“Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives”. —— James Madison
There are two basic principles that govern economics within an economy, for if you transgress on the first one you are bound to pay direly for your actions in the future.
- Do not spend but save and pay off your debt when the economy is at its potential and spend when the economy is below potential to bring it back to potential.
- Any policy, either fiscal or monetary taken by the government to push the economy back to its potential on the long run will not start to yield results until after 6 to 8 quarters, which is a year and a half to two years in a developed economy because they have less shocks and might take up to 12 quarters (3 years) or more in a developing economy because they have more shocks. Examples are inflations, exchange rate, civil unrest etc.
To understand these principles we will go back to history:
1999, Olusegun Obasanjo and his economic team
Obasanjo, was a president that understood economic principles and followed these core principles in managing the economy. Between 1990 and 1999, Nigeria’s economy only grew at 2% annually making it the worst economic period for the country, in 1999 when General Addulsalam handed power to OBJ, Nigeria had only USD$4 billion in its foreign reserve, but by the time OBJ left office we had USD$60 billion in the foreign reserve and another USD$40 billion in the Excess crude oil account.. OBJ and his economic team through their economic policies decided to diversify the economy moving it away from the mineral resource sector. Overnight, Nigeria’s economy grew shifting from below potential to potential and grew at annual average of 8.92% between year 2000 and 2009, Nigerian’s economic growth was only next to China and India in the world.
Obasanjo did the most sensible thing any good leader would do, following the core economic principles which may not be popular to the people, Obasanjo decided to save and pay off our foreign debt rather than spend. The effect of this is that you have money to spend to push the economy back to its potential when the economy is not doing well or below potential, and the second thing is having reduced or paid off your debt, majority of the money will go into capital expenditures in the form of stimulus to jump start the economy rather than using it to service debts.
With the economy growing and at its potential, had OBJ decided to push money into the economy through government spending, it would have only resulted to pushing the economy beyond its potential, heating up the economy and causing inflation. Not only will it cause inflation, so much money in circulation increases the wealth of the people overnight, when people get richer, export tends to reduce and import increases because they are able to afford more of foreign goods, this puts a strain on the dollar reserve of the country increasing the value of the dollars against the Naira and will ultimately lead to an increase in negative balance of payment for the government in international trade as Nigeria is not even an exporting nation.
The Effects of Obasanjo’s Policies
Most major governments coming out of economic woes do not enjoy the positive effects of their sound policies, it was actually about after 4 to 5 years later that we started to experience the positive effects of OBJ’s economic policies.
Soludo as economic adviser and later CBN governor was able to drive his economic goals using monetary policies, when Soludo became CBN governor, dollar was N147 and by the time he was leaving, the dollar had reduced to N117, gaining a value of N30 against the dollar.
Nigeria had USD$100 billion between the Foreign reserve and the Excess crude oil account and in 2008 when there was a global recession and the economy fell below potential, Nigeria had enough foreign reserve to keep the economy growing. Nigeria had paid off majority of its loan which meant during recessions we can spend more on capital projects as stimulus and reduce expenditures for servicing debts.
Was Obasanjo’s policies the most popular among the people?….obviously no, but it was the best for the economy, most politicians who follow the core economic principles are never popular because people always want more money to spend which creates a future negative effect for the economy like what we are facing today.
Every economic boom enjoyed by the Jonathan administration was the hard work of his once political godfather OBJ and his economic team. Basically what OBJ had done was to take care of the macroeconomic problems of the country, the Naira was very stable, there was confidence in the economy and Foreign Direct Investments poured into Nigeria. Had OBJ employed the wrong economic policies before leaving office, and the policies taking about 3 to 4 years to see the effects, Jonathan would have been the one to suffer it, but OBJ stayed true to the cause of a sound and solid economic policy till he left office.
All major changes require between 5 to 10 years to reach the goal depending on the magnitude of the change, and one of the greatest reasons change efforts fail is because the successor does not either understand the change or does not have the same mission, vision and drive to implement the change. This is why most leaders choose their successors to complete whatever they have started since time does not permit them in office to drive the change to completion.
Jonathan, the opposite of economics and the beginning of our economic woes.
Like the proverbial prodigal son who inherits wealth from his father and without challenge to build on it to continue the legacy of the father but squanders it, Jonathan employed the direct opposite of economic principles with the help of Ngozi Okonjo-Iweala as minister of the coordinating economy. They spent and borrowed more when the economy was at its potential leaving the economy vulnerable during recession. While the ignorant Nigerians hailed her as coming from the World Bank and better suited for the job, the question remains whether it was her influence that was employed or her capabilities. Someone who claims to have worked with the World Bank and has risen to the position of Managing Director should know these simple economic principles.
In 2010, Lamido Sanusi Lamido, sounded a note of warnings that the Jonathan Administration was depleting the foreign reserve and that if we faced a recession or drop in oil prices it might spell disaster for the economy. This put the Jonathan administration on a lock horn with Sanusi and seeing Sanusi as someone who will not keep quiet switched over to spending the dollars in the Excess crude oil account.
When the governors found out that the Excess crude oil account was being tampered with by the Executive, took the executive to court and demanding that the money be shared rather than Jonathan and his cronies spending it. That was how the USD$40 billion left in the Excess crude account by OBJ was wasted. While the administration sold crude at an average price of about USD$110 per barrel for five years it never saved a dime but rather depleted everything the OBJ government had built on ground.
OBJ and his team clearly balanced the five factors of the GDP while the economy grew, he refused to push excess money into the economy, and this was clearly shown from the percentage of the service sector to GDP. In 1999 it was 26.8% and increased to 28.7% in 2009, it stayed at an average of 24.5% in 11 years, from 1999 to 2009, by 2010, our services as a percentage of GDP had increased to 51.2% over 100% increment, while the GDP grew by only 7.8%. Services had increased to 55.5% by 2014 with an average of 52.3% in 5 years from 2010 to 2014, still recording over a 100% increment while the GDP had not increased more than 28.7% over that same period.
The more money injected into the economy, the more consumer spending increases and the more the services increases, what this clearly means is that the economy was not expanding but consumer spending was increasing, our external earning was not increasing but internal spending was increasing, our revenue from export was decreasing while we spent everything we earned.
Percentage of our exports to GDP in 2001 was 45.4%, by 2006 it was 43.1%, 2010 it had further reduced to 25.3%, put in mind that our GDP and services was increasing while our external revenue earning was decreasing, by 2013 it had reduced to 18.0% and 18.4% by 2014. What is means is that our GDP growth was being fueled by too much liquidity within the system, all the money that should be in the foreign reserve was being spent in the economy thereby increasing consumer spending and the demand on the dollar.
Prior to 2003 before she was employed by the OBJ administration, Okonjo-Iweala was Vice-President and Corporate Secretary of the World Bank Groups, her job description was not that of a core banker or economist but more of compliance and due diligence. It is obvious that while she may wield the influence, the core capabilities are not there and this could be the reason after OBJ paid and renegotiated the loan arrangement for Nigeria, she was moved to the external affairs ministry from which she later resigned only to come back and plunge us into an economic disaster. Soludo was to confirm this in his open letter that most of the technical requirements and capabilities needed for the loan payments and renegotiations was handled by himself and the CBN and not Okonjo-Iweala as everyone had believed.
Why Politicians follow the Political Economic Decisions
While the core economic principles make politician seem as if they are doing nothing but it is indeed the best and most effective way to run the economy, the reasons they make counter decisions are as follows:
- They want to look good in the eyes of the populace despite the fact that their political economic decisions will have a long term negative effect which might start to materialise after 3 years. Such dire economic decisions are mostly taken when elections are around the corner.
- Stealing is the second reason politicians follow political economic decisions, they can’t just go into the vault and take money so they steal through over inflated projects, creating abandoned projects since the projects were not the aim in the first place. So when you see politicians embarking on massive projects during election period while the economy is booming, be sure to know that the project is not the aim.
Buhari, his Many Challenges, and the Sad truth.
As mentioned earlier, economic policies in a developing economy takes about 12 quarters (3 years) for you to start feeling either the negative or positive impact of the policies. Whatever we are suffering today are the consequences of the policies of the 2010 to 2014.
Whatever policies Buhari and his team have put on ground will not have its effects until the next three years minimum, that is just the economic truth, when OBJ started his economic policies after inheriting all the mess from the military era, it took about 5 years before we started seeing the positive effects of his policies, that’s just the way it works in economics. For those who are asking for the dividends of change, his change policies are what will lead to the goal.
There are still tougher times ahead and it is the obvious truth, in 2008 when the global recession hit Nigeria, the country had money in the foreign reserve, this clearly helped the economy as the government of Umaru Musa Yar Adua had money to inject into the economy as stimulus. When the economy is at recession or below potential as it is right now, government injects money into the economy through government spending on capital projects which acts as stimulus creating a multiplier effect in the economy. But the sad truth now is that Nigeria does not have such money hence jump starting the economy will be a herculean task for Buhari as oil prices have equally dwindled reducing Nigeria’s external earnings.
Of Change and the Expected Miracles
“There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who profit by the new” – Niccolo Machiavelli
For those who ask and are expecting the result as if it is the change, you must pause and find out what the meaning of change is, they think and expect that the change is an end itself, almost as a noun, change is a verb, and it is the process in which you reach your goal and aspiration.
The goal is the goal but change is what helps you reach your goal, it is a continuum. A fat person that weighs 200kg and wants to reduce to 80kg, change is not reducing to 80kg, the goal is reducing to 80kg but change is to stop eating junk food, stop ice cream, go to the gym and exercise, that is the change that will help you shed the weight and you reach your goal of 80kg.
Buhari is instituting and driving the change, it is the change that will get Nigeria to her feet again, he is curbing corruption, plugging the loopholes, it is no longer business as usual, people are made to return stolen funds, EFCC has woken up and those who thought they could not be touched are now going to court in handcuffs, the Nigerian Customs are now generating more money and becoming accountable. We cannot totally wipe out corruption but it will be greatly reduced because people are starting to fear the consequences of their actions and they know they can’t continue to steal with impunity.
These are the change we voted for and if it continues this way we will build a better Nigeria and reach our goal, the goal still remains the goal, but CHANGE the process which we will achieve it. Buhari will obviously make mistakes, but with his integrity we will keep to the course.
People are not happy because during Jonathans time there was so much money in circulation and most people spent like there was no tomorrow, the political economic decisions are those that are popular among the people, but what they don’t see is that it is a short solution to a long term economic consequences.
Nigerians and the Chinese became the highest purchasers of private jets in the world, while that of China could be explained economically, we could not explain the rationale behind that of Nigeria, but we are all suffering the consequences today, what seem good to the people at that time was a future economic disaster.
“Nothing in all the world is more dangerous than sincere ignorance”…………Martin Luther King Jr.
March 14, 2016 at 4:16 pm
Every country has its own economic challenges, what the leaders do is that they try to solve it. The past administration had it own challenges and Dr okonjo Iweala played her part in helping to solve those challenges. Now blaming the current economic challenges on Dr Okonjo Iweala is simply unfair and inconsiderate. What this post could have done is to try and provide some solutions to the curre3nt challenges we are facing not blaming someone who has done so much for this country.
March 15, 2016 at 11:11 am
U clearly have no clue about how an economy works
March 14, 2016 at 4:24 pm
The choice of word ‘Disaster’ is not the right one to use in this post, especially while trying to rate Okonjo’s Iweala performance for this country. Okonjo Iweala brilliantly managed Nigeria’s economy and the recent economic challenge Nigeria is facing isn’t her fault. Blaming it on her or her is totally wrong. We all know Nigeria’s economy isn’t the best right now, but lets pray or encourage people to exercise patience what we should not do is to keep looking back and blaming our heroes, that is totally unfair.
March 15, 2016 at 5:52 am
Let’s remove sentiment, the analysis above is absolutely right.
March 15, 2016 at 8:06 am
I am shocked by this statement. She was co-ordinating minister of the economy and she did not save a dime, kept borrowing and wasted our savings all during a boom. Disaster is apt.
As for u, pls cover ur head in shame
April 19, 2016 at 6:43 am
BEYOND HER PORTFOLIO AS THE FINANCE MINISTER NGOZI OKONJO-IWEALA WAS THE COORDINATING MINISTER FOR THE ECONOMY. SHE WAS TRULY EMPOWERED TO DRIVE THE ECONOMY. BUT LIKE A BRUNKEN DRIVER SHE DROVE THE NIGERIAN ECONOMY AT FULL REV DOWN THE HILL. AS YOU CAN SEE THE WRECKAGE WAS SO AMAZING EVERYONE THOUGHT THE ECONOMY WAS DRIVEN BY SOMEONE ON A SUICIDE MISSION.
March 15, 2016 at 12:30 am
I’m not a grandiloquent writer, ignore any grammar mistake.
First, good write-up!
Second, next time do an in-depth research on how the Naira lost value from the history of the Nigeria till it’s present day, so everyone could draw up a good conclusion.
Third, don’t pick the last administration for the entire collapse because it was headed by an easterner, best is to say Nigeria is filled with corrupt spending and not productive leaders!
Fourth, when you analyse economics, provide a basic formula, as statistics matters and speaks volume in such situation, not just mere sentences.
In general, Nigeria lost it’s capacity to produce and export far back, even before democratic state, till date no leader had strive to close the gap! The analogy to Naira vs Dollar as an excuse for a failed administration is not the point. Like you mentioned the economic growth of China and Nigeria was almost equal, but China moved on, however you failed to at least point out the strenuous decision made by Chinese govt. Did you ever realized China closed it’s borders for import if not as well export up to a decade, just to concentrate and impose domestic production, establish and consolidate on it, before they surprise the world???
Maybe some inaccurate implementation of stimulus plan by the last administration due to financial crisis that dealt with far developed nations, taking effect till date, however if not the stimulus injection what would have been Nigeria today?
The truth is, your thoughts are fine, but I’m ashamed most Nigerians embrace simple economic idea as a novel idea, when this is just basic reasoning to grow wealth. What could have been called Nigeria if she could build capable institution like constant power, diversify production, make oil the least focus stream, build her own refinery, stop import of refined oil, export more of different domestic made products, use the wasteful population in meaningful labour and see how developed countries who lack labour will outsource production to Nigeria.
All this will bring in the hard currency and to avoid inflation, at some point peg the Naira to Dollar if possible a Naira to a Dollar, if Dollar changes along Naira does. I have seen this work in Many countries where they lack even till basic natural water.
If Nigeria is actually meant to be a nation, root out all incompetent leaders with no credible qualification, record of achievement and fill in the positions with those with accredited qualification in areas of study, if not, then please keep shame aside and outsource all institution for at least 10 years, setup strict governance who will monitor and carry out audit on how the outsource services are delivered by proven professionals, and put fresh minds to learn and buy into the culture of perfection!
Something more radical is the way forward, however another way forward is to abolish regionalism, ethnicity and religion in government. Any body who wants to lead should sign-up and agreement of non allegiance to the above, serve the people without bias. If not then we are not meant to be a nation.
March 15, 2016 at 1:32 pm
If there was a recession and there was a stimulus to tackle the effect here, isn’t it possible that the money saved by OBJ’S administration was spent on it? Because if I remember well that recession was quite big and besides the govt. Ought to be in the best position to ellighten us about this things at least just to show to us that they know what they are doing
March 15, 2016 at 9:19 pm
The present administration is not peopled by egg-heads. Jonathan had his flaws as does all leaders but he ran the administration as best as resources at his disposal allowed. The present administration is reaping the dividends of the sound policies of Jonathan. As you alluded to, it takes time to see the fruition of any economic policy. Obasanjo had eight years to see he’s through, Jonathan did not have that luxury. Since govt is a continuum Buhari shld build on what he met no matter how little. Engaging in rhetoric is not the way to go. The people rejected Jonathan essentially bcos they misunderstood him. They are already ruing their hasty and ill thought decision to back this bogus change. The composition of the government does not inspire confidence. Buhari has three more years. Lets see whether his gungho policies will achieve his stated objective of CHANGE.
March 16, 2016 at 9:10 pm
This right up is partly right, though sounds sentimental to me.
The writer carefully left out Yardua
March 16, 2016 at 9:51 pm
Yar’ Adua never embarked on policies that was detrimental to the economy, in fact Yar’Adua built on what OBJ left behind, he increased the foreign reserve before he died.
March 8, 2017 at 6:29 pm
Obviously the writer did not really break down the facts. I recall the September 2011 Townhall meeting organized by the Newspaper Proprietors Association of Nigeria, Shell Hall, Muson Centre, where the need to remove subsidy was greatly emphasized at subsidy expense of $8bn annually, Nigeria could have saved $32bn from subsidy removal between 2012 and 2015. Not forgetting also the insurgency fight, which obviously gulped over $2bn. If the facts must be facts, let the fact be there. On the missing funds as announced by Sanusi, I expect the APC led government to reconfirm by doing their own investigation. This is two years down the line, no substantial comment. Even with the lean funds available, Jonathan’s Government still gave us the most transparent Sovereign Wealth Investment Agency in the World. Policies like the Local Content act, Dry season farming, automobile Policy, Gas Masterplan, Infrastructure masterplan amongst others is what I expect the APC led government to build upon and stop spreading lies