minds for the development of the country because the cankerworms of impunity – in cahoots with other formidable but solvable challenges – are ruthlessly besetting them.

    From experience and careful observations, I have identified university unions like the Non-Academic Staff of University (NASU) and the Senior Staff Association of Nigeria Universities (SSANU) as constituting terrible threats to the smooth operations of our tertiary institutions in the same manner that they are becoming real threats to the security of the institutions’ host communities. The horrendous impunity and brazen lawlessness often displayed by these unions in the name of protesting certain injustices done to them by egoistic school managements do much to slow down the march of our higher institutions to the orbit of innovation and knowledge production to enhance viable development for the country.

    It is saddening to note that the violent, disruptive approach of many branches of these unions to resolving issues of allowances and welfare has turned them into clogs in the wheels of progress of our tertiary institutions as sites for the production of transformative knowledge. It so often happens that when these unions stage their substantively barren protests, they cripple normal academic and legitimate business activities. In many instances, to forestall total breakdown of order, the schools are shut down. The students are sent home to waste away only to be recalled to have their frustrated minds laden with weak education which moulds them into docile, ignorant, and parasitic citizens.

    For many weeks of June and July, Obafemi Awolowo University, Ile Ife, was all over the news because of the violent, disorderly, and lawless conducts of the members of the university’s NASU and SSANU. Those unions claimed the process that threw up Prof. Tale Omole’s successor, Prof. Ayobami Salami, was improper. As a matter of fact, midway into the process, which neither of the unions have a say in, the unions’ leaderships went to court in a bid to secure a restraining order against the Governing Council of the school. But instead they got a notice to be served on the respondent.

    Rather than allow the court to decide the matter, the unions went berserk and took laws into their hands. First they disrupted a meeting of the Governing Council and locked up the members in a room. The Ooni of Ife secured their release the following day. Second, they abandoned their works and pugnaciously insisted they would not change tack until the Governing Council was dissolved and the new VC removed from office for an Acting VC of their fondness. Their violent disposition caused the management to close the school. And since the Federal Government is deficient in crisis management and alien to the logic of justness, it acceded totally to the strange demands of the unions without conducting any investigation. The workers are back to work; none was punished for lawlessness; they have got the salaries they did not work for, and, sadly, the students have been called back to be rushed through the session. Hurray to impunity!

    Similarly, at the time I was composing this piece, NASU and SSANU members in the premier University of Ibadan were staging their own drama of impunity. Actually, they started this on the last Friday of July. They locked the main gates and other entry points to the university. They bivouacked behind the main gates threatening to make the entire university ungovernable.

    One of the things their leader, Wale Akinremi, said to their rapturous applause was that it was insulting and shameful that their colleagues in OAU were the first to remove a VC from office. He went on to assure the members that their national executives had approved their decision to paralyse activities on the campus until their allowances were paid. OAU was a copious reference in all his disjointed speech. Nothing would happen if they disrupt activities on campus, he thundered. He even ordered that the Headmaster of the Staff School be dragooned to the protest site. It was done, with unimaginable humiliation to the elderly man.

    Now is the time for security agents to take serious interest in the disruptive activities of NASU and SSANU across our tertiary institutions. Boko Haram and other hinderers of people’s freedom began through what appeared to be lawful gatherings. Rarely was attention paid to the dangerous philosophy the groups inculcated. It is doubtful whether the next three generations can recover from the hell Boko Haram created in the Northeast of this country. NASU and SSANU during protests act with nearly total disregard for the law and the wellbeing of others. They not only always vocalise their intentions to make their schools ungovernable, they also press into disastrous actions, daring anyone, including security agents, to check them. They revel in indiscipline and justify it with the claim that they have the right to protest.

    The truth is that the madness of these unions on our campuses has no method and as such it is capable of dooming us all if security agents do not take serious interest in their activities. Many branches of NASU and SSANU on our campuses do not believe in resolving problems through the instrumentality of rigorous dialogue. They subscribe joyously to the oppressive logic of using violence and lawlessness as a means of resolving industrial disputes. They think the whole world should stand still when they are demonstrating lawlessness under the false guise of protecting their interest and exercising their right. Had those who lawlessly locked up the Governing Council members in OAU been duly punished in adherence to the law, the crude and antediluvian ones in the UI NASU/SSANU axis would not see them as models of exemplary behaviour. The deterrent lacking as a consequence in the OAU case made it possible for the brigands in the UI arm of the unions to find the path of lawlessness and impunity easy to walk.

     It is high time security agencies took good interest in the protest actions of NASU and SSANU on our campuses before these unions morph into nihilistic terrorists that will be difficult to contain. Already they constitute grave threat to the peace of our tertiary institutions and their ability to contribute to the development of the country.

    May I equally call on our tertiary institution managers to develop more functional capacities for crisis management. The truth is that the manners in which many of these administrators mind and respond to the issues involving the welfare of their workers have the potential to radicalise the workers and motivate them into becoming pitiless agents of calamitous disruptions and nasty destructions. When sensible, sensitivity, and humane leadership is lacking, the gate of progress will be stormed and unhinged by barbarians.

    Ibitola, a national affairs analyst resides in Bodija, Ibadan.

  • On proposals for cutting costs in diplomatic service

    On proposals for cutting costs in diplomatic service

    I was saddened by the report in this newspaper last Friday about the deplorable state of the ‘Nigeria House’ in New York, as well as the poor condition of its staff. The report claimed that some of the diplomatic staff had not been paid for up to four months. While I was Ambassador at the UN (1981-84) I was involved in the early stages of the plans for the development of the property which was intended to bring the Nigerian Mission at the UN and our Consulate General in New York together under one roof, instead of two rented properties. The property was intended to save costs and was developed after I left New York in 1984. I have visited it a couple of times since then. It is a magnificent building of which Nigeria should be proud. But over the years I could see that lack of maintenance of the property has made it less alluring. Its neglect, like many other Nigerian diplomatic missions abroad, is due largely to lack of adequate funding, not really due to lack of funds. The following is an article by me, first published in my column in this paper in September, 2015, that sought to address the problem of inadequate funding for the Foreign Service. It is being published again unedited as I believe it addressed some of the critical problems of funding in the Nigerian diplomatic service.

    One of the main challenges facing President Muhammadu Buhari is the urgent need to reduce the overall cost of public administration in the country. This has soared over the years. There is a national consensus that the bureaucracy at all levels of government has become too large, and that a reduction in its size and cost has become imperative. The current sharp decline in oil revenues, which have fallen this year alone by over 60 per cent, leaves the governments of the federation with no other choice but to begin to think seriously about how these much needed cuts in the cost of public administration can be achieved. President Buhari is well aware of this challenge and has alluded to it publicly several times. But he has not yet taken any practical or concrete steps to address this lingering problem. It is a difficult and painful task which requires great care and circumspection particularly at a time of mass unemployment. It will adversely affect the diplomatic service as well.

    There were recent media reports that while being briefed by the Permanent Secretary of the Foreign Ministry, Ambassador Lulu, President Buhari expressed his concerns about the large number of Nigeria’s diplomatic missions abroad, and the huge number of its overall diplomatic staff. Ambassador Lulu told the press that the President informed him that he intended doing something to reduce the number of our foreign missions. It is also possible that the overall staffing of the Foreign Ministry itself will form part of the review being proposed. But so far he has done nothing about this.

    There is no doubt that the number of Nigerian diplomatic missions abroad has increased significantly in recent years. At independendence in 1960 Nigeria had less than a dozen diplomatic missions, mainly in Africa and Western Europe. In 1964, when I entered the diplomatic service this increased to about 25, largely in response to the need to have diplomatic representation particularly in the newly independent African countries. By 1976 the number of our diplomatic missions increased to 65. The civil war had ended and the need was felt for more missions to be opened abroad. From 1970 to 1976, over 100 new Foreign Service Officers (FSO) were recruited to staff both the expanded Foreign Ministry and the new diplomatic missions abroad. The surge in oil revenues made the increase in the number of missions and diplomatic staff possible and sustainable.

    Today, we have 119 diplomatic missions abroad and it is becoming increasingly clear that, in our present dire financial situation, it is going to be financially difficult to sustain such a large number of diplomatic missions and staff. In 1964, the overall cost of our total diplomatic establishment, at home and abroad, was only 33 million pounds sterling. Since then, the cost of running both the MFA and our diplomatic missions has continued to rise inexorably. According to an official document issued by the MFA in 2012, by 2006, total MFA budget appropriation was N25.2b, of which over N20.2b, or 81 per cent, was spent on running our foreign missions. In 2011, budget appropriation for the MFA had increased to over N40b, with our foreign missions still accounting for over 81 per cent of the overall cost. This is where the major operating cost of the MFA is incurred. Average annual personnel cost of the MFA is less than N4b. Huge as these figures may appear to be, they account for an average of only 1 per cent of the total federal budget. In fact, it was only in 2007 that budgetary allocations to the Foreign Service reached 1.34 per cent of the budget of the federal government.

    Two issues arise from this analysis. First, is the state spending more on its foreign representation than other public agencies? Relative to other agencies of the federal government, can we really say that the cost of running the Foreign Service, with its enormous global responsibilities, is too much? It is by no means clear that is the case, except that most of the cost incurred in running the Foreign Service and our diplomatic missions abroad is in foreign currencies. It is this that leads the public and the government to demand a reduction in appropriations to the MFA. For example defence and national security take an average of 15 per cent of the budget annually, education about 7 per cent, home administration over 12 per cent. So, in real and comparative terms, the overall cost to the nation of its Foreign Service is not as high as it seems. The second issue regarding costs is where the cuts, if necessary, are to be made. Is it in the cost of personnel or the number and size of our diplomatic missions abroad? I raise these questions because previous efforts to cut the cost of running the Foreign Service have on the whole focused on the senior staff of the MFA rather than on the large number of our foreign missions which account for over 80 per cent of the overall cost of running the Foreign Service. As a matter of fact in 1976 and 1984 when there were purges in the Foreign Service, more diplomatic missions were opened after. This showed that the purges were political and not motivated by any demonstrable need for cost reduction. Only a few years ago, a new diplomatic mission was opened in Juba, South Sudan, and our embassies in Caracas, Belgrade, the Vatican and Prague, which had been previously closed, were all reopened. Even the MFA complained officially about these inconsistencies in the manner our missions are opened, only to be closed later for lack of funding.

    The fact of the matter, often ignored by the government and the public, is that some of Nigeria’s diplomatic missions were opened to accommodate failed politicians and political hacks who demand diplomatic postings as compensation from the government. And non-career ambassadors cost more to maintain than career ambassadors. Of Nigeria’s 119 diplomatic missions, about 60 have non-career ambassadors. But only a handful of these can be said to have what it takes to be a good ambassador. Many of them go abroad to serve themselves and not the nation. A few years ago when I visited Argentina and called on our embassy in Buenos Aires, I met a junior staff there who told me the political Ambassador had been absent from his post for over six months. Again when I served in Ankara, Turkey, in 1975, with concurrent accreditation to Iran, I could not understand the reason for our having a diplomatic mission in Ankara at the time. Subsequently, I learnt that the two missions were opened to accommodate Brigadier Kurubo, a former head of the Air Force. When I went to Teheran to present my letters, I discovered that Kurubo was not even known in the Foreign Ministry. Our Mission in Teheran was being run by a junior attaché who had not been paid for six months. I duly recommended that one of the two embassies be closed as our residual interest there in those days did not warrant us opening full-fledged embassies there. In fact, in disgust, I requested a posting back to Lagos after only a year in Ankara.

    Many critics of our foreign representation have pointed out to the lack of resources in running our missions abroad. This is, in fact, the critical issue. For lack of funds most of our missions cannot be run properly and professionally. The Foreign Service is costly and cannot be run on shoe strings as is the case now. For instance, total MFA budget in 2009 was only US$306 million. That year, South Africa’s budget for its Foreign Ministry was US $702 million, nearly twice that of Nigeria. In 2010, while Nigeria’s Foreign Service budget fell to $232 million, South Africa’s was US$634. In 2012 our MFA budget was only US$317 million, while that of South Africa was US$720 million. Yet, South Africa’s GDP is only a third of Nigeria’s. As acknowledged by the MFA publication of 2012 , ‘Our diplomatic missions continue to suffer needless and painful embarrassments arising from  disconnection of utility services, ejection of staff from rented apartments, ejection of children from schools for failure to pay school fees and arrears of salaries of the diplomatic and other staff’. In 1989, after verification, the federal government settled an accumulated debt of $100m in our diplomatic missions. In 2005 a similar exercise took place with the missions being bailed out again. From the huge financial scandal of the Jonathan federal PDP government in which over $20b was simply diverted to private pockets, can we seriously say that our country cannot afford to run a decent and well funded diplomatic service? The MFA was not involved in any of these financial scandals. Less well endowed African countries fund their diplomatic missions better than ours.

    It is up to the government to determine how many diplomatic missions our country should have. A preponderant number of these diplomatic missions are in Africa, our primary area of strategic and political interest. It will be difficult to close any of them. The number and size of our diplomatic missions should reflect the government’s foreign policy objectives and strategies. Nigeria’s global responsibilities and obligations have continued to increase. Yet, in our present challenging financial situation, with oil revenue falling steadily, and the  GDP growth rate projected to decline this year to roughly 2.5 per cent, it is obvious that something concrete and urgent must be done to reduce the cost of governance. As far as MFA is concerned it is now inevitable, though regrettable, that the number of our foreign missions could be reduced. But it is going to be a difficult exercise. We have over 125 foreign diplomatic missions in Abuja. Exchange of embassies and ambassadors is reciprocal. Foreign countries from which we withdraw our embassies will not take kindly to it. They will almost certainly retaliate by closing their own diplomatic missions here too. The idea of ‘smart’ embassies proposed by the Foreign Minister, Geoffrey Onyeama, is useful. It involves running the embassies with fewer staff. But this will not lead to much savings. Instead, it will create many more inefficient Nigerian embassies abroad.

      In conclusion, I have to say that we need to consider the fact that the total expenditure of the 125 foreign diplomatic missions in Nigeria is probably higher than the total cost of running our 119 missions abroad. In other words, the total cost of running our missions abroad is far less than what foreign diplomatic missions spend in Nigeria. That should be food for thought.

  • Chilcot report on Tony Blair’s role in Iraqi war

    Chilcot report on Tony Blair’s role in Iraqi war

    In 2003, US President George Bush, and Tony Blair, the British Labour Prime Minister, led their two countries into a military invasion of Iraq. It was an unholy alliance that stirred things up in the Arab world. Although long expected after months of tension and inconclusive diplomatic engagements at the UN, the invasion of Iraq by the US and the UK took the world by surprise. It was sudden, massive, and had taken place when the Iraqi crisis was still the subject of intense debate and negotiations at the UN Security Council. Bush and Blair claimed jointly they invaded Iraq because they had received credible intelligence report that Saddam Hussein, the Iraqi dictator, was in possession of weapons of mass destruction (WMDs. In a matter of weeks, the war was over. Saddam Hussein was toppled from power and a joint interim local government, under the aegis and control of the US-led coalition partners, was set up in Baghdad. But it lacked legitimacy and, despite military and political support from the US/UK occupation forces, soon fell apart from sectarian violence and conflicts all over Iraq. The official British Chilcot report on the war released last week in London confirms the perfidious and despicable role of Tony Blair, the British Labour Prime Minister, in the war.

    The war was unpopular globally, even in countries, including the Arab world, that would normally support the US. Many critics considered the invasion of Iraq illegal and illegitimate under international law. The UN did not authorise it. It evoked deep global divisions and controversy on the credibility of the intelligence report on which the decision by the US and the UK to invade Iraq was based. Many considered it an unjust and unjustified war based on false and faulty intelligence reports. Specifically, President Chirac of France, which did not participate in the invasion of Iraq, declared publicly that the decision to go to war in Iraq was hasty and premature and that the ongoing negotiations at the UN Security Council had not been concluded when Bush and Blair decided to wage war on Saddam Hussein. All peaceful options had not been fully exploited and exhausted before the joint US/UK invasion. In fact, while the US and the UK had made up their minds to go to war in Iraq at all costs, a UN weapons inspection team that had just returned from Baghdad reported to the UN Security Council, in New York, that it had not found any weapons of mass destruction in Iraq. If there were any, it added, they had probably been destroyed in Iraq by Saddam Hussein so as to avoid a war against his country, a war that he did not want. But this report no longer made any difference to Bush or Blair. A decision to go to war had already been taken and they would not be deterred even in the face of credible evidence that the intelligence reports they claimed to have on the WMDs lacked any credibility globally.

    For years after the war, the British Labour Prime Minister at the time, Tony Blair, continued to defend his decision to go to war on the grounds that the evidence he had was that Saddam Hussein did have the WMDs. He even lied to the House of Commons in the UK that Saddam Hussein could trigger his weapons of mass destruction in 45 minutes, and that he had to act in the interest and defence of the UK by taking his country into war with Iraq alongside the US. But even at the time his claims about the WMDs were hotly disputed in Britain. The war was unpopular in Britain and there were strong public protests and demonstrations against it. Many condemned Blair as Bush’s ‘poodle,’ arguing that, despite Britain’s self-acclaimed ‘special relationship’ with the US, which is not often requited by the US, there was no real political, security, or moral obligation on the part of Blair to support Bush’s senseless war in Iraq. They could point out that under Harold Wilson, a former British Labour Prime Minister, the UK had stayed out of the American war in Vietnam. Some of the harsh critics of Tony Blair’s toadying to the US were able to recall that when Anthony Eden, the British Conservative Prime Minister, invaded Egypt in 1956, in concert with France and Israel, over Nasser’s seizure of the Suez Canal, the US denounced the invasion as an unjust war and forced Eden to withdraw his forces from Egypt. Such was the weight of US and local criticism of the war that Anthony Eden was forced to resign from office as prime minister. He had resigned as Foreign Secretary in 1934 in protest against the policy of appeasement by Prime Minister Neville Chamberlain. But his misguided invasion of Egypt in 1956 effectively ended his brilliant political career.

    Now, from the report of the Chilcot official enquiry into the despicable role of the UK in the joint invasion of Iraq we are now able to confirm what had been suspected all along, that Blair did not have credible and incontrovertible evidence that Saddam Hussein had WMDs. There was little or no consensus in the British intelligence agencies, particularly the MI6, on this, although the head of the British M16 was reported as tending on the whole to present to Tony Blair only intelligence reports that were favourable to the claim that Saddam Hussein was in possession of WMDS. So, in effect, the British Government and Parliament were conned by the Prime Minister into supporting an unpopular and unjust war in Iraq based on false intelligence. The report also revealed that the two cabinet Ministers, Jack Straw, the Foreign Minister, and his Defence colleague, Hume, whose views should count, were not fully briefed by Tony Blair, the Prime Minister, on why Britain had to go to war in Iraq. They were swindled into accepting his perfunctory and unsatisfactory briefs on which basis they decided to go along with Tony Blair on the Iraqi war. This reinforces the view of a steady increase in the powers of the British Prime Minister. From being first among equals, he is now more presidential and, like the US president, will normally have his way on any major Cabinet decision. In the Iraqi war Blair had his way despite reservations from some of his Cabinet colleagues.

    Now, as reported by the Chilcot enquiry set up in 2009, what was even more galling about the decision of the British government to go to war in Iraq is the manner Tony Blair toadied to Bush on this grave issue of war and peace in Iraq. Right from the start, Bush had decided he would go to war in Iraq over the false intelligence claim that Saddam Hussein had WMDS. After 9/11 Bush had made up his mind to shake things up in the Arab world by dealing with the ‘bad’ guys. Whether or not Hussein had WMDs was immaterial to him in his narrow and unsophisticated view of the world which he simply divided into the ‘bad and good guys’. Saddam Hussein was a bad guy and had to be removed from power. A regime change in Iraq, Bush concluded, had become imperative. In the several trips that Tony Blair made to Camp David for talks with George Bush he was left in no doubt that Bush was determined to go to war. According to the Chilcot report, Blair made a feeble attempt to delay the final decision on going to war by suggesting to Bush that the matter be placed before the UN Security Council. Bush agreed to go to the UN but insisted that while a role by the UN was useful, he did not consider it as necessary. A UNSC resolution was in fact passed later urging Saddam Hussein to rid his country of the WMDs, or face the consequences. But this did not amount to the endorsement by the UN of a unilateral military attack on Iraq by the so-called coalition partners, or the use of force to resolve the crisis.

    As revealed by the Chilcot report, even as a junior coalition partner to the US, Britain did not make adequate defence preparations for the war. Blair ignored warnings from the Defence Ministry and British defence establishment that Britain lacked and could not provide the resources, the equipment, to go to war in Iraq, and that the British military should first be re-equipped. This advice was ignored by Blair. The consequences of the war have been truly tragic and continue to reverberate around the world, including the US, with increased terrorist violence and insurgencies all over the world.

    For Britain, the upshot of this criminal negligence on the part of Tony Blair was that young innocent British soldiers were sent to war, in harm’s way, severely handicapped. 179 of them needlessly lost their lives in the war leaving their loved ones to mourn their needless and premature deaths. The war against Saddam Hussein was won by the coalition forces. But it left Iraq and the whole of the Arab world in turmoil, in a far worse situation than ever before. Violent sectarian conflicts have widened as the ISIS simply moved into the vacuum left behind by the departing coalition forces. Instead of a localised war in Iraq, we now have the ISIS’ full blown war in Syria that has again brought in the US and Russia into combat in the region. So, the objectives of the war for securing peace and stability in the world have not been realised by both the US and the UK.  Here in Nigeria, the Boko Haram, which claims affiliation to ISIS, is a direct consequence of the Iraqi war in which we were in no way involved.

    The Iraqi war raises some basic but old issues about why nations go to war and the extent that their leaders can be trusted in making the right decisions on war and peace. Nations do not on their own decide to go to war. This decision is taken on their behalf by their leaders based on their own judgments about any perceived threat to the nation. As was the case in Iraq the decision to go to war or the reasons advanced for doing so are often wrong. Even in a stable and advanced democracy such as the UK and the US, such mistakes can be easily made by leaders who go to war when there are no real or direct threats to their countries. That was the tragic mistake of the former British Labour Prime Minister, Tony Blair, the longest serving Labour leader and Prime Minister for well over half a century.

  • On more bailout funds for the insolvent states

    The federal government has announced that it is giving the financially insolvent states fresh bailout loans of N90 billion. It will be the third time in less than a year that the Buhari APC federal government has been constrained, against its better judgment, to come to the rescue of these 27 insolvent states with huge bail- out funds. As expected, the two previous financial bailouts did not solve the deep-seated financial problems of the states. The funds were merely used by the insolvent states to clear up part of their outstanding salary arrears. After that, new arrears of salary piled up with the affected states not being able to do anything about it. What they currently receive monthly from the federation accounts is not enough to meet their current basic monthly wage bill. And, predictably, they have not been able to generate new funds internally to fill this gap in their revenue.

    But after receiving billions of naira in previous bailouts, the report of a federal financial investigation team into the disbursement of the federal bailout funds showed that many of the governors of the insolvent states simply diverted the bailout funds to personal and other non productive purposes. The question now arises whether these federal financial bailouts provide a final solution to the worsening financial plight of the insolvent states. In other words should the federal government continue to bail out these insolvent states? Is this financially sustainable?

    I do not think so. Even if these bailouts are sustainable, it is a negation of the federal system of government for the federal government to continue to hand the state governments financial bailouts. It is tantamount to rewarding incompetent and corrupt state governments. Except in emergency situations the federal government is not under any constitutional obligation to give the states financial handouts. It derogates from the financial autonomy of the states which demands that, in a truly federal system of government, the states should generate the financial resources required by them to run their respective governments. If they are not able to do so, then they are obviously not financially viable and should be scrapped. Handing them bailouts, which have to be repaid, is an intolerable financial burden on our country and tax payers.

    These insolvent states were created during the long period of military rule in Nigeria without any thought being given to their financial viability. After independence in 1960, only the then Mid-West region was created constitutionally from the then Western Region during the Balewa civilian federal government. And this was made possible only by the 1962 internal crisis in the AG, the ruling party in the Western Region. The creation later of so many new states was a major political blunder of military rule in our country. It made military rule popular, but it did not fully consider the economic implications involved in the creation of such a large number of new states. The creation of these states was certainly politically motivated. In May, 1967, General Gowon first divided the country into 12 states. This was after Ironsi’s Unification Decree 34 of May 24, 1966, that purportedly dissolved the existing four regions into provincial administrations. The decree was unpopular in the country and led to the military ouster of Ironsi from power.  Gowon’s purpose in creating the 12 new states was to undermine Ojukwu’s bid for the secession of the so-called Biafra from Nigeria, and to legitimise his military government. The decision was popular with the ethnic minorities in the old Eastern Region that had been agitating for years for a separate state of their own; in much the same way as the minorities in the old Western Region had also been demanding the creation of a separate Mid-West state from the old Western Region. Since then, under military rule, the number of new states has increased to 36 now. The surge in oil revenues masked the fact that, without the oil revenues, most of these new states were not financially viable. With so many unviable states the centre became stronger and more financially dominant. What now pass as states were, in fact, administrative provinces inherited during colonial rule. This was why our federal system of government at independence was based on only three regions, not the multiplicity of states that we now have. The departing colonial power had refused to create new states.

    In their defence of financial bail outs, the states argue that it is the fall in their share of revenue from the federation account that is responsible for the financial mess in which they now find themselves. But the source of their financial plight goes beyond that. The truth of the matter is that they have just been as financially profligate and reckless as the federal governments we have had to put up with for a long time. Many of the state governors are under investigation by the EFCC for massive corruption. Examples of these corrupt and convicted state governors include Ibori of Delta and Alam of Bayelsa. If the state governors are thoroughly investigated as they should be, I have absolutely no doubt that the findings of such investigations will be just as shocking as the current revelations regarding the vast scale of corruption under the Jonathan PDP federal government.

    My second reason for objecting to the indefinite bail out of the states is that the federal government itself is, as we have seen, in an equally deplorable and shocking financial situation. It is desperately short of funds too and is having to put on hold many critical infrastructure capital projects. It is currently running a huge deficit budget of roughly 50 per cent and is hoping to borrow half of this year’s budget from external sources. But external lenders generally refrain from lending for budgetary support, as is the case now in our country. So, from where will the federal government get the bailout funds for the financially ailing states? The answer is that it will have to resort to more borrowing from the CBN. In other words, new money will be created to fund these insolvent states. This will have the predictable effect of crowding out borrowing by the private sector, and of undermining stability in our macro economy. Our domestic debt, already bigger than our external debt, will increase further.

    The media reported further that the federal government intends to impose some stringent financial conditions on the states being bailed out. But these conditions will not work and will not deter the governors of the states concerned from continuing with their financial profligacy in the belief that they will be bailed out again by the federal government. At that point it will be difficult for the federal government to cut them off from the bailout funds on which they will have become utterly dependent. One of the arguments advanced by the military in support of the creation of new states was that it would spread economic development in the new states to the grass roots. But that has not proved to be the case. Apart from such symbolic projects as flyovers in the states capitals, new official residence for the governors, new states assemblies, a few model colleges, and sub-standard state universities, the poor in the states cannot be said to have really benefitted from the creation of states, where the political elite continue, with unabated vigour, to cream off revenues accruing to the states. The real beneficiaries of the financial bailouts are the rich, not the poor. In fact, the poor are worse off now than ever before. We are a poor country and we cannot expect to build a prosperous economy on handouts to insurgents and militants, or on subsidies and bailouts to insolvent states. A few years ago hefty financial bailouts were given to the commercial banks. Are they healthier or more efficient now? Many of them are already in distress.

    The long term solution to this lingering financial mess in the states is to device the constitutional means of reducing the number of states to not more than 12. It is even better to collapse them into six regions. This is what the call for the restructuring of Nigeria’s federalism should be about. It is far easier and more economical to manage six or twelve states than the existing 36 with all the paraphernalia of pseudo governments that cannot inherently carry out their basic financial obligations. Obviously, this will be politically difficult. The only alternative is for the federal government’s share of the national revenue to be reduced and distributed among the states. But while the existing 50 per cent share of the federal government in the national revenue is too large, due care should be taken in this regard. We cannot afford to have a weak federal government that is placed in such an invidious financial situation that it cannot carry out its basic responsibilities to the nation in defence, national security, and external affairs, Already the corporate existence of our country is being threatened by several centrifugal forces. We need a strong federal government and institutions to hold our fragile country together.

  • The CBN adopts a flexible exchange rate adjustment strategy

    The CBN adopts a flexible exchange rate adjustment strategy

    Last week, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, announced that instead of the fixed exchange rate strategy the CBN had decided to adopt a more ‘flexible exchange rate policy’ for the naira. All nine members of the bank’s Monetary Policy Committee (MPC) voted unanimously in favour of the new strategy in the adjustment of the exchange rate of the naira. The MPC stated that the worsening state of the economy and the slide into stagflation called for new strategies and monetary policy reforms. The economy has been in a recession since July, 2015. In response, the CBN is dropping the strategy of a fixed exchange rate for a flexible or floating exchange rate strategy.  The fixed exchange rate strategy had not worked. Some devaluation of the naira had become imperative and could not be put on hold for much longer. The naira had become overvalued because of the external oil shock and higher domestic inflation.

    Now, in my article in this column in October, 2015, I had urged the CBN to devalue the naira promptly. I could not see how the unrealistic official exchange rate of the naira could be maintained in view of the ‘external shock’ caused by the sharp decline in our oil revenues. I considered the naira exchange rate overvalued. The difference between the nominal official exchange rate and the parallel market rate of the naira had widened. Now, the proposed flexibility in exchange rate management by the CBN means the naira is to be devalued by a rate to be determined by the CBN. This will be based on the supply and demand for foreign exchange. In other words market forces will, to a large extent, now determine the exchange rate of the naira. Market forces may not be perfect, but human judgment is less perfect.. It is said that a stitch in time saves nine. The fact is that if we do not devalue the naira now compelling economic and financial developments will force us to do so later at a higher cost. The delay in devaluing the naira now will prove to be more costly later. The proposed flexible exchange rate adjustment is a sensible alternative to the rigid but doomed course the CBN was pursuing in its exchange rate management. The CBN has not yet announced a new naira exchange rate.  Of course, this new policy will need to be complemented by other policy instruments, including a moderation in money supply. How this can be achieved with an expansionary budget this year remains to be seen. The delivery of the intervention funds will have to be appropriately moderated to avoid additional downward pressure on the exchange rate of the naira.

    According to the Governor of the Central Bank the review was in response to the recognition that the economy was in a state of ‘stagflation’ (combined stagnation in economic growth and high levels of inflation in the domestic economy) and that a flexible exchange rate policy was the ‘least risky of the options open to the bank in Nigeria’s current economic and financial situation.’ The Governor added that one source of the stagflation was the delay in securing an early passage of the 2016 federal budget and the consequent time lag in implementing the stimulus package in the budget. But he should have added that growing uncertainties over the naira exchange rate added to the trend towards stagflation in the economy. Both local and foreign investments had to be put on hold pending stability in the naira exchange rate and other fundamentals of the economy, such as interest and inflation rates, both of which are now rising. Stability in the macro economy has to be restored. The banking sector and financial analysts have reported that foreign investment and equities have dropped by 74 per cent in reaction to currency overvaluation. Productivity in the industrial sector has also been falling in response to these uncertainties and a possible consumer resistance to increased prices, some of which is speculative. This has led to some job losses. An overvalued currency leads to currency speculation, capital flight and money laundering. It undermines economic growth. Industry has reacted to the new policy positively.

    For these reasons I fully support the new CBN policy of flexibility in the naira exchange. The response of the CBN to the grave economic situation is appropriate. Like the hike in the oil price, we had to bite the bullet again on exchange rate adjustment. The adoption of the new flexible exchange rate policy reflects these realities amply. My regret is that, for political reasons, including President Buhari’s known reservations about a floating exchange rate, the CBN waited for far too long to come to terms with these realities, which include a steady decline in foreign exchange earnings and low GDP growth rate, the lowest for decades. Much valuable time was lost in the doomed attempt to avoid a devaluation of the naira promptly. This strategy was bound to fail in view of the increasing demand for foreign exchange and the fall in Nigeria’s foreign reserves. Now that oil prices are on the rise again there will be a temptation to delay the necessary devaluation or to allow it to fall below the net effective exchange rate of the naira. This must be avoided at all costs.

    As admitted by Mr. Emefiele, the previous rigidity in exchange rate management, and the refusal of the CBN to consider some devaluation in the exchange rate of the naira, did not work. It could not have worked. Since 2015 the economy has been in a recession. Mr. Emefiele acknowledged this fact in the following statement by him: “As a stop gap the CBN has continued to deploy all the instruments within its control (including the resolve to resist devaluation) in the hope of keeping the economy afloat. These actions, however, proved to be insufficient to fully avert the impending ‘economic contraction’. In March 2016, the CBN tried the option of a tight monetary policy to stabilize the naira. But the 2016 budget is expansionary and inflationary. It was bound to put pressure on the exchange rate. A deputy governor in the bank is reported to have warned that when the 2016 budget comes into play these inflationary pressures on the exchange rate will certainly increase, compounding the CBN’s exchange rate dilemma. The planned financial stimulus package has to be moderated.

    It is difficult to understand why the CBN should expect anything other than a contraction in the economy when its exchange rate management strategy was not pro growth but contraction. Inflationary pressures through an expansionary fiscal and monetary policy were bound to aggravate our economic problem as high levels of inflation tend to undermine economic growth. The administrative import restrictions introduced by the CBN were certainly not pro-growth. They were intended to reduce imports and the demand for foreign exchange. This was bound to lead to a recession. If the objective was growth these fiscal and monetary measures could not have worked unless we got the economic fundamentals, including the naira exchange rate, right. Economic growth, not stagnation, should be the prime objective of our strategy of diversification of the revenue base. Diversification of the structure of our economy, still largely dependent on oil exports and revenues, will be enhanced by a realistic net effective exchange rate of the naira. It will restore the economic fundamentals to equilibrium and substantially increase the scope for higher prices in the agricultural sector and higher income for farmers. Government’s revenue too will increase. It will also promote other non-oil exports. All the available evidence suggests that, on average, countries where currency reforms have been implemented in a timely manner have also achieved better economic performance.

    Effectively, the real beneficiaries of the strategy of import controls and restrictions are our neighbors, with the loss to Nigeria of considerable import duties and revenue. This is bound to affect revenue derived by the government from non-oil sources. Increased tariff on non-essential imports would have been a better alternative to import restrictions. The same objective of reducing demand for forex would have been achieved with selective tariff increases. The CBN says it will open a ‘special window’ for vital imports. Obviously, the target here is industrial imports. But this could lead to abuses such as money laundering, capital flight and a distortion in prices.

    In addition, Nigerians hold a lot of foreign currencies (including looted funds) abroad over which the CBN has no control and which can easily be utilized for imports into Nigeria. Some of these funds are channeled through the parallel market over which, again, the CBN has no control. It is a source which the CBN should not ignore. Some $5 billion is involved. But if the naira exchange rate is considered to be unrealistic then these Nigerians with large foreign currencies will not go through official sources (the CBN) in making remittances to Nigeria, but through the parallel market. It is far better for the CBN and our economy for these funds to be channeled through official sources than through the parallel market as this will continue to drag the exchange rate of the naira down. But this will only happen if we narrow the difference in exchange rates between the official and parallel markets.

    Now that the CBN is compelled by our economic and financial realities to reverse itself on its exchange rate strategy and policy it should stay the course. The CBN should be given the leeway and autonomy it needs to manage our monetary policy more efficiently. Change involves breaking with the past and taking tough decisions when necessary to achieve better results. This is where we are now. The devaluation of the naira is one such tough measure needed now. In Africa, Angola and South Africa, among others, have already devalued their currencies by over 15 per cent in response to the external shock.

  • Is it oil subsidy removal, or price hike?

    Is it oil subsidy removal, or price hike?

    I started writing this article at the weekend, believing that the federal government had, at long last, decided to do away with the long standing and costly oil subsidy. Whatever its attractions, it is no longer financially sustainable. Worse still, it has led to long queues recently at the petrol stations right across the country. I was going to commend President Muhammadu Buhari for his courageous decision to remove the oil subsidy. But half way through the article, my eyes caught some newspaper headlines that the federal government may not have dropped the oil subsidy after all. Both the Minister of State, Petroleum, Dr. Emmanuel Ibe Kachikwu, and the National Chairman of the All Progressives Congress (APC), the ruling party, Chief John Odigie-Oyegun, were simultaneously reported by the media in the course of the week as declaring that the wasteful and fraud ridden oil subsidy had indeed been removed. Not so, says the Vice President, Professor Yemi Osinbajo, who personally issued a press statement that there was no removal of the oil subsidy, but only an oil price hike to reflect the downward trend in the exchange rate of the naira. This is as a result of the falling dollar reserves and increasing pressure on the naira exchange rate. Demand for it is long, but supply is short. The independent marketers are now obliged to source their foreign exchange needs from the secondary market at a premium.

    Obviously, there is some confusion and contradiction in senior official circles over this grave matter, with the ‘realists’ in the government urging President Buhari to remove the so-called oil subsidy once and for all, and the ‘romantics’ insisting on maintaining some form of oil subsidy, or the other. The government is being pulled in different directions on the issue by its top economic advisers. But I prefer to believe the Vice President on this matter as he heads the economic team of the government, of which neither Kachikwu, nor Oyegun, are members. He is in a better position to know exactly whether or not the federal government has finally taken a decision to bite the painful economic bullet by removing the oil subsidy once and for all. President Buhari has not been categorical about this. But then, if the oil subsidy had indeed been finally removed, there would have been no need for the federal government to fix the new price of N145 per litre for oil sales. In a fully deregulated and free market, prices are determined by market forces. Fixing the price of oil will seem to suggest that there is still some official subsidy on oil imports and sales. But then there does not appear to be any provision for oil subsidy in this year’s budget. Or is the price of N145 per litre merely a guide which the importers may, or may not, comply with? Either way, the public is entitled to know whether the subsidy stays, or not. Full deregulation, which is what a removal of the oil subsidy implies, means that market forces will determine the pump price of petroleum, and that the government will have little or nothing to do with price fixing, except in a regulatory sense.

    If this is the case, that the oil subsidy stays, I think it is a pity that the Buhari government has again lost the opportunity to bring to an end the sordid state of affairs in our oil sector by not fully deregulating it. It should abandon the oil subsidy in response to compelling financial and economic considerations in our country. Ex-President Goodluck Jonathan made the same mistake in 2012 when, in the face of some domestic opposition, he abandoned his plan to end the oil subsidy. Had he done so then, it would by now have saved the nation about N6 trillion, about the size of this year’s federal budget. In fact, this time, the reaction of the public to the news that the oil subsidy was being removed was overwhelmingly favourable, despite the pains involved. Even oil workers, including NUPENG and PENGASAN, agreed that it was time for the oil subsidy to go. This positive response to the media reports that the oil subsidy was being removed cut across all sections of our economy, including the industrial sector and independent marketers. The reason is that the scarcity of oil supplies in the market was beginning to hurt the economy badly. Consumers were already being forced to pay up to N150 per litre, or more, for oil in the parallel market. Better to have the oil at a higher price and keep business going than close it down because of oil scarcity. It is a function of economic survival. No matter how acute the pain is, it is still far better than outright death. Businesses were beginning to close down right across the country because there was no fuel to run them. The NLC and the TUC should reconsider their plans to go on strike on this matter. They should think more carefully about embarking on a strike for which there is little public support. This is not to say that their anger about the awful mismanagement of the economy is not justified. But a general strike now will harm our country even more. It will lead to more job losses, as employers will be forced to shut down their businesses.

    It was never going to be an easy decision for the federal government to abandon the oil subsidy. When he came to power last year, President Buhari was not keen at all to increase the pump price of oil. A senior adviser of the government with whom I brought up the matter told me bluntly that President Buhari was totally against dropping the oil subsidy. He rejected all advice that he should do so. For him, the removal of the long standing oil subsidy was both an emotional and sentimental issue. He believed that doing so would hurt the poor more, in a situation of mass poverty. But as the IMF has pointed out, only seven per cent of the poorest 20 per cent in our country derive any benefit from the existing oil subsidy. In fact, President Buhari first tried the option of giving the NNPC, which accounts for some 50 per cent of total oil imports, a monopoly on oil imports to reduce the vast corruption in the sector. But this did not work out as planned, due partly to the fabled inefficiency of the NNPC, its abject lack of the needed logistics and infrastructure, and the determination of the oil majors and independent marketer not to offer the NNPC their cooperation. This led to a supply gap and the long queues in the filling stations.

    The NNPC had to admit that it could not perform as expected without the support of the big oil marketers. This was what persuaded President Buhari to bring the independent oil marketers back. The alternative option, a price hike, is indeed courageous as it could have political costs. In the short run, it could make the government unpopular. .

    Yes, the full removal of the oil subsidy will definitely hurt the poor, at least in the short term, as it will increase the cost of living, and this will worsen the prevailing mass poverty in our country.  But the government’s options on subsidy for oil imports were limited. This subsidy accounts for over 20 per cent of the entire federal government budget. It was clear that it could no longer be sustained with falling oil revenues. Savings from the removal of the oil subsidy will be substantial and will fill some of the gaps in our huge budget deficits. More financial resources will be released to meet our huge infrastructure deficits and more jobs will be created as the economy adjusts to a deregulated oil sector.

    The oil subsidy was first introduced at a time when there was a surge in oil revenues. This surge has not been consistent leading to volatility in oil revenues and a heavy and unsustainable burden on the finances of the federal government. Subsidies can in the long run only be met by budgetary surpluses, not deficits. This year, the federal government will be looking to borrowing internally and externally some N2 trillion to balance its budget. Half of this borrowing is expected to be from external sources. But it is unlikely that it can successfully tap external sources for this huge borrowing, not for investment, but for budgetary support. If the subsidy is dropped, the government will be able to save nearly N1.5 trillion, or more, this year. This will reduce its huge budgetary deficits and the need to borrow abroad by nearly half. In fact, with more prudent management of its finances, including the introduction of practical measures to reduce the cost of governance, the federal government can easily balance its budget next year. Oil prices are beginning to rise again and this trend will, if sustained, lead to higher oil revenues. But this favourable trend should not be frittered away again on the wasteful oil subsidy.

    In fact, the federal government should avail itself of this opportunity to undertake a comprehensive review of its entire subsidy programme and strategy. As it is now, it is totally confusing, inconsistent and ad hoc. It must be based on clearer, more coherent and more consistent principles and objectives. That is not the case now. The focus and target of any future financial bailouts and subsidies should be more on production and less on consumption. Financial subsidies on consumption cannot be sustained when the national revenue and economic growth rate are both declining. This year, our growth rate will fall from six per cent to less than three per cent. The oil subsidy is a subsidy on consumption, not production. And there is really no evidence to support the view that it promotes economic growth in our country.

    For most of the time, oil was being sold to the public at a price exceeding the subsidised price. In fact, as we have seen in recent years from the scandals in the oil industry, the so-called oil  subsidy was largely a mirage, a big scam from which the oil barons and importers made scandalously high profits. Next to the huge scam in defence expenditures, most of which as we now know, actually ended up in private pockets, the biggest source of public corruption in our country is in the oil sector, where the fall in global oil prices are not reflected in local prices of imported fuel, and where some fictitious oil importers are paid for oil that was not actually imported. A deregulated oil sector will end all that.

    Now is the right time to address the problem squarely. President Buhari should go the whole hog now by ending the wasteful oil subsidy. The advantages in the long run should make the short term costs and pains more bearable.

  • On the troubled states’ finances

    On the troubled states’ finances

    For some years now, the finances of the state governments have been in a mess. They have become largely insolvent and financially bankrupt, and this sad state of affairs is a major source of public concern. Of the 36 state governments, some 27 owe salary arrears and pensions of four to five months to their workers. If these bankrupt states were private companies, they would have been legally required long before now to wind up their affairs. This deplorable situation is unprecedented in Nigeria’s fiscal history. The grim financial situation, which has had the predictable effect of deepening mass poverty in our country, has been blamed on the 70 per cent fall in oil revenues on which all the governments of the federation depend. Oil revenues account for over 80 per cent of the revenues of the federal and state governments. The structural diversification from oil dependency needed has not happened.

    But that is not the only reason why the various state governments, as well as the federal government, are in such a financial mess. To this lame excuse must be added the reckless spending of most of the state governments, as well as the prevailing lack of financial accountability and looting of the public treasury. In most of these states, the governors cannot be held to account for public expenditures by the legislatures. Current EFCC financial investigation at the centre has shown how under the Jonathan PDP federal government vast sums of money, running into billions of naira and the US dollars, (over half of our total foreign reserves), including funds meant for arms purchases for the military, were frittered away and simply diverted to private pockets to keep Jonathan in power. The political project failed but it left the nation financially prostrate. Now, if the financial searchlight were turned on the states, as it should, the findings would be no less as frightening as those at the centre.

    To address this horrible financial situation in the states, the federal government, which is itself facing a financial crisis, has rolled out a series of financial bailout plans to salvage the financial mess in the states. First, it offered the 27 insolvent states huge loans, in billions of naira, to meet their outstanding debts to their workers who had not been paid for upwards of four to five months. This has turned out to be a mere palliative. As a recent ICPC report has revealed, some of the indebted states diverted the bailout loans to other purposes. Most of the 27 states are still owing their workers months of unpaid salaries. Some payments were made to the workers, but these only covered outstanding arrears, and not current payments due. As it is now, the states involved are now back to where they were before they received the bailout funds from the federal government. Some of the bailout funds were, as usual, misappropriated by the governors, some of whom after leaving office, have continued to receive from their state governments, huge amounts of money as salaries and pensions. Some of the states’ bailout funds were used to repay huge bank loans recklessly taken to fund unproductive capital projects, most of which have now been abandoned for lack of funds.

    In recent weeks, and in response to the dire financial situation of the states, the federal government has announced additional financial bailout for the states. These include the deferral of the repayment of state debts to the federal government. The deduction by the federal government of such states’ debts, running into billions of naira, is to cease immediately. In addition, the federal government has offered to assist the state governments in restructuring their huge and outstanding bank loans. Such state loans are to be guaranteed afresh by the federal government.

    It is perfectly reasonable and understandable that the federal government should come to the immediate assistance of the states with these large financial bailouts. Its options are severely limited. The alternative is to allow the states to collapse. But this will be catastrophic. It is in the states that much of our economic activities and employment take place. It is where our GDP is generated. Without these financial bailouts, the states will simply collapse. As a matter of fact, the states are already in a state of financial paralysis. Many of their workers no longer report for work. A few do once a week. They simply cannot afford the transport fare to their offices. In some of the states, no commissioners have been appointed. They are being run by the governors and the permanent secretaries, a situation that undermines financial accountability and probity. In effect, there is virtually no government in most of these hugely indebted states. The federal government is rightly concerned about this deplorable state of affairs in the states and hopes the bailout funds will return the states eventually to fiscal and budgetary balance. But it is a forlorn hope that may not be realised.

    Already, Labour is demanding that the minimum wage, now N18,000 per month, be increased to N56,000 per month. Many will consider this demand justified in view of the massive public corruption, the current inflationary pressures, and the rapid rise in the cost of living. House rents and food prices have on the average increased by over 30 per cent. But if this demand is met, the states will simply collapse. The arrears of unpaid salaries will increase and cannot be met. The states will be forced to resort to layoffs and this has serious implications for the political and social stability of the nation. The workers’ unions have warned that they will not accept any retrenchment of workers. But layoffs are some of the practical measures now badly needed to restore states’ finances to financial stability. Nigeria is looking increasingly like a civil service state, one in which most of the workers contribute very little, or nothing, to our economic growth. To reduce this huge cost of governance, something drastic has to be done to our bloated bureaucracy.

    It is unlikely that the states, without fundamental financial restructuring, including cost reduction, can recover financially, even with these bailouts from the federal government. They cannot generate any significant increase in their IGR, as the few businesses in the states are collapsing fast. Revenue from solid minerals is a matter for the future, not immediately. Massive financial investments will be required over the years in the exploitation of non-oil minerals. It is not clear where these huge investments will come from in the current climate of global economic uncertainties. Besides, the volatility of commodities’ prices, including non-oil minerals, will make such huge financial investments less attractive globally.

    The financial handouts from the federal government are in the long run unsustainable. The present financial situation of the federal government is just as bad as that of the state governments. Its revenue has fallen by over 70 per cent. Its current budget deficit is nearly N2 trillion. It is currently borrowing N600 million monthly to pay its own workers and pensioners. Its SWF of $1billion has been virtually depleted. The foreign reserves are down to barely $27 billion. Oil exports and revenues are recovering slowly, but they are unlikely to hit the mark of over $100 per barrel for some time. Inflation is rising steadily and job losses are on the rise. All this means that the federal government will be hard put to continue offering the states financial bailouts on the current scale for much longer. But even if it could, it is not in the long term economic and political interest of our country. It negates the basic principle of federalism in our country. Over dependence of the states on financial bailouts by the centre makes the states too weak and the centre too strong.

    The governors were reported recently as warning President Muhammadu Buhari that their financial problems will not be resolved unless their share of the federally collectible revenue is increased. At the moment, the states receive just about one per cent each from the total revenue, while the federal government gets about 51 per cent. This powerful argument is one that has been made over the years without any success. It has polarised our nation. Though it has considerable merit, it has been hugely politicised and has no appeal for the federal government. With its enormous financial responsibilities for defence, national security, external affairs and infrastructure development, the federal government too is short of funds. Though it makes sense the persistent call for fiscal federalism is not yet clearly defined by its proponents. The crux of the matter is the source of the oil revenue. If fiscal federalism means allowing the states to wholly retain revenues derived from their states, what happens to both on shore and off shore revenues, which constitute over 80 per cent of total revenues? If the oil rich states keep revenues accruing to them totally, both the federal government and the states that are not oil producing will be worse off. Only the oil producing states will have the potential of being viable. This will lead to economic chaos.

    The long term solution to the financial problems of the states is to compel them to return to fiscal and budgetary responsibility and stability. In other words, they should be made to understand that they must bring their finances under greater control, and that they cannot continue to depend indefinitely on federal bailouts. States that are unable to cut their expenditure should be made to bear the consequences of their financial profligacy. In fact, the National Assembly should start thinking of how the large number of states can be constitutionally reduced from 37 to 18, or to a more manageable figure. This is going to be politically difficult. Even now, there is a continuing demand for more states to be created. But a change in the number of states and their finances is necessary now. The states have become a financial albatross on our country. We must find ways of controlling this financial monster, or else the whole country will soon face economic and financial disaster.