The President's Economic Men - Understanding The Next Phase of Economic Management

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Tuesday, September 17, 2019 /  06:30PM / Teslim Shitta-Bey, Managing Editor, with reports from Bukola Akinyele and Nifemi Taiyese WebTV/ Header Image Credit: Wikipedia

 

Nigeria's President, Muhammadu Buhari, has just announced an eight-man team of economic advisers who will serve as the President's Economic Advisory Council. The new Council, apparently, replaces the Vice Presidents Economic Management Team (EMT) that has so far navigated the direction of national economic policy. As a signaling event the President's action expresses impatience with the recent pace of economic growth (currently 1.94%) and the country's various economic indices that have been unimpressive over the last eight quarters (Q3 2018 unemployment rate for the country was a staggering 23.1% and underemployment an additional 20.1%).


All The President's Men

The President's new team of economic advisers is made up of prominent market-minded economists with its Chairman being a Pan Atlantic University lecturer, Professor Doyin Salami, known for his 'tough love' market-based approaches to policy management. Also in the team is a former Central Bank of Nigeria (CBN) governor, Professor Charles Soludo, who is one for big ideas and strong aspirational agendas. Soludo was the CBN governor who spurred the banking sector consolidation in 2005 where about 89 motley banks were reduced to 25. Soludo, at the time, argued that if Nigeria was to engineer rapid and sustainable growth it needed larger lending institutions that could support big-ticket projects. Banks were therefore asked to increase their capital base from N2bn to N25bn compelling a series of mergers and acquisitions (M&As).

An equally cerebral member of the President's new economic advisory team is Bismarck Rewane. Rewane has been a prominent policy commentator and irreverent advocate for greater market intervention in the determination of resource management. Rewane will bring to the table immense research skills and analytical resources and more importantly a non-academic and private enterprise-based view of policies, being an entrepreneur himself and a member of the board of a listed company on the Nigerian Stock Exchange (NSE).


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A prominent academician on the President's advisory team is Professor Ode Ojowu. Ojowu has had a long and illustrious academic career and was one-time Chief Executive of the National Planning Commission and Chief Economic Adviser to President Olusegun Obasanjo between 2004 and 2005. Ojowu's planning experience will come in handy in working through the nuts and bolts of policy formulation and execution and in providing needed public policy 'memory muscle'.  

The only woman on the team, Dr. Iyabo Masha, brings to the Council extensive financial and regulatory experience at the Central Bank (CBN) and the International Monetary Fund (IMF), her institutional experience should add character to monetary policy formulation as part of an integrated approach towards macroeconomic management over the next 12 quarters. Her research bias will ensure evidence-based review of economic/financial information and provide a clear set of metrics for the assessment of policy effectiveness.

Dr. Mohammed Salisu supports other academic members on the Council to bring intellectual rigor to the policy formulation process, as well as provide insights into policy design, strategy and implementation. Salisu's expertise in investment banking provides opportunities to craft policies that will attract major foreign investment capital, especially from the Gulf States of the Middle and Far-East Arabia.

Apart from Salisu another member of the EAC, that will likely bring both AfDB and CBN experience to bear on the robustness of the analytical thought process and strengthen the quality of recommendations made by the council is Dr. Shehu Yahaya. Yahaya's long-tenured lecturing experience gives him ample theoretical depth to guide, and perhaps, moderate, the robust ambitions of the more aspirational members of the Council. Hopefully, this would create the necessary team dynamic needed to create policy frameworks that will edge the economy forward in a sustainable manner. Yahaya will likely find a soul mate in Dr. Mohammed Sagagi who is a development economist and has extensive experience in both public and private sectors. Sagagi has been involved in various public sector reform programmes.


 View From The Inside

 As members of the President's economic team the erstwhile economic outsiders will now have a view from the inside, giving them a better nuanced appreciation of the economic challenges and the delicate political balance that constrain policy actions. The deeper understanding of the present difficulties in policy formulation and execution will give team members the opportunity to be creative and assertive in a new, hopefully, different policy direction. The economic experts will need to evolve tactics and strategies to do the following:

  • Increase employment over the next four years on a sustained basis
  • Keep inflation in check
  • Remove inefficiencies that have emerged from price distortions through subsidies
  • Reduce the size of the fiscal deficit
  • Reduce the size of the public debt (now$81bn)
  • Reduce debt service (about 70% of recent revenues)
  • Incentivize private sector output and productivity
  • Harmonize the foreign exchange rate markets and eliminate arbitrage
  • Reduce oil sector contribution to foreign exchange earnings
  • Find funds to expand critical road and public transport infrastructure
  • Improve the budget management process for efficiency and transparency
  • Incentivize capital importation


No list is likely to be exhaustive but the earlier issues set the tone for the near-term interventions that the advisory team will need to address within a narrow time frame.


The Ticking Clock

The President's new economic advisory team will have to hit the ground running as the rapid growth in population size (2.6%) and the slow pace of national output (GDP) (1.94%) is setting the boilerplate for major social conflict ahead, especially as youth unemployment rises above 52% (56% in South Africa, for example) and private employment opportunities shrink in the face of declining disposable incomes and falling private consumption expenditure as  reflected by the decline in revenues of fast moving consumer goods companies (FMCGs) .  


Can We Reflate The Economy?

This possibility of reflating the economy in the short term is scant, the inflation rate at 11.02% is not likely to hold as a spike in international oil prices as a result of the recent drone attacks on Saudi Arabia's state-owned oil company Aramco will soon pass. With oil prices reverting to around $60 per barrel (2019 budget benchmark) the CBN will need to keep an eye on the national reserves as its policy of foreign exchange market stabilization around N360/$ depends delicately on oil price not going too far below the $60 mark. Even around this mark, the foreign reserves have taken a hit falling from around $45bn in Q1 2019 to $43bn in Q3 2019.


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Source: National Bureau of Statistics


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Expansionary fiscal policy at the moment would lead to a rise in interest rates, a fall in exchange rate, a rise in domestic prices (supply side rigidities will take a while to overcome) and only marginal upward movement in the GDP growth rate, especially since consumption, savings, and investments are currently relatively inelastic; meaning that a rise in interest rates will not affect savings, investment and consumption very much. The new economic team, therefore, have very few fiscal and monetary handle bars to manipulate.


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A Few Good Men (And Woman)

The most significant contribution of the President's new team of economic advisers is the signaling effect that the government intends to do things differently and, hopefully, better in economic management. This may lead to renewed foreign investor interest and a flow of both foreign portfolio investment (FPI) and foreign direct investment (FDI) to the country, thereby improving capital importation and relieving the reserves of strain.

So far, the best likely outcome of the Presidency's move to institute an economic advisory council is to rebuild confidence in the economic decision making process, but whether this is enough to turn the economic fortunes of the country around is as certain as asking whether Brexit will lead Britain to an economic tailspin. The answer, to the best of anybody's knowledge, is blowing in the wind.  


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