Buhari’s economic growth plan is incoherent and illusory
President Buhari launched his government’s long-awaited economic recovery and growth plan (ERGP) last week, on April 5, surrounded by key functionaries of the government. The high-profile event underscored the significance of the plan. Indeed, before its publication, some commentators said the ERGP would “make or break” Nigeria. The hyperbole apart, the statement has some truth in it. Given Nigeria’s dire economic situation, any recovery plan will have consequential effects, good or bad!
This is why it’s important to scrutinise the plan rather than accept its claims or assumptions unquestioningly. And, for me, the key issue is the internal coherence and deliverability of the plan. Anyone can say anything in a strategy document, but the real test is whether it is internally coherent, intellectually credible and realistically workable. And that was the prism through which I read the ERGP last week.
So, what do I make of the plan? Well, my starting point is that it has much to commend it, not least its overall positive tone on the markets. It is also difficult to fault the ERGP’s broad objectives of restoring growth, investing in social infrastructure, and building a globally competitive economy. The plan to broaden the tax base is long overdue and would yield huge rewards; so would the proposed privatisation of state-owned companies. Privatisation would push Nigeria towards being an investment-driven economy and contribute to economic rebalancing.
Yet, there are also flaws in the plan that can detract from these objectives. Let’s start with the process-related ones, and the first is the lack of prioritisation. I mean, here is a 4-year “medium-term plan for 2017 to 2020” that has 60 strategies and about 500 activities or actions. The document itself is 140-page long. Saudi Arabia, which faces the same challenges as Nigeria, as an oil-dependent nation, published its own economic recovery and diversification plan last year, tagged “Saudi Vision 2030”. It was a relatively succinct 86-page document. Prolixity is, of course, not strategy, and while Saudi Arabia’s 15-year plan occupies 86 pages, and Nigeria’s 4-year plan fills 140, the test is delivery.
And talking about delivery, on which more later, it struck me that, according to the ERGP, the Buhari government would transform Nigeria’s infrastructure, grow the economy by 7%, create 15 million jobs, reduce poverty from 61% to 50-55%, increase FDI inflow from $3.1bn to around $10bn, improve Nigeria’s ranking in the World Bank’s Doing Business index from 169 to 100, reform the public sector, etc, etc. And all “by 2020”! Of course, there is nothing wrong with bold ambitions. But a key principle in strategy or policy-making is that objectives or goals should be SMART, that is, specific, measurable, attainable, realistic and timely. Surely, one must wonder whether ERGP’s goals are realistic and attainable. And the key problem here is timing.
Interestingly, the ERGP acknowledges that there will be a dip in economic growth in 2019 “projected to result from the general election in that year”. But, with the Independent National Electoral Commission (INEC) recently announcing February 2019 as the start date for the 2019 general elections, the truth is that real politicking will start next year, 2018, with little or no governance taking place. So, given we are nearly halfway through the first year of the 4-year plan, and two years, 2018 and 2019, are likely to be dominated by politicking, electioneering and elections, what time realistically is left to achieve the ambitious and mostly politically sensitive plan by 2020?
But, leave aside the process flaws, there are also substantive weaknesses. One is inconsistency in the plan’s approach to market-based solutions, an area where radical reforms are urgently needed, given that a critical step to growing the Nigerian economy and making it globally competitive is to fully liberalise it. Yet, despite the positive tone on market forces, the plan suggests the government is still reticent about tackling market distortions. For instance, the most profound statement in the ERGP is the following: “The ERGP recognises the power of markets to drive optimal behaviour among participants”, adding: “The Plan prioritises the use of market as a means of resource allocation, where appropriate”.
The constructive ambiguity suggests there are two opposing forces at work here: the forces of liberalism, those who want to allow markets to function unrestricted within framingrules; and the forces of protectionism, those who want to retain control over the markets. If you were thinking that the ERGP would steer the Buhari government towards market-based solutions, the words “where appropriate” in that statement must dampen your expectation. When exactly in an economy is it not “appropriate” to allow markets to allocate resources? Is it when allocating foreign exchange or deciding which products to allow into a country?
The IMF noted in the report of its 2017 Article IV consultation with Nigeria that, despite the forex regime being liberalised in June last year, “forex restrictions remain in place and market continues to be characterised by significant distortions”. And, of course, one major source of market distortions is the ban, since 2015, on 41 items from accessing forex from the inter-bank market. But what does the ERGP say about these illiberal policies? Well, on the forex market, the plan simply says the CBN “is in the process of improving the implementation of its current policies”. And on the 41 items, it says the measure “would be reviewed with a view to removing market restrictions over time”. You can detect a reluctance to take radical steps to allow the market to function and allocate resources. The plan talks about tackling “market abuse”, but this is best done through a robust competition regime, not by arbitrary state interventions.
Then, there is the policy incoherence in the ERGP. For instance, the government wants to embark on a fiscal stimulus, a massive spending spree, but, at the same time, wants to ensure monetary stability, with low inflation and stable exchange rates. Yet, expansionary fiscal policy is an enemy of monetary stability. A key insight or adaptation from the Mundell-Flemming trilemma is that if a country doesn’t maintain capital control, and has expansionary fiscal policy, with high inflation, it would experience capital flight and unstable exchange rates. To stem this, the central bank would need to raise interest rates to control inflation. But if you ask businesses to choose between a fiscal stimulus and a combination of low inflation, low interest rate and stable exchange rates, most would choose the latter. Yet, you can’t sustainably maintain monetary stability while pursuing a loose or expansionary fiscal policy; in the same way that, as I have often argued, you can’t credibly pursue import-substitution and export-promotion together. That’s contradictory and would be counterproductive.
Space will not allow me to address other aspects of the plan, such as governance, but I must conclude with delivery. To be sure, the ERGP has an elaborate delivery mechanism, with a proposed Delivery Unit in the presidency. But the plan’s implementation is so diffused, spread across several ministries, departments and agencies (MDAs), as well as state and local governments. The problem is lack of ownership and expertise by the delivery agencies. This would seriously hamper the implementation of the plan. Even, where are the expertise and resources in the Delivery Unit and the Ministry of Budget and National Planning to provide effective monitoring and scrutiny?
What’s more, most of the ERGP’s objectives can’t be achieved without proper legislative backing. But given the poor performance of the National Assembly and the current gridlock between the legislature and the executive, which would worsen as the politics of the 2019 general elections kick in, there is little hope that the ERGP can be substantially, let alone fully, implemented!
For me, the ERGP is, overall, a laudable effort, but its birth defects, internal incoherence and implementation challenges make it seem rather illusory! Yet miracles do happen. So fingers crossed!
Olu Fasan