Buhari's Fis­cal Odd­ity

Financial Nigeria Magazine - - Jide Akintunde - +234 802 343 9098 jide@fi­nan­cial­nige­ria.com Twit­ter: @JSAk­in­tunde

In an in­for­mal sur­vey that is still run­ning since I pub­lished my Oc­to­ber 2016 ed­i­to­rial note, en­ti­tled “Nige­ria's mis­placed pri­or­ity in in­fras­truc­tural de­vel­op­ment,” I ask: “Which should be the pri­or­ity of Nige­ria: in­vest­ment in ed­u­ca­tion or in­fras­truc­ture?” The re­sponse I get the most is “both.”

This over­whelm­ing re­sponse re­flects poorly on the qual­ity of pub­lic ed­u­ca­tion in Nige­ria. From my van­tage po­si­tion of col­lect­ing the re­sponses, I see the mother of all the rea­sons in­vest­ment in ed­u­ca­tion should ex­ceed, by miles, that in in­fras­truc­tural de­vel­op­ment. If ours is a so­ci­ety that can­not an­swer an ei­ther-or ques­tion, our pri­or­ity on in­vest­ment in in­fras­truc­ture is mis­taken, in­deed.

The ad­min­is­tra­tion of Pres­i­dent Muham­madu Buhari has been pur­su­ing an in­fras­truc­tural il­lu­sion since fis­cal 2016. In the bud­get pro­posal of that year, cap­i­tal ex­pen­di­ture at­tracted 30 per­cent of the to­tal al­lo­ca­tions. This has since be­come the bench­mark for its sub­se­quent bud­get pro­pos­als.

But on both oc­ca­sions when Pres­i­dent Buhari as­sented the 2016 and 2017 bud­gets af­ter they were passed by the Na­tional Assem­bly, ac­tual al­lo­ca­tions to cap­i­tal ex­pen­di­ture were be­low 30 per­cent. Nev­er­the­less, the ad­min­is­tra­tion con­tin­ues to boast of its 'un­prece­dented' bench­mark for pub­lic in­vest­ment in in­fras­truc­ture. As a re­sult, the pro­pa­ganda value of the bud­gets be­comes clear.

The ad­min­is­tra­tion ar­gues that its bud­get­ing for cap­i­tal projects was the strate­gic pol­icy an­chor for end­ing the re­ces­sion that started in Q2 2016. Nev­er­the­less, the re­ces­sion be­came the long­est of the coun­try in three decades. When it ended in Q2 2017, the re­cov­ery was in­spired by the re­bound of oil prices, and there­fore frag­ile, as it re­mains till date.

The in­fras­truc­ture in­vest­ment strat­egy has been one hun­dred per­cent funded by debt. In three years, the strat­egy sharply in­creased the pub­lic debt by 75 per­cent. Now that Nige­ria's pub­lic debt has reached un­sus­tain­able level – on ac­count that debt ser­vic­ing now gulps about 40 per­cent of gov­ern­ment rev­enue and because gov­ern­ment is hav­ing to bor­row lo­cally and ex­ter­nally to re­pay ma­tured debts – a new rea­son for the bor­row­ing has been made up.

At the 2018 IMF/World Bank spring meet­ings last month in Wash­ing­ton DC, Ben Ak­abueze, Di­rec­tor-Gen­eral of the Bud­get Of­fice, sug­gested the rea­son Nige­ria has re­cently ramped up for­eign debt is because “the con­ces­sion­ary lend­ing win­dows are about to close.” There­fore, he won­dered why the international fi­nan­cial com­mu­nity would crit­i­cise the coun­try's much­in­creased for­eign bor­row­ing.

Ak­abueze's in­credulity at­tracted no di­rect re­sponse. At the State of the Africa Re­gion sem­i­nar where he made his re­mark – a pro­gramme that re­flected on main trends shap­ing the con­ti­nent’s eco­nomic out­look – Nige­ria was the ele­phant in the room. The coun­try was not men­tioned among the driv­ers of Africa's eco­nomic trans­for­ma­tion. South Africa and An­gola have the dis­tinc­tion. Nei­ther was Nige­ria in­cluded among the economies driv­ing per capita GDP growth on the African west coast. Of course, more Nige­ri­ans now live be­low the poverty line of $1.9 per day; while un­em­ploy­ment has al­most dou­bled in the last three years.

To not em­bar­rass Nige­ria, ev­ery ef­fort was made not to men­tion the coun­try by name when the prob­lem of for­eign debt was high­lighted, although Nige­ria's debt has risen fastest than any other sub Sa­ha­ran African coun­try in the last 18 months.

Nev­er­the­less, the world has be­gun to call out the Buhari ad­min­is­tra­tion for its fis­cal anom­aly. In March, Bill Gates dropped the bomb­shell that Nige­ria is pur­su­ing an odd fis­cal pol­icy. He said the gov­ern­ment was not in­vest­ing in peo­ple. In­stead, the ad­min­is­tra­tion has been bud­get­ing mas­sively for in­fras­truc­ture. Rather than take Mr. Gates' re­buke on the chin, the Nige­rian of­fi­cial­dom stuck to its con­ceit.

A ruder awak­en­ing is ahead for the coun­try in Oc­to­ber when the World Bank launches its first Hu­man Cap­i­tal In­dex (HCI). The idea be­hind the in­dex is that in­vest­ing in peo­ple – es­pe­cially through ed­u­ca­tion and health – is far more im­por­tant than in­vest­ment in in­fras­truc­ture.

When I put my sur­vey ques­tion to Femi Aribisala, who holds a doc­tor­ate from Ox­ford Univer­sity, he said it was a no-brainer. Hu­man cap­i­tal is even re­quired to de­liver in­fras­truc­ture projects.

In­vest­ment in hu­man cap­i­tal should be pri­ori­tised over and above in­vest­ment in in­fras­truc­ture in de­vel­op­ing countries. In­vest­ment in hu­man cap­i­tal can't even lag in the ad­vanced economies with­out af­fect­ing their global com­pet­i­tive­ness.

Ac­cord­ing to the World Bank, hu­man cap­i­tal ac­counts for an es­ti­mated 70 per­cent of wealth in rich countries but only 41 per­cent in poorer countries. Strate­gic in­vest­ment in ed­u­ca­tion, health, so­cial pro­tec­tion and jobs lead to bet­ter qual­ity of life and more pro­duc­tive work­forces. There­fore, in­vest­ing in peo­ple strength­ens economies.

As Ak­abueze sug­gests, Nige­ria's cur­rent for­eign bor­row­ing binge may be de­lib­er­ately and func­tion­ally short-sighted. The ques­tion is: What do we do next? The World Bank says it is in talks with the global rat­ing agen­cies to feed the HCI into their sov­er­eign rat­ing de­ci­sions. Because of the ne­glect of in­vest­ment in the Nige­rian peo­ple over the last three years, the medium-term out­look of yields on Nige­rian debt would rise, if the HCI be­comes in­flu­en­tial on sov­er­eign credit rat­ings.

The cur­rent situation of in­vest­ment in health­care in Nige­ria can­not be bet­ter de­scribed than by Pres­i­dent Buhari's – as well as his fam­ily's – re­liance on med­i­cal tourism. Given their depen­dency on med­i­cal treat­ment abroad, Aso Rock Clinic that is in place to serve the pres­i­dency of­ten lacks ba­sic sup­plies, in­clud­ing sy­ringes. More gen­er­ally, Nige­ria has con­tin­ued to strug­gle with im­mu­niza­tion cov­er­age, while episodes of Lassa fever and cholera out­breaks are back with a vengeance as threats to pub­lic health.

As for ed­u­ca­tion, the coun­try has con­tin­ued to treat its col­lapse with lev­ity, in­stead of mar­shalling pub­lic emer­gency re­sponse. While the world is mov­ing to in­creas­ing learn­ing out­comes, there is no re­form in sight to ar­rest fur­ther de­cline in the low level of learn­ing when con­sid­er­ing the years of school­ing in Nige­ria.

By shift­ing fo­cus to in­vest­ment in hu­man cap­i­tal, the World Bank should be seen to be cor­rect­ing its im­me­di­ate past mis­take. The Bank was at the fore­front of drum­ming up in­vest­ment need in in­fras­truc­ture as a de­vel­op­ment strat­egy for de­vel­op­ing economies. At its pre­vi­ous yearly meet­ings, SSA countries were set on a wild goose chase of $93 bil­lion an­nual in­vest­ment in in­fras­truc­ture to close ex­ist­ing gaps on in­fras­truc­tural de­mand and sup­ply.

The World Bank has now turned its back on this counter-in­tu­itive pol­icy rec­om­men­da­tion. But the re­spon­si­bil­ity for sen­si­ble poli­cies rests squarely with the gov­ern­ments.

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