Friday, March 29, 2024

Economy: Early mistakes of Buhari’s administration – Segun Aganga

What Jonathan did differently
Why CBN can’t act alone on forex

Uba Group

BY AUGUSTINE AVWODE

Former Nigeria’s Minister of Finance, Olusegun Aganga, has identified three reasons the economy has not fared well under the President Muhammadu Buhari-led All Progressives Congress administration.

The former finance minister, who was Managing Director at frontline multi-national investment bank, Goldman Sachs, also identified why Nigeria’s economy could be regarded as weak.

He said the current administration did not act fast when it took over governance, considering the fact that oil prices were already falling during the tail end of former President Goodluck Jonathan’s administration.

Speaking in an exclusive interview with The Point, Aganga, who is also a former Minister of Industry, Trade and Investment, said, “One of the problems of the current administration is that they delayed action. When they got elected in 2015, they did not have a cabinet for six or seven months. If there is a problem already coming, and you take timely action, you can address it very quickly.

“The second reason is that anybody who has been in government would know that it takes one year and a half to understand the job, know where it is, what needs to be done and develop your plan to get things done because of the type of system we operate. Civil servants would give you hand over notes. Those handover notes could be six, seven bulky things; you can’t read them.

“So, you need to understand the people that you are working with; know the agencies, where they are, meet with them and all that. It takes at least a year. When you add that to seven months, two years have gone, and the damage continues.”

He, however, indicated that the composition of the cabinet might not also help matters much when he said, “The last thing is the composition of the cabinet. Many people have said that they can’t find any renowned technocrat in the government, for instance.”

“What Jonathan did was that he acted quickly and he had a very good team,” Aganga added.

He said towards the end of the Jonathan administration in 2015, he (Aganga) had already met with the private sector in Lagos to deliberate on the implications of the falling oil prices and what should be done, noting that if the current administration had acted fast enough, the country could have been better able to withstand the various shocks.

“I had three meetings with the private sector before then, where we discussed the implications and what should be done. They agreed that it would be tough but also saw it as an opportunity for the Government to address some of these things. Together, we had come up with what the private sector needed to do and what we needed to do as government,” the former minister said.

On the National Bureau of Statistics’ current GDP growth figure, he explained, “The GDP growth that the NBS has been reporting has been around one per cent. It is only this time that everyone is talking about the five per cent. So the numbers, all along, have been poor. And it is that high this time because you are looking at it from a very low base because the economy had gone so bad in the thick of the COVID-19 pandemic. It was like it was shut down at that period.

“Remember we had a recession even before COVID-19. We were already a country that had the highest level of poverty in the world before COVID-19, and all these numbers are produced by the same NBS also. The level of unemployment was already high.”

He listed the signs of a weak economy to include “when the economy is import-dependent; when there is consistent rise in the cost of borrowing; when there is a fall in real wage; high incidence of poverty; weak governance structure; high degree of insecurity, and weak economic environment, which includes exchange rate volatility etc.”

“When you look at all these factors, you can see that we are low in all of them. If you look at the contribution of manufacturing to GDP, it is low now. So, all these things are signs of a weak economy and must be addressed,” Aganga stressed.

He also pointed out that there should be a strong coordination between monetary and fiscal policies.

He said, “At the moment, there appears to be no coordination. The Central Bank of Nigeria is acting on its own, but it needs to be complemented by the fiscal side. The exchange rate management, everything is left to the CBN. It shouldn’t be so. You are an economist; you know what the supply side is, and you know what the demand side is. If you don’t work on both, you won’t get the right results.

“At the moment, there appears to be no coordination. The Central Bank of Nigeria is acting on its own, but it needs to be complemented by the fiscal side. The exchange rate management, everything is left to the CBN. It shouldn’t be so”

“When I say the supply side, where is the money coming from? It is coming from sale of oil, it’s coming from investment; it’s coming from borrowings; it’s coming from non-oil exports. It’s not the CBN that will produce the non-oil exports. What are the policies in place? How are we ensuring that investors bring in their money and they feel safe?

“Agriculture needs to be working; Ministry of Industry, Trade and Investment needs to be working, and all others. If you bring all these together, you get the results.”

According to Aganga, the federal government needs a combination of immediate/short-term and medium to long-term exchange rate management (ERM) strategy, which will focus on both the supply and demand side.

He stated, “Ideally, the value of the naira should align with macroeconomic and structural fundamentals. We need to improve on these fundamentals. In the medium to long term, the concept of ‘Purchasing Power Parity’ has a major role to play in exchange rate.

“Inflation differentials eventually determine the magnitude of exchange rate depreciation. With double-digit inflation in Nigeria, and about two per cent average inflation in the US, it is not difficult to see that we also need to bring inflation down.”

The former minister harped on the need to understand the economy, saying, “Lastly, you need to understand the economy. Which sectors create the most jobs? You have to focus on that sector at the national and sub-national levels. The Micro, Small and Medium Enterprises sector accounts for about 76 per cent of the nation’s labour force and contributes about 50 per cent to the GDP.

“The Vice President, Prof. Yemi Osinbajo, has done a lot of work here. But it is not enough; this needs to be done at national and sub-national levels.”

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