By Olisa Akukwe
In 2006, a song that was part salsa, part hip-hop hit the airwaves with
resounding resonance, globally. “Hips don’t lie” by Shakira, the Colombian
singer went on to sale 16 million copies over the last 10 years.
I borrowed the title of this week’s epistle from Shakira’s song. Facts,
like Hips, are evidence based. They don’t lie.
Nigeria has been for far too long a society where opinion trumps facts;
quota trumps merit; nepotism trumps justice and many times tribes trump
truth. This has to change. It is important for Nigerians to deepen their
understanding of economics because it affects us all. Nigerian youths need
to ask more penetrating questions in the run-up to the next elections.
Indeed they need to start asking those questions today. That is the only
change we can achieve.
ON THE ECONOMY: Babatunde Fashola, a super-minister in the APC government
and a former, rather competent, governor of Lagos state told pension
experts on 22nd Jan 2016, that this Govt is working to diversify the
economy. They clapped. He blamed lack of diversification as the main cause
of current malaise. The facts does not support Fashola’s assertion.
The data collected by National Bureau of Statistics show that Nigeria’s
economy is already diversified. The almighty oil contributes barely 10% of
our GDP. In fact the often maligned Trade contributes more than oil to our
GDP.
Let’s examine them. At the end of 2014, the year of the so-called peak oil
price, crude oil and natural gas contributed about 9.616 trillion Naira to
the GDP, 10.67% of the total. Meanwhile at the same period, Agriculture
contributed 15.812_trillion Naira (17.5% of GDP) and Trade contributed
15.704 trillion Naira (17.42% of the GDP). The Telecom sector’s
contribution at 7.424 trillion Naira (8.23%) was very close to the oil
contribution. So the constant assertion that the economy is undiversified
is hogwash. We may simply be talking of deepening the private sector or
expanding the diversification.
One of the greatest mistakes repeated by successive Govts in Nigeria is
not understanding the greatest asset within any govt agency. They think
it’s money. Its not. The greatest government asset is data. From births to
deaths, and every other thing in between. Data is the core asset of
government agencies and parastatatals. If only they knew.
It is a general belief that the last PDP government ruined Nigeria via
corruption. In fact, the last PDP government may have wrecked our public
finance because of corruption, but they left the economy vastly better
than they met it.
The PDP governments from 1999-2014, have been the only government(s) in
Nigeria to consistently increase per-capita income. Data that goes back to
1960 show that our per-capita income in 1969 was 1000 dollars. In 1999
(after 39 years), it was 1200 dollars. In other words it increased by 10
dollars per annum!
From 1999 to 2014, PDP governments tripled per capita income to about
3500_dollars. That is about 143 dollars per annum. Even if we exclude
changes from GDP rebasing, it comes to about 2500_dollars by 2013 (before
GDP rebasing). Data!!
This brings me to an important differentiation. There is a huge difference
between public sector and the economy as a whole. Even though public
sector is part of the overall economy and affects it; in Nigeria public
sector is less than 8% of GDP. What the NBS data is telling us is that
even though past PDP governments enshrined public sector corruption, and
the GEJ government may have wrecked public finance, they grew the economy
more than ANY government in the history of Nigeria. Facts don’t lie!
The fixation of Buhari and APC on chasing Dasuki et al, while shutting
down the economy, is fundamentally flawed. The public sector contribution
to GDP was 7.36% at the beginning of 2015. It makes no sense to stifle the
rest 92% of the economy just to put public finance in order. If the
emerging trends are anything to go by, the public finance may even be in
worse tatters by end of 2017. If the government had deployed technology to
prevent corruption, and astute diplomacy to recoup some stolen wealth;
while keeping the economy open without capital and import controls,
Nigerians would have already been reaping the democracy dividends promised
them.
The much ridiculed GEJ had incredibly successful Agriculture policies. The
billionaire middle men in fertiliser distribution, were put out of
business by simple but smart deployment of technology by the
smooth-talking past Agriculture minister. Our national food import bill
dropped from 6.3 billion dollars to 4.3_billion dollars, between 2009 and
2013.
It is also good to remember that the high oil price under the last
government also necessitated high subsidy payment. About 10 billion
dollars was spent on subsidy. Some people believe about a fifth of that
was lost to corruption.
Now that oil price have come down by 2/3, the current government does not
spend any money on subsidy. Or rather should not. The landing cost of a
litre of PMS today 30 Jan 2016 is N67.69k. The pump price is N86.50k. In
fact the cost of landing is increased by N5 due to storage, NPA and Jetty
depot levies etc. Otherwise it would have been N62.71k. The extra N5
between freight+cost and landing price is essentially monopoly cost.
From Landing to dispensing at the filling stations, in this current
no-subsidy regime, N19 is added to the cost per litre. This is a 22% added
to the cost of gasoline between landing and retail sale. About 40 million
barrels of PMS is consumed daily. About 10,000 trucks, owned by about 30
individuals control the transportation of PMS. less those moving through
pipelines. A N3.05 margin is assured on each litre of PMS moved by this
transporters. Plus N4 per litre bridging fund. That can easily come to
about N280 million Naira margin daily, for truck owners.
The downstream petroleum sector needs comprehensive liberalisation. From
Storage, to transportations, jetties, filling station operating
requirements etc. Currently it is oligopolic.
Bridging funds need to be abolished. We can’t both eliminate subsidy and
have subsidy at the same time. PMS should not sale the same price in Warri
and in Tangaza. Beef does not sale same price in Dutse and Enugu. The
petroleum ministers should take note. Adding 22% between landing cost in
Apapa and dispensing at Ajah or Gwagada is pure baloney! Lagos citizens
and residents bear the cost of tankers blocking road, damaging the road,
causing accidents and razing houses/shops etc. Yet they are made to buy
the gasoline same price as Folks in Damaturu.
Some of these were reforms the past PDP governments failed to tackle.
Either due to vested interest or hysterical opposition.
IMPORTS: Contrary to accepted wisdom, Nigeria is not over-dependent on
imports. Services constitute more than half of our GDP. We need imports,
like any other country. Our imports consume about 12.45% of our GDP, one
of the lowest in the world!
World Bank Data shows that import as GDP % in Australia is 21.4%; in
Canada 32.5%; in Benin republic 45.1%; in Botswana 43.3%; in China 18.9%;
in Ghana 48.9% and UK 30.3%. Just to mention a few countries. Nigeria has
one of the least import to GDP ratio of all countries. Data!!
Everybody repeats the mantra of import dependence, including CBN and
Presidency, without checking and comparing. No country survives for long
without imports. Our imports-to- GDP ratio is less than China’s
import-to-GDP ratio.
As a matter of fact, imports have helped us moderate inflation over the
past 16 years. Without the benefits of disinflationary trends in China,
US, India etc our headline inflation would have been much higher. How
could Nollywood have boomed without ever falling prices of VCD & DVD
players, as well as CD burning machines? How could the music industry
generate hundreds of billions of Naira without the massive penetration of
cheap music stereo and personal listening devices? Without cheap Chinese
feature and smartphone, how would the surging mobile Internet thrive and
make fabulous money for the likes of Linda Ikeji, Bella Naija etc? But CBN
felt that a policy of import control targeted at small, hapless, traders
is proper.
Let’s look at the import issue from another perspective. How come the
falling commodity prices is not bringing down prices in our local markets?
Price of gasoline has fallen 24.18% globally and only 1% in Nigeria. Rice
fell about 13% globally, but is up 30% in Nigeria. Beef fell by 27.98%
globally, but it is going up in local markets here. The government is
always screaming fall in oil price. Why is fall in commodity price not
affecting domestic markets, but fall in oil price is?!
The real reason our domestic commodity prices are very high is government
policies. Primarily tariff regime. If some of these imports were not
clamped down or tariff set very high, we will be able to ‘import’ the
fallen global prices, despite the drop in oil prices, helping to moderate
inflation. I am sure that domestic rice producers can produce rice at
global competitive prices, if they have access to single digit financing,
scale production, motorable access roads, no custom or police extortion on
the road, predictable transport price etc. These are all within government
responsibility. But the elites rather prefer using tariff to transfer
burden to the common man, rather than cut into their potential
embezzlement funds.
Mrs Iweala increased domestic rice price by over 50% in her first tenure
under Obasanjo, after she embarked on tariff-mandated import-substitution
of rice. Likewise Aliko Dangote had a 60% profit margin in his cement
venture, under Obasanjo, due to government high cement import tariff. We
bore the cost of his becoming a multi-billionaire, with high cement price
in those years.
Instead of using high tariff to keep out foreign products, government
needs to apply transparent, targeted subsidies, especially in the Agric
sector. We are tired of bearing the cost of creating state-sanctioned
billionaires.
CAPITAL CONTROL: The current government adopted a policy of capital
control, as soon as it came into office. It had the effect of effectively
drying up foreign and domestic investment. It drove portfolio investors to
flee from the stock market, with consequent loss of near 2 trillion value.
It distorted market signal
After the damage has been done, and the Naira had collapsed in the real
market, CBN retreated partially. Revenue from Oil may have fallen to about
35 billion dollars, from about 88 billon dollars peak. But if the domestic
asset prices have adjusted in real time, foreign and domestic investors
would have eagerly bought assets in Nigeria through FDI or portfolio
investment. The naira slide would have steadied at a much higher value
than now. The markets were factoring in a price of 220-230 to the dollar,
as the maximum slide before capital control was imposed. The capital
control sent the worst kind of message.
The dollar in dorm accounts were reported to be about 30% of bank assets
in 2014. Under Sanusi, dollar accounts were treated as quasi-saving.
Nigerian banks exposure to the oil industry in foreign currency is
estimated at about 11 billion dollars. Some of those loans are
non-performing or in NPL territory. Capital control alarmed the foreign
lenders, with further downgrading of our credit rating.
Even as our export prices lost over half its value, foreign transfers from
Nigerians in diaspora was on track to surpass the 21 billion dollars
reported in 2013. But capital control effectively skewed this trend. UN
estimates that 1.2 million Nigerians live in developed economies. With
proper economic policies and legal frame work, transfers from Nigeria
emigrants can surpass 50 billion dollars; more than what was lost in
declining oli price.
Unlike oil money though, those folks won’t allow monies earned in the
hardest of circumstances to be siphoned by greedy politicians. This may
explain part of the reason the government keeps bemoaning the shrinking
oil revenue, instead of opening the economy, removing government from the
commanding heights of the economy and being transparent.
I simply took time to puncture some reign of error subsisting as
conventional wisdom. In the coming days, I will pen a much shorter piece
on government revenue.
Olisa Akukwe
Follow me on Twitter: @FrankOlisa.