It is an understatement to say the economy is flat and Finance Minister Dr. Ngozi Okonjo-Iweala, who doubles as Coordinating Minister for the Economy, feels lack of foresight and financial recklessness on the part of state governments should be blamed for this. But, economic analyst IMAM BELLO says the minister is responsible for the crash. His reasons are presented in this article.
Dr. Ngozi Okonjo-Iweala Minister of Finance and Coordinating Minister for the Economy (CME) will be positively remembered for many things, including being our first female finance minister, the Paris Club debt concessions and the creation of the Excess Crude Account (ECA).
However, I am sure that in her quiet moments, she will reflect that this is not her finest hour. Indeed, the last few months have done much to demystify the enigma that she has been presented to be.
There are aspects of the current economic crisis for which she cannot be blamed. An example is the fall in global oil prices. However, there are equally some aspects of the economic crisis which must be laid firmly at her feet. Principal among the latter is the failure to appreciate that as CME, she is responsible for the entire economy – all its sectors and all its tiers.
The latest spate of blame trading with state governors over who is responsible for salary arrears is an unfortunate reflection of a tendency to monopolise credit for positive feats whilst happily shifting blame when things go awry.
The handling of the oil price downturn has raised serious questions about our economic management. In October 2014, with oil prices already falling, Mrs. Okonjo-Iweala presented a budget with a benchmark price of $78. She later revised it to $65 and finally to $52. The annual budget prepared by the CME percolates down to the budgets prepared by the 36 states and 774 local governments.
The shifting of benchmark created confusion in the lower tiers of government about the outlook. It is a well-known fact that in Nigeria, with the exception of a few states like Lagos and increasingly Ogun, the majority of states derive the bulk of their funding from federal transfers. Those transfers have fallen by 40 per cent since October 2014 – a precipitous decline.
Despite the sudden decrease, the Federal Government, through the Debt Management Office (DMO), actively prevented any state from borrowing. In 2014, only one bond was approved. Short term loans were denied through the employment of rigid and punitive enforcement of a rule requiring Federal Ministry of Finance approval, which was routinely denied. Thus, the states had no real space to maneuver and readjust to the new financial situation.
Meanwhile, the CME argued, rather self-righteously, derided the governors’ inability to meet salary obligations. Last week’s revelation that the Federal Government itself has borrowed more than N476 billion in just four months, majority of which was used for salaries, was a very shocking one. It is a very sad example of “do as I say, not as I do” -the height of economic hypocrisy.
Similarly, on the subject of the ECA, which was designed as a buffer against the fall in oil prices, the CME has always blamed governors for their insistence on sharing of the excess crude that she would otherwise have wished to save. The “Greedy Governors” moniker was both convenient and appealing. However, her comments belied an inconvenient truth. Every time excess crude was shared, the Federal Government received the lion’s share of 52 per cent. The ECA balance fell from around $11.5 billion at the start of January 2013, to as low as $2.5 billion in January 2014 despite consistently high oil prices over that period. If the CME were sincere in her desire to save, it would have been expected that the Federal Government would have saved its portion of the ECA. Rather, it has not only spent its share, but it has considerably increased the nation’s debts.
In Washington last month, Mrs. Okonjo-Iweala congratulated herself on how Nigeria has been able to weather the storm. But a careful look beneath the surface shows a deep rot which if not corrected, threatens the economic future of the nation.
Collectively, states and local government councils are the largest employers of labour and their inability to pay salaries means mass retrenchment looms on the horizon. Already, states, such as Ekiti and even the Federal Government, are embarking on verification of workers credentials. The underlying aim is clear even if not stated. It is a precursor to downsising the workforce.
In many states, the wage bill problems originated from the Federal Government itself, who in 2011 mandated a minimum wage of N18, 000 per month. There was neither an assessment of the financial impact, nor of the regional costs of living variations which should have seen this function handled individually at the state level, as it is done in other federations.
Those who implemented the requirements witnessed massive increases in their wage bills. In a recent interview, Ogun State Governor Ibikunle Amosun stated that his average wage bill doubled as a result of minimum wage from N1.7 billion to N3.8 billion monthly. The Benue State Governor, Gabriel Suswan, has been honest enough to state that his state is unable to afford the implementation of the minimum wage, setting him on a collision course with organised labour. Large salary increases were manageable when oil was trading at over $100 per barrel but at $40, the proverbial rubber hits the road.
The total federal transfers to states in 2014 were the lowest since 2010. It should therefore come as no surprise, that salary arrears have begun to accrue. Indeed a total breakdown of essential services is a very real prospect, in some cases.
There is no room for “blame storming” during a crisis. The CME is responsible for all sectors of the economy. In a downturn, any sector that is of systemic importance must be protected. United States (U.S.) President Barack Obama raced to save America’s banking and automotive sectors, Nigeria did the same when the banks were threatened by creating Asset Management Corporation of Nigeria (AMCON). If there is a need for a similar move at state level, it should not be discountenanced. The CME must appreciate that there are no federal, state, or local Nigerians. There are just Nigerians. If the oil price has caused Federal Government to be in deficit, then it is wrong to castigate the states, that derive most of their income from that source, for also being in distress.
Imam Bello, an economist, is based in Lagos.
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