Date: 2016-05-13

As a full time member of the Nigerian Economics Society, I am worried that my preferred association has been nowhere to be found whenever the need arises to advise the Nigerian state on economic policy. While participating on a panel discussing macroeconomic policy as part of the 55th annual conference of the Nigerian Economics Society at the Sheraton Hotels and Towers in Abuja in November of 2014, I had warned that as economists, we need to move beyond economic theories designed for and by Western individuals and institutions and come up with an indigenous economic model that acknowledges our unique circumstances.

While the NES has not taken up this challenge in a robust manner commensurate with an association of scholars and scholar – practitioners, Tony Elumelu, a fellow economist and Chairman, United Bank for Africa, has led the way with his Africapitalist initiative. Tony challenged all of us to innovate and bring Africa's private wealth together in a symbiotic relationship with the public need. While Tony's idea like any other impressive idea out there cannot be said to be the end all and be all on this particular conversation, no one can accuse Tony Elumelu of not thinking thoroughly about the problem.

The economic problem confronting Nigeria today is as a result of the absence of a clear economic policy and direction over the years, this also includes a lack of an economic model. At this juncture, I ask, what kind of an economy are we? Are we a capitalist economy? A mixed economy? A communist economy? Or a socialist economy? Or as I have repeatedly said on different occasions, the Nigerian economy does not follow any particular economic doctrine, it strikes me that the Nigerian economy is a sorry tale of trial and error economic misadventures. Now, the present economic meltdown in Nigeria must be placed solely at the feet of those who have managed the Nigerian economy since 1966. Between 1966 and now, it is hard to point out any Nigerian leader that have a working understanding of market forces and what needs to be done to accommodate these forces and the needs of the working poor.

N145 PMS and its Implication on the Nigerian Economy

We cannot have a robust discussion about the implications of the government's hike of the price of PMS and the removal of the subsidy regime without talking about the underbelly of the Nigerian economy and how the absence of an indigenous economic model is hurting our people. As part of this conversation, let us consider the following five itemized points.

1. The Nigerian government ought to make up its mind on what economic policy to pursue. Doing so will allow us to locate its decision and also help to undergird many of the government's decision.

2. Flowing from number one above, it is inconsistent with any modern economic model to on the one hand, remove subsidy, restrict the Naira from floating against the major global legal tender, create a two tier currency regime that benefits middle men and the wealthy and in the same breadth dictate the price of one of the most essential commodities to its suppliers. Again, what kind of an economic policy is this?

3. Given that the average annual per capita income in Nigeria from World Bank data stood at $3, 200 between 2011 and 2015, from trading economics (a leading economics analytics website) it stood at $1091. When I computed the per capita income of Nigeria at an average individual income of N40, 00 a month, 480, 000 a year, the per capita income of an average Nigerian is actually closer to that of trading economics at $1091.

4. The point that I am trying to make from all of the above is; when the decision was made to remove subsidy on PMS and arbitrarily increase the price of PMS in the same breadth, was there no one in that cabinet meeting thinking of its impact on the working poor?

5. While I concede like many other Nigerians that the subsidy regime under previous Nigerian governments have been shrouded in opacity and fraud, is the elimination of the subsidy regime without incentivizing the investors (through reduced import taxes, concessions, etc) the right course of action?

The Implications of the Absence of Our Own Indigenous Economic Model

Because over the years we do not follow any particular economic model to sufficiently guide our economic policy, it is hard to get in the minds of the managers of the Nigerian economy. As I ruminate yesterday over this 70 percent increase in the pump price of PMS, I continue to think of the N18, 000 minimum wage earner in Nigeria. It's even worse, there are many of our compatriots that are earning less than N18, 000 every month in some private businesses across the nation; what does this portend for them? My frustrations became compounded because I could not locate under what economic model this decision was made.

If the model were to be full throttle capitalism, then, the subsidy regime would not have existed in the first place and the price of goods and services will be determined solely by market forces with very little to almost nonexistent government interference. This is Darwinian survival of the fittest model and is practically not in existence anywhere in the world. The United States pride itself as a capitalist bastion but this is not true, American farmers get millions of dollars in subsidy, grants, etc annually in order to keep the price of food down in the United States. The European Union, a conglomeration of countries that share similar values gives their farmers a significant amount of subsidies in order to make food affordable. At its best, most modern Western economies are mixed economies with a sprinkle of socialist tendencies in some Scandinavian countries. Bottom-line, no citizen is left to his or her own fate. Darwin's capitalist utopia does not exist.

I will not even go into the details of the welfare state in America and Western Europe, while I do not agree with some aspects of the welfare state, my concern here again is that these countries have over the years designed elaborate programs that ensure that no citizen is left to suffer economic crunch alone. Now, the discussion on whether or not it works is best left for another day. Here, let us restrict ourselves to the issue at hand which is the implication this 70 percent increase in the pump price of PMS will have on the working poor in Nigeria.

Now, let's examine the mixed economy model: this model advocates for a free market while it also demands for a robust government intervention because of the public need or good. This particular economic model is what is currently obtainable in a significant part of the developed world today. Entrepreneurship is encouraged and wealth creation and ownership is not frowned upon. The government is constantly though not perfect (example is the Flint, Michigan water crisis) looking out for the interest of the people that elected them. Working behind the scenes, these governments have perfected the art of influencing the price of goods and services by partnering with entrepreneurs to deliver affordable goods and services to the people. It is an intricate symbiotic relationship that benefits both parties and ensures that ordinary citizens are not left to suffer the consequences of a full throttle Darwinian capitalist economic model.

Social economic model: the social economic model is based primarily on common or public ownership in which case heavy government regulation will be expected and private ownership of assets will be minimal. Some of the advocates of the social economic model favored this approach because they believe that it leads to social leveling amongst the people and allows for a meritocratic society based on individual talent. While there are countries around the world that have described themselves as socialist states, in reality, many are state capitalist societies that have taken over entrepreneurial responsibilities from the individual and transferred it to the state. In essence, there is hardly any socialist state in modern history.

Communist economic model: the communist model is closely related to the socialist economic model and is a social, political, and economic ideology whose ultimate goal is the establishment of a socioeconomic order structured upon the common ownership of the means of production and the absence of social classes. Presently, only China and Cuba is left thinking they are still communist states; the Soviet Union having disintegrated in 1989.

The Need for an Indigenous Nigerian Economic Model

I have taken this much time to give a summary of the different strands of economic models available while leading us to an understanding of the need for an indigenous Nigerian economic model. In the light of this 70 percent increase in the price of PMS, I advocate that Nigeria embrace its own indigenous mixed economic model that acknowledges the realities of the Nigerian state. Presently, the minimum wage in Nigeria is ridiculously low and has not been adjusted since 2007 against inflation. Another reality of the Nigerian state is that too many of its young population are either unemployed or underemployed thus stunting economic growth. And yet another reality of the Nigerian state is that there are millions of Nigerians living on the margins and operating in the shadow economy. Some of these compatriots live on around 200 Naira a day, a total of N73, 000 a year. They cannot afford decent housing, food, or medical insurance. Without a clear economic model that takes care of these individuals, Nigeria will ultimately descend into the Darwinian survival of the fittest category. The thought of this alone is scary and as a people we must avert the tragedy of leaving millions of compatriots behind.

In the main, these are some of the things the Nigerian government must do in order to ameliorate the sufferings of the average Nigerian.

1. The Buhari administration must put together an economic team of experts that will be charged with advising the president regularly on economic matters. This team cannot be a team of career politicians but proven economic thinkers and statisticians like Yemi Kale of the National Bureau of Statistics, Muhammadu Sanusi II of Kano, Tony Elumelu of UBA, Professor Garba of ABU, Professor Shehu Rano of BUK and many other Nigerian economic thinkers that are scattered both at home and abroad.

2. The present two tier foreign currency regime must be abolished immediately. The Buhari administration while meaning well has gone about this the wrong way. You are distorting the market and helping a privileged few to accumulate unearned wealth by having a regime of official exchange rate that cannot meet the demand for the greenback and creating in the process a black market where the dollar is sold for over 120 Naira above the official rate. Because presently we are an import dependent nation, our economy is susceptible to the fluctuations in the availability of the dollar. The short term measure shouldn't be government having an official exchange rate that does nothing but compound the woes of the working poor and enrich a privileged few, the short term measure should have been allowing the Naira to float in the market and allow market forces to determine the value of the Naira. According to Bloomberg magazine, the actual exchange rate of the Naira to the dollar without government intervention is N300. From all indications, Bloomberg was right; the market over the last year has exchanged the dollar for about N320. If the government had allowed the Naira to float, we would have saved Nigeria billions of dollars in foreign exchange and stabilize the market. Another short term goal should have been import substitution with mouth watering incentives offered to prospective entrepreneurs that want to invest in Nigeria from abroad. At this point in our national life, we have to create a good environment, a generous tax regime and other incentives to attract the kind of manufacturers that we need for import substitution to work.

3. The government should refrain from setting the pump price of PMS. Again, if we adopt the mixed economic model, the Nigerian government should allow the market to set the price of goods and services while working behind the scenes to influence affordable prices for essential commodities like PMS, food and electricity. If the government wants to target a particular price range for a particular commodity like PMS, there are other ways to incentivize investors in that sector and which in turn will lead to an affordable price for consumers. Ultimately, we must admit that investors wants consumers to be able to afford their goods and services and in the millions because this translates to increase profitability. What investors would not agree to is government's arbitrary fixing of prices without commensurate investor incentives. This has never worked anywhere, the most recent example being Venezuela where essential commodities like toilet paper has become scarce because the Maduro government refused to come to terms with economic realities of markets forces of demand and supply with government only playing a supportive role in the background.

4. The Buhari administration should overhaul our tax codes and institute a tax regime where the 5 percent of the wealthy in Nigeria are made to pay their fair share of running the Nigerian state. I wager that very few countries of the world will have a parasitic class like the Nigerian 5 percent. This group of men and women are constantly taking from the Nigerian state with hardly ever giving back. Nigeria need to as a matter of survival look into such things as estate tax, a higher income tax for the rich and the capital gains tax. Capital gains are even more crucial as this is where many rich individuals make their money. In Nigeria however, we have to be creative because many of our indigenous wealthy individuals have their monies in other fixed assets that may be easily overlooked for tax purposes, if the government ensures that the wealthy pay their fair share coupled with the present government's aggressive anti – corruption stand and institute a strong fiscal policy, we can create a society where the wealthy will continue to prosper and one that will be conducive for both local and foreign investors and also make life conducive for the working population.

Conclusion

While serving at Wadata Plaza as a Special Assistant to a former Acting National Chairman of the Peoples Democratic Party in 2012, I opposed the removal of subsidy on PMS and the increase in its pump price by President Jonathan; you can find my position here.https://www.facebook.com/notes/abdulmumin-yinka-ajia/the-leveling-with-the-nigerian-people-series-seizing-the-moment/247814651956119 and https://www.facebook.com/notes/abdulmumin-yinka-ajia/the-fuel-subsidy-saga-why-it-is-important-to-level-with-the-nigerian-people/247152882022296

I could have been relieved of my position but I would not be bothered, I know whose interest I serve and that is the Nigerian people who have suffered under excruciating economic circumstances that have rendered many a destitute. The good news was that the Peoples Democratic Party while lacking in ideology was a tolerant one under former President Goodluck Jonathan, I wasn't relieved of my position, actually, many in the leadership of the party with whom I worked closely shared my views but they could not air those views publicly because of their position. On top of it all, President Jonathan listened to the wise counsel of Nigerians and reversed himself. The sad part of the 2012 PMS price increase debacle was that President Jonathan was an unwilling soldier that found himself in a position of leadership. My view was, President Jonathan should have revisited the issue of subsidy removal but with an eye out for the working poor. What do I mean by this? Before the subsidy is removed, government as I have explained earlier ought to have addressed several social issues and in the event that those issues will take a long time to address, the government must incentivize (not necessarily cash) the investors in order to arrive at an affordable price for the citizenry. President Jonathan left the battle to remove the subsidy on PMS in 2012 and never revisited it. Now it has fallen on President Buhari to win this battle but again with an eye for the working poor. I have explained what needed to be done above and I hope presidential advisors are listening.

And to those who are asking for the Peoples Democratic Party to come back to governance after just one year out of it, I say to you, your wish is misplaced. I am a member of the Peoples Democratic Party and I am one of those who believe the PDP should enjoy its time in political Siberia. The Peoples Democratic Party had 16 uninterrupted years to come up with an economic model for Nigeria but it didn't. Instead, many principal players of the PDP era cornered state resources and made an insincere attempt at coming up with a hogwash of a neoliberal economic model that hardly conforms to any known economic model. Those of us that joined them in the twilight of the PDP years and have remained because the APC as it is presently constituted does not offer the kind of progressive platform necessary to get things done for the Nigerian people have constantly warned the PDP power brokers of the journey to political Siberia if the will of the Nigerian people are not done. Therefore, instead of wishing Buhari to fail, let's give him a chance and engage with the President constructively offering what we think are workable ideas. The PDP has had its time in the sun, all Nigerians must work together to ensure that this administration does not fail. As I am wont to say in reference to my home state of Kwara, if Buhari wins, Nigeria wins and we all win together.

May God bless Nigeria.

Abdulmumin Yinka Ajia is of the Department of Global Leadership, College of Business, Indiana Institute of Technology, Fort Wayne, Indiana. The author can be reached at abdulajia@yahoo.com