Assessing the Nigerian elite’s approach to regulation

By Cheta Nwanze

In keeping faith with its commitment to absurd economic policy directions, the federal government recently said that it is working on the creation of a trust fund for unclaimed dividends and bank balances that are not being used.

Current estimates by the Securities and Exchange Commission place the value of unclaimed dividends at around ₦158.4 billion ($322.5 million in the parallel market as of 25 November 2020) and the federal government suggests that it should become the trustee for this $322.5 million in unclaimed dividends, and bank balances, through the use of a perpetual fund created and overseen by the Central Bank of Nigeria & the Debt Management Office.

Lo and behold, they have even said the funds could be used to build infrastructure; my cynical view is that there were no details on if this refers to actual physical infrastructure that would boost the economy or stomach infrastructure for the ruling class.

The Nigerian government does not particularly bother about how to intelligently boost the economy or work out ways to control such phenomena as inflation.

They appear rather meticulous, however, when it comes to looking for money to spend. Sometimes it does look like economic policy in Nigeria comprises what excuses will be used to siphon money from the long suffering Nigerian.

When this extractive approach to economic planning is taken to the extreme, it often leads to warped and unintended, but completely foreseeable outcomes.

At its heart, the effort by the government to gain access to the unclaimed dividends and idle bank accounts of private Nigerian individuals and businesses is emblematic of a certain philosophical attitude by generations of this country’s elite to regulation and policy setting.

Nigeria’s current economic travails should force a national conversation about the continued role of policy in perpetuating structural inefficiencies in our economy.

This conversation about policy and sovereign solvency is important because regulation is fundamental to governing a society as complex and diverse as Nigeria is, so let us attempt that.

Regulatory processes allow policymakers to balance competing interests; without them, the advent of the modern nation-state and the flourishing of democracy around the world would have been next to impossible.

For most governments, this balancing act often involves finding an equilibrium between permitting unbridled private economic activity and targeted state-led intervention.

At its most basic, smart policy and regulation is a key goal of public stewardship of the economy and is fundamental to the proper functioning of society.

Many countries around the world are obsessed with improving efficiency with the expectation that the right policy empowers private actors to make optimal economic and investment decisions, with the sum of these millions of interactions being an efficiently run economy.

In Nigeria’s case, however, it appears that the theory operates in the reverse.

When will Abuja understand that economic policy’s actual purpose is to find ways to boost the economy?

This concept of policy as an enabler of productivity and not an avenue to enable resource extraction might appear radical for a whole crop of Nigerian politicians who subscribe to what I may describe as the Yakubu Gowon school of thought that is guided by the principle that “Money is not our problem, but how to spend it.”

At some point, however, they should be compelled to just copy their mates in other countries a little.

When this “Money is not our problem, but how to spend it” statement was made in the early 1970s, Nigeria was a largely undeveloped country that neither had up to five universities nor up to 5% of its roads paved.

General Gowon just looked at what appeared to be a lot of oil money coming in from a surge in global demand and made an economically illiterate and short-sighted statement that came from him spending too much time thinking about spending money and not enough time on the more important topic of how to actually improve a national economy rather than a personal one.

Practically every Nigerian federal and state executive since then has stayed true to this idea.

This economic illiteracy brought about a mindset and policy direction that has steadily kept Nigeria on the road to ruin and in current President Muhammadu Buhari, it has perhaps found its ultimate champion.

This commitment to doing absolutely nothing but look for money to spend on self is unyielding.

It has fed into regulatory behaviour which does not tally with established economic orthodoxy. Olatunji Olugbenga of Ekiti State University, in a brilliant paper examining Nigeria as a case study for understanding how policy works in the developing world, highlighted the obsession that these countries (including Nigeria) have with economic control.

He made the argument that such economies often establish these controls to either pander to virulent strains of populist socialism or to actively control indigenous or foreign capital.

In such a regulatory environment, policies that control the pricing and movement of foreign currencies, even goods across borders and throwing money at outmoded methods of agricultural production find a ready home.

One of the few orthodoxies that this administration has been compelled by circumstances to abide by is debt financing.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, recently declared that the federal government is working to borrow $750 million on behalf of the Nigerian states to “stimulate local economies and support vulnerable household consumption in Nigeria”.

With dwindling oil revenue and few options for propping up public spending, the administration had little option than to embark on the most ambitious deficit financing effort since ‘structural adjustment’ in the late 1980s – another period of economic difficulty which Nigerians remember with no fondness.

Yet again, our structural deficiencies bite us hard in the rear.

A bloated public service, a bias towards showpiece ‘projects’ to the detriment of routine infrastructural maintenance and deeply entrenched political patronage network act as a dead weight on spending considerations – creating this unsustainable state of affairs where recurrent spending has dominated every Nigerian budget for decades.

In effect, we are borrowing from the future to sustain our current largesse. Even social programmes, ostensibly an aspect of the economy that developing countries excel at, are endangered.

We have seen what state governors and legislators did with Covid-19 palliatives that were contributed for the benefit of poor people by the Nigerian private sector.

It represented a catastrophic policy failure at managing a critical aspect of the country’s response to a generational threat.

Dr. Olugbenga again offers another interesting paradigm to understanding this issue.

According to him, the conditions surrounding regulation are dictated by what he terms “the ecology of administration and regulation” in a given country.

For a typical developing country, these conditions often include control by a political class which, despite securing power through legal means, “exercise such power mostly through charisma, personalising political office.”

Simply put, politicians who hoarded noodles and garri in warehouses will not use millions of dollars in loans to stimulate their local economies through investment and social programmes.

They will merely stimulate their personal economies and bank accounts. At the end of November, the Chairman of the Board of the Nigerian Economic Summit Group, Asue Ighodalo, issued a dire warning to attendees of this year’s Nigeria Economic Summit.

Nigeria is missing out on the $19 trillion jackpot in negative-yielding investment globally because the country’s investment climate is as he called it: “unwelcoming, unsafe, and unpredictable”.

A negative bond yield is a curious scenario when an investor elects to receive less money at the bond’s maturity than the original purchase price of the bond.

Negative-yielding bonds are purchased as safe-haven assets in times of turmoil; the investor effectively paying the sovereign debt issuer for the pleasure of holding the security.

Ighodalo was firm about the reasons why Nigeria has been excluded from this party.

“Our multiple exchange rates, policy flip-flops and perception of how we react to investors, confuses the investing world.

These are not labels we can afford particularly now.”

Africa’s largest economy has paid the price for not fixing a broken policy environment over the last halfdecade in blood, lost productivity, economic frustration and plummeting statistical indicators.

The time to turn the corner on these lost years was a decade ago. The next best time is now.