How Nigerian govt caused economic recession - Sanusi

- Muhammadu Sanusi has blamed the government for current economic problem

- The Emir of Kano advised the country to stop the blame game and look towards success

- He cited borrowing as one of the reasons Nigeria is having financial crises and suggested ways the country can be back to normal

The Emir of Kano, Muhammadu Sanusi has blamed the Nigerian government for the current economic situation.

Sanusi who served as the governor of the Central Bank of Nigeria during the administration of Goodluck Jonathan said this during the15th meeting of the joint planning board and national council on development planning.

Sanusi warned President Muhammadu Buhari not to make the same error made during Jonathan’s administration and also cautioned against focusing on blaming others.

He urged that the most important thing is to look forward for development rather than focusing on the past.

The Emir of Kano compared Nigeria to other countries and showed how Nigeria faltered in the path of development.

Part of his lecture read: You can’t have improving terms of trade when you are exporting commodities over short periods of a cycle. But, we know as far back as the 1950s, from the Latin American structure economics, that over the long term, any economy that specialises in exporting primary products and importing manufactures would end up having terms of trade shifting against it. You can have a temporary boost, but If you don’t use that boost to have a structural adjustment that would make for prudent management of the economy, you would be courting trouble.

By 2008, one barrel of oil would buy you one Sanyo flip telephone as against 19 barrels of oil to buy the same phone earlier. That gives an idea how well the terms of trade have shifted.

Emir Sanusi served as governor of CBN during Goodluck Jonathan's administration

We had an oil price of $10 a barrel in the time of Babangida. At one point under Obasanjo, it rose to $140 a barrel. This was a time of rapidly improving technology, cheaper manufactured products and therefore our oil could technically import us much more.

This process was not common across all of Africa, because we are aware of other African economies that grew, and certainly it was not just one pillar. Let’s go to the second pillar of growth in Africa in that decade, which was debt.

Between 2002 and 2008, the levels of debt to GDP (gross domestic product) in African countries and what they became after the Paris Club, HIPC debt reliefs and so on. Nigeria was at 50 per cent debt to GDP and came down to literally 5 per cent or so.

This happened across all Africa in the form of debt forgiveness, debt relief, debt restructuring and so on. What this did was that it freed up government balance sheets and in that decade of Africa rising, the countries went back on a borrowing binge.

Nigeria kept borrowing, not externally, but internally. I think our external debt was just about $8 billion on the balance sheet. But, the Naira indebtedness of the Nigerian government, we were spending over 30 per cent (maybe 40 per cent now) of every Naira earned just servicing debts.

That’s what you have. Nobody was noticing it. We have written off the debts, and then we kept building it up bit by bit. And when you look at where that debt was going into, you will see why, or part of the answer to the problem we are having.

So, we have these two pillars – rising commodities prices, and we monetise oil revenue, we will be able spend money. We were able to borrow because the balance sheets could accommodate more debts.

Where did all these debts go? Did it go to roads, power, refineries, or infrastructure? No. The new borrowings were simply recycled into much higher recurrent expenditures. What that did was that it helped sustain a consumption boom. And GDP was growing, largely driven by consumption spending.

President Buhari & Sanusu Lamido Sanusi at Aso Rock. Photo: @TheGreenVilla

If you look at public sector wage bills in real terms, Nigeria, Ghana, Ethiopia and Kenya, you will see it was rising significantly from 2005 to 2014.

In Nigeria, for example, our public sector wage bill went up from N443 billion in 2005 to N1.7 trillion in 2012.

In 2010, the government increased minimum wage to N18,000. I was at the Central Bank, I protested and protested. They had an election coming, they increased the minimum wage N18,000 and basically borrowed money to pay.

In 2012, as governor of Central Bank, I said this was an unsustainable wage bill. We needed to reduce the size of the public service. My own government minister came out to say that was the (CBN) governor’s personal opinion. In fact, she said the government wanted to employ more people. And this is the result.

I am serious. Sometimes I don’t bother. I’m never going to change. I’m never going to be political. I’m never going to stand here and tell people what they want to hear.

The problem is that there is nothing that we are facing today that we did not know would happen. That is the truth. We made mistakes. Many of them deliberate. We ignored every single word that pointed otherwise. Economics is a science. It is not a perfect science. But, over decades and decades and centuries, people have seen that there are certain things that, when you do, will lead to certain consequences.”

Sanusi however said the future of the country looks bright the mistake of saying the government was always right should be discontinued.

We have started retracing our steps. But, we have to retrace those steps. And if we fall into the same hole that we fell into the last time, where the government is always right.

When the minister is there, you tell them, “You know, Hon. Minister, Nigeria is very lucky to have you in office.” No! You tell the minister that you are doing well, but, you know there are these areas that you must change. If a policy is wrong, it is wrong. Nothing will make it right. And it has to be changed.

So, this is what we did. Look at real sector wages. It was not just Nigeria, it was all over Africa. Look at sovereign debt fuelling growth.

If you take the example of an individual. You happen to know bank MDs and you can make a few phone calls and get loans. You borrow N1 billion here today and build a very nice mansion in Abuja. You borrow another N1 billion and let your family go out on first class ticket as you are travelling all over the world. You borrow another N5 to N6 billion and buy a private jet.

We have very many people in Nigeria who you think are very rich. But, who are really bankrupt, because everything about them are being financed by bank debts. When one debt matures, they have enough connections to call another bank, borrow and refinance that debt. They are not earning anything. They have private jets. They have yachts. Their families travel first class. They go abroad and stay in the most expensive hotels. It happens. And it is happening today.

What do you think of those people? When you think about such people, do you think they are foolish people? Or do you think they are wise people? So, what would you say of a country that does this?

So, you feel growth by borrowing money, pay salaries, people spend money on pure consumption spending, nothing is produced. It’s fine. It’s short term. But, it is not sustainable. How much can you continue to borrow and consume without producing?

And the funny thing is, you did not have to stop borrowing. All you had to do was borrow the right amount and apply them to the right purposes. It doesn’t matter whether they were consumption spending or investment demand, GDP will grow. So, make a choice.

As a country, we made a choice. We wanted votes, popularity or palliatives, so long as people are getting high minimum wage, we keep quiet about all other things that were happening in the economy that we should be talking about.

That was the relationship between public debts and GDP growth.

Today, we are in a new reality. This is what they call the new normal in Africa. And we have a two speed Africa. If we look at the new IMF World outlook, you will see something interesting. Non-commodity Africa will be the fastest growing part of the world, even higher than emerging Asia, whereas commodities Africa (countries like Nigeria and Angola) are among the lowest growing parts of the world, at the rate of Europe and Latin America. And we can’t explain why.

But, think of a country like Ethiopia and then Meles Zenawi, the late Prime Minister. Ethiopia keeps growing year after year at 11-12 per cent. And what did Meles do? The simple things we have been saying for decades and decades and decades. This is a country that came out of a war, remember?

It’s facing insecurities; got Eritrea and other countries that do not like it around it. I’ll give two examples. Coffee. It originated from Ethiopia in the world. But, Ethiopian farmers, before Meles, would get 10 per cent of the value of coffee from their crops.

They would just produce the coffee and sell to companies, and the companies will take their coffee into Latin America and have it improved and dried and and packaged. And Zenawi just asked: “Why can’t we produce coffee in Ethiopia that would go straight from Ethiopia to the coffee shops in Europe?”

And all sorts of responses came. “Well, you know your weather is good for growing coffee. You coffee is very good, but your farmers have bad farming practices.”

So he said: “Why don’t you teach them?” So, he got in touch with the IFC (International Finance Corporation), got a loan, organised Ethiopian coffee farmers into cooperatives, taught them how to grow the coffee, how to dry, prepare and package it.

Today, if you go to coffee shops in Europe and take a cup of coffee that came straight from Ethiopian farm. And Ethiopian farmers are now getting 70 per cent of the value of the coffee, from the former 10 per cent.

So, he tells Aliko Dangote, come and build a cement manufacturing plant here. I am going to give you electricity at three cent per kilowatt hour. For a cement manufacturer, that is all the incentive that you need.

So, Dangote goes, builds the most sophisticated cement plant in Ethiopia, gets electricity almost for nothing and cost of cement drops by 60 per cent.

The construction industries gets boosted. Roads are being built with cement. Jobs are created. And new industry has taken off.

He said to the Chinese, “I don’t like this your idea of coming to buy hides and skin and leather from Ethiopia and sell us shoes. Set up the factory here.”

Nigeria imports 3 million pairs of shoes per annum from China. Nobody knows how much duty they pay. I am not talking about expensive shoes. I am not talking about what you buy from Pierre Cardin, or Gucci. I am talking about shoes people wear on the streets. Shoes that can be bought here in Kano.

We can produce all the shoes, and school bags we want for primary and secondary schools children, millions and millions of pairs. No, we don’t. You know what we do, we export the wet blue and we import from shoes from China, and we have Chinese people coming here to take wet blue to China and bring back shoes.

We are just a very interesting country.