Thursday 16 April 2015

Is This The End Of Neoliberalism In Nigeria? - by Odilim Enwegbara

Keynesian economic principles have been the secret behind developed countries’ unending economic growth and job creation. Always increasing system liquidity either by borrowing or by printing money, and reducing interest rates so that businesses can borrow cheaply and invest cheaply, western economies have always avoided economic redundancy that has always resulted from illiquid and high interest rate economy.

It is little wonder in every economic crisis, western economies by resorting to excessive government stimulus package and quantitative easing to once again boost real sector investment and growth with the goal of growing the economy with jobs.

But while western economic powers continue to pursue pro-growth and pro-investment economic policies, they always mobilise neoliberal prudent economics to developing countries who insist that developing countries shouldn’t also pursue the same stimulus economic development principles.

The hidden agenda here is the fear that allowing these developing countries pursue the same pro-Keynesian policies, would make them become industrial powers too. This should spell competitive doom for developed economies who have to rely on both developing countries’ industrial raw materials and huge consumer markets to continue to promote and protect developed countries’ growth and jobs.

So, imposing anti-Keynesian tight monetary policy along with anti-deficit fiscal spending agenda on developing countries has remained a matter of life-and-death for western economic powers especially in an effort to constantly keep developing economies as their economic slaves in perpetuity.

Who else could promote anti-Keynesian macroeconomic policies across developing countries than local neoliberal economists and those educated and nurtured in western controlled multilateral imperialist institutions like IMF and the World Bank? In developing countries, they are falsely nicknamed technocrats even though in reality they are economic hit men and women, sent to these countries to do the bidding of the West.

Enjoying bloated media mentions, these men and women have had little or no difficulty pursuing, developing and adopting anti-investment, anti-growth and anti-jobs policies, impeding developing economies’ chances of joining western economies as industrial economic powerhouses.

No wonder, with economic indirect rule, neoliberalism is celebrated in most developing countries. With such open insistence on central banks’ independence, leading to tight system liquidity, has led to foreign portfolio investors from western financial capitals like New York and London to fill the liquidity gap, exploiting the unheard-of arbitrage encouraged by currency exchange stability in the presence overvalued national currency.

It’s this anti-real sector high interest rate policy regime that causes the current rise in economic financialisation in developing countries. And with central banks engaged in blind fighting of inflation along with double-digit interest rates, developing economies like ours have been forced to remain import dependent economies.

But insisting on the “prudential regulations” as mandated by the Bank for International Settlement under Basel II which imposes draconian high capital adequacy ratio on banks, supposedly the major source of funding for real sector firms, has created illiquid economies in most developing countries to the extent of rendering their real sector economies completely redundant and anti-jobs. Little wonder, while the financial sector grows by declaring double-digit profits year-in-year-out, the real sector economy tends to remain year-in-year-out comatose.

In the meantime, based on the neoliberal insistence on fiscal prudence at all costs, including denying government the free will of printing local currency to meet its growing gaps caused by the inability of the government to internally generated revenues, government is forced to borrow at such cut-throat interest rates because rather than borrow externally in the internationally competitive money market, these neoliberals insist that government borrows domestically when the money it is borrowing at such exorbitant interest rates is imported from the same international money markets. It is no wonder the real beneficiaries of these disjointed macroeconomic policies are the foreign portfolio speculators along with local banks and members of the economic management team in connivance.

In this their trade, it is understandable why borrowing to fix critical infrastructure which is important in reducing cost of doing business is always refused by the managers of the economy. The sheer refusal of such policies in developing countries by both the West and their economic foot soldiers in developing countries is because that would amount to both shooting themselves in the foot as well as putting developing countries on the same competitive edge and level playing field.

Understandably, neoliberal imperialists are fiercely opposed to borrowing the same way they are opposed to developing countries running high budget deficits like their western counterparts who do so mostly by printing more money or borrowing cheaply. This is seen as a capital sin never to be allowed in developing countries.

During her last four years in Nigeria, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, without apology, has led the country’s economy on the principles of neoliberalism. And as someone whose education and career life took place in the US, should she be opposed to what she has lived and practised all her life? Should it, therefore, be surprising that she has always insisted on Nigeria adopting a macroeconomic austerity policy stance as being professed by Washington for developing countries like ours?

Like every other neoliberal policy, drastic reduction in capital spending, while pushing recurrent to the roof shouldn’t be surprising. Also, like most neoliberal activists, she too should be allergic to borrowing cheaply to invest in upgrading and expanding the country’s infrastructure, as without such an aggressive infrastructure investment, there is no way the country’s cost of doing business should have been lowered to the level of local products being competitive like foreign ones.

That notwithstanding Nigeria’s infrastructure spending at 1.3 per cent in proportion to GDP (far below developing world’s 5.1 per cent average) during the past four years, the finance minister insistence that the country should pursue neoliberal fiscal austerity measures, clearly shows how allergic she is to either spending or borrowing to invest in infrastructure. But that did not stop her from borrowing to keep expensive big government unchallenged that this year alone Nigeria should be spending unheard-of N943bn (far higher than what it spends on capital projects) in domestic debt service which is today as high as N12 trillion. This is money if borrowed both for capital spending and externally would not only have grown the economy but also would have cost a fraction to service.

As the coordinating minster of the economy, another important neoliberal casualty was development planning. Broad-based road-mapping has always been the secret today’s newly developed countries like China and India have exploited. Of course, as finance minister, Okonjo-Iweala, is fully aware that without economic developing planning, there is no way our country can come up with sector-by-sector development agenda that is rigorously realistic and time-bound, financial-bound, and execution-bound.

That is why in the forthcoming post-neoliberal economy of Nigeria under Muhammadu Buhari’s government, economic planning should be the focus, with aggressive investment in infrastructure, including roads, railroads, airports, urban renewals, and even whole new industrial and service cities.

Realising this should require the next government to besides aggressively pursuing conventional revenue generation, unconventional revenue streams should be the secret to getting the badly needed revenue to embark on massive infrastructure development.

In government’s efforts to truly address the current over $300bn infrastructure deficit, my advice is that this should go hand-in-hand with the use of some portion of our oil reserves as strategic collateral to borrow from China’s $3.9trillion foreign reserves seeking foreign investments.

Also, rather than continuing to service our highly unsustainable domestic debt, which during the past four years cost the country as high as N3bn, government should immediate pay off the debt by printing its equivalent in the name of quantitative easing. Or else, domestic debt service would continue to create a big hole in government’s financial balance sheet.

This measure should be accompanied with high import tariff policy so that rather than the quantitative easing leading to a run on the naira, it should force foreign product dumpers to relocate their factories to Nigeria should they too want to benefit from the country’s over 170 million consumer market.

- Odilim Enwegbara is a development economist based in Abuja. 

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