Can Buharinomics pull Nigeria back from the brinks? (1)…By Magnus Onyibe
When Shinzo Abe, Japanese Prime Minister, took office in December 2012 for the second time, (he first led Japan 2006-7) he introduced some radical policies now referred to as “Abenomics” to awaken the economy of the Far East country which had suffered stagnation for about two decades .
As a doctrine, Abenomics departs from the previous piecemeal measures of past leaders of Japan and antagonises powerful political constituents in a country that was the second largest economy after the USA, until it was overtaken by China in 2010 and relegated to the third position.
From an economic recovery prism, Abenomics is an aggressive set of monetary and fiscal policies combined with structural reforms geared towards pulling Japan out of its 20 years long economic slump which she descended into after attaining soaring prosperity heights in the mid-1980s buoyed by a property boom.
Like Japan (although to a far lesser degree), the Nigerian economy has dropped from its lofty GDP heights of between four and five per cent a couple of years ago arising from buoyant international oil/gas price, to its current position of a little over two per cent and like Abe of Japan, President Muhammadu Buhari, in a bid to give the Nigerian economy a shot-in-arm, following oil/gas price crash, seemed to be poised to ruffle the feathers of entrenched powerful political blocs that have ruled the country since her return to party democracy, some 16 years ago.
Despite not officially having a standing economic management team, to reflate the economy and pull her out of the brinks, the Governor of the Central Bank of Nigeria, Godwin Emefiele, recently warned Nigeria could descend into recession next year if remarkable growth was not recorded. Quantitative Easing measures like the actions taken by the Japanese president are being introduced.
And that has been coming by way of bailout ($2.3m) distributed by the Federal Government to 27 state governments that had fallen behind in payment of salaries of public servants in addition to the Debt Management Office conversion of short-term money market debts of ailing state governments totalling N660m to long-term bonds to Deposit Money Banks.
In a bid to reflate the struggling economies at the state levels, so that Nigeria does not slide into recession, the CBN, like the Bank of Japan is also at the heart of the economic rescue mission, so she is also providing generous loans to the financially challenged states up to the tune of N338bn.
By way of comparison, at the end of the stimulus exercise, it is estimated that about N1tn would have been pumped into the Nigerian financial system with a GDP of about $516bn in less than four months, just as information gleaned from Reuters, Bloomberg Business News Africa, and Financial Times indicate that Japan has injected up to $210bn into her economy with a current GDP of $4.6tn in a space of about three years.
The aggressive infusion of massive funds into the Japanese economy, which is a sort of shock therapy, initially produced the desired results of modest growth of about 1.7 per cent GDP growth in the economy (keep in mind that economy has been in stagnation for two decades) during first and second quarters, although it has slipped in the third quarter.
Unlike the Japanese situation, the jury is still out on the effect of the generous injection of funds into the Nigerian economy by the Buhari administration in a bid to jolt it into a return to impressive growth trajectory again. Perhaps, a few months’ gestation period may be required for results to kick in; nevertheless, the administration appears not to be resting on its oars as other aggressive structural reforms are already being implemented to bolster the effect of the stimulus package.
One of such bold initiatives is the newly introduced Treasury Single Account and the soon-to-be adopted Zero Base Budgeting which would be the flagship economic policies of the Buhari administration and represent a major paradigm shift in public sector governance.
While the TSA is aimed at streamlining the Nigerian revenue into a single account at the CBN, to stem the financial leakages arising from maintenance of multiple accounts by the Ministries, Departments and Agencies, the ZBB initiative is expected to promote efficient and effective allocation of government funds saved through the TSA by adopting a budgeting concept that is hinged on cost benefit analysis and facilitates optimum utilisation of government’s scarce revenues, as opposed to building on historical experience which is currently the practice. In a nutshell, the ZBB is performance-based budgeting as individual budget items are evaluated for their merits or demerits before funds are committed.
Recall that when the idea of the TSA was first mooted, there was palpable fear by bankers that the exercise would result in about a N1tn public sector funds being pulled out of the banking system and it would negatively impact on the ability of banks to lend to her customers but at the end of the exercise, the GMD of Fidelity Bank, Nnamdi Okonkwo, under the auspices of the Bankers Committee has revealed that less than N1tn was actually mopped up.
The good news is that although public funds have been withdrawn, it has had minimum impact on availability of liquidity, so the anxiety by bankers was hasty, as the withdrawn funds are actually going to be re-injected into the financial system by way of payment to local contractors whom, according to information from the DMO, Nigeria’s local debt is in excess of N10tn. The fear of job lay-off by labour activists has also been allayed.
Regarding the ZBB, which Nigeria is bracing itself to adopt, it may be recalled that Jimmy Carter of the USA was the first to introduce the budgeting method into government when he was the governor of the state of Georgia at about 1971 and it had a salutary effect in the allocation of funds in government after. Peter Pyrr first mooted the idea in a Harvard Business Review article in 1970. Subsequently, Carter introduced it at the federal level when he became president around 1977. His predecessors , Ronald Reagan, George Bush Snr and Bill Clinton retained it when they held sway as presidents of the US until the 1990s when the concept was discontinued.
Going forward in Nigeria’s public sector, when the ZBB is fully integrated, budgets will no longer be based on historical experience which entails building on the previous budget provision like adding 15-20 per cent to the last year’s budget but each project or venture in the MDA’s budget will be assessed line by line and allocated funds based on effective need and expected impact on the society.
No more would funds be spread thin across many budget subheads just to fulfil all righteousness which is presently the situation.
To be concluded on Tuesday
Onyibe, a development strategist and former commissioner in Delta State, is an alumnus of the Fletcher school of Law and Diplomacy, Massachusetts, USA