November 28, 2019

Shoot the message, not the messenger!

We have seen a lot of negative commentary on the list of 43 names submitted by the presidency to the Senate for ministerial appointments. Once we strip away the element of party political noise that is the function of opposition, we find that some of the criticism is uninformed. It is not that the list is uninspiring, rather that it has to be put together within certain constraints.

The first is the federal constitution, which requires that each state is represented. (Thankfully, calls for further state creation appear to have been dropped.) In an act of overcompensation for the excesses of the military regime before 1999, the constitution arguably veers too far towards federalism. A second constraint is that election winners need to reward those who helped them to secure the prize, the more so in a federal environment where politicians aspiring for office have to work with an additional layer of government. This is a core requirement of international statecraft. We could criticize the small number of women on the list or its high average age but this would be to ignore societal considerations. Some of the also-rans among the presidential candidates in February were vocal on this point but could not match the fund-raising of the two largest parties to pose a serious challenge at the polls.

The list, uninspiring or not, reflects the constraints we have highlighted of course but also the presidency’s obvious preference for ministers who share its vision. The ministers are the messengers, and criticism should be directed at the underlying message and the implementation of the FGN’s agenda.

That message is not free market. We have heard some Nigerians say that the president and the vice-president are socialist. However, this is the opinion of those who have never lived in a socialist system. Where is the progressive taxation regime that marks socialism in a democratic system, for example? Where is the social safety net that such a regime funds?

It is probably said that Muhammadu Buhari and Yemi Osinbajo are socialist because they favour a role for the state in the economy. In this case we can point to the social interventions in the annual budgets and other programmes designed to fill gaps that the administration has identified. The huge infrastructure deficit is an example. The domestic banks, private investors and Nigeria’s external partners do not have the resources to cover the gap. Even if they did, they would want the FGN to make a contribution as a stakeholder. So the FGN pledges public funds to the cause, and on a scale that makes fiscal conservatives uncomfortable.

The quality of delivery is a live issue but we can say that the true diversification of the economy, which has been notionally on the agenda of every administration in the past three decades, will not materialize without a transformation of the infrastructure. We all yearn for the day when a sharp fall in oil revenues does not lead directly to shortages of foreign exchange, a further rise in unemployment and a contraction in output across the economy.

Two widely discussed elements of the administration’s message are its support for managed exchange rates and for fuel subsidies. The first is not remotely socialist. Nigeria is not alone in its choice. Oil-producing emerging economies do not favour market-determined, let alone floating exchange rates (if such exist). We invite our readers to look at the arrangements in the Gulf states.

This particular message is not going to change in a hurry. In the local media coverage of Godwin Emefiele’s appointment for a second term as CBN governor, more than one analyst highlighted the opportunity to launch market exchange rates. This missed an obvious point: the reappointed governor has no such wish and nor do his senior colleagues at the CBN, not forgetting the presidency.

Turning to the fuel subsidies, the rationale is less socialist than “pro-poor”. However, we have little doubt that the funds deployed for subsidies, in whoever’s books they are entered, could be more profitably spent on development. The Egyptian government has recently gone down this route and encountered limited protest. It was acting within its credit arrangement with the IMF. The FGN has never borrowed from the Fund, and would have to push fuel price deregulation as its own policy.

Rather than target the messengers, we say that critics should focus on the message, which we have sketched, and its delivery/implementation. In one respect, we are positive. Relations between the executive and the legislature under Buhari Two cannot be worse than during Buhari One, and should be improved with the change in Senate president.

Delivery is a challenge because of shortcomings in the training of the civil service and public agencies beyond the higher echelons. Ministers appoint special advisors, often with the relevant technical expertise, to “get the job done” but the impact is limited. If a programme is not working or a contract is not performing, the temptation is to introduce a new one rather than replace it. Scrutiny of new governments makes for good copy but individuals can only make an impact if the policies are well constructed and they have the human resources to implement them.


Gregory Kronsten

Head, Macroeconomic & Fixed Income Research