The economic illiteracy at the heart of ‘Tinubunomics’

Bola Tinubu, Nigeria’s self-regarding president, says he deserves an entry in the Guiness Book of World Records for his economic reforms. Speaking at the 10th German-Nigerian Business Forum in November last year, Tinubu said: “To me, if you didn’t mention me in the Guiness Book of Records, I would find a way to insert myself because I did it (the economic reforms) without expectations.” But whether he said that in jest or in earnest, the truth is that he goofed spectacularly, displaying a hubristic detachment from reality.

Think about it. When, as president, your policies inflict untold suffering and misery on millions of citizens, it’s utterly arrogant and insensitive to beat your chest and demand global accolades for your “achievement”. It is also inconsiderate and out-of-touch to tell citizens to endure excruciating pains now for some pie-in-the-sky gains in the future. Thomas Jefferson famously said that “the care of human life and happiness is the only legitimate object of good government”. Thus, the real test of any policy is its impact on people’s lives. But Tinubu’s economic “reforms” commiserate and dehumanise ordinary Nigerians!

Yet, some dubbed Tinubu’s economic approach “Tinubunomics”, implying that there’s a philosophy behind it. But there’s no philosophy behind his economic “reforms”. Yes, removing the fuel subsidy and scrapping the naira peg are liberal economic policies. But Tinubu is not an economic liberal at heart. He is a Keynesian, who believes in state intervention, massive public borrowing and fiscal activism, which fuel inflation and are anathema to free-market economics. Truth is, he introduced the “reforms” not because he instinctively believed in them or understood their mechanics and wider implications.

So, why did he introduce them? Well, to win over the international community. Given the negative international reactions to his controversial election, Tinubu decided to attract the positive attention of the world. Nothing could be more attention-grabbing than ditching the costly fuel subsidy and the market-distorting fixed exchange rate system, which foreign governments and investors had long called for, but unheeded by the Buhari government.

It worked spontaneously. For instance, the Financial Times, which had described Tinubu’s election as “deeply flawed”, later praised him after he introduced the two policies, saying Tinubu “gets off to a dramatic start.” Last week, the British High Commissioner to Nigeria, Richard Montgomery, echoed the international sentiments when he said: “Recent big and bold reforms by the Federal Government of Nigeria and the Central Bank are boosting optimism amongst international investors that the country is on the right path.”

When, as president, your policies inflict untold suffering and misery on millions of citizens, it’s utterly arrogant and insensitive to beat your chest and demand global accolades for your “achievement.”

But there are two problems. First, the international endorsement will not automatically translate into foreign investment inflows. In fact, foreign investors are leaving Nigeria; they’re not investing in the country. Second, the domestic effects of the “reforms” – collapse of the naira’s exchange rate and skyrocketing inflation – are harming Nigeria’s economy and making lives unbearable for most Nigerians. Unfortunately, the international and domestic effects feed each other: with continued shortage of foreign exchange, the naira’s value will fall steeply, and inflation will rise sharply; and with high inflation, foreign investors will ditch the naira, precipitating its further rout against the dollar, thus requiring high interest rates to tackle the run-away inflation. But rising interest rates would further damage the economy. Those are the multiplying or knock-on effects of Tinubu’s “reforms”.

Here, then, is the question: Why have the withdrawal of the fuel subsidy and the elimination of the fixed exchange rate failed to produce the intended outcomes? Well, to answer that question, we need to understand the distinction between enablers and drivers of growth. Drivers are the direct causes of growth; enablers are factors that help overcome barriers to growth. Withdrawing the fuel subsidy and scrapping the currency peg are mere enablers of growth. Removing the fuel subsidy allows market forces to determine the pump price of petrol, saving the government money. Scrapping the currency peg lets demand and supply dictate the value of the naira, thereby enabling foreign investors to obtain dollars and repatriate their profits. Both are necessary enablers, but neither is a driver of growth.

So, what are the drivers of growth? Well, the first driver of growth is a strong macroeconomic environment – low inflation, low interest rate, stable and competitive exchange rate, low unemployment and supply-side incentives that make industries more efficient and productive. The other drivers of growth are a diversified economy and export base, which can only be facilitated by a strong macroeconomic environment as well as supply-side incentives. But Nigeria’s macroeconomic fundamentals are extremely weak, and the country is a mono-economy that exports virtually nothing of worth besides crude oil.

Now, when a country doesn’t refine its crude oil but imports expensive refined products, it will import inflation and, without fuel subsidy, will punish its own people. Similarly, a country that doesn’t export any value-added product must know that floating its currency would decimate its value and lead to imported inflation. A weak currency is not necessarily bad if a country is export oriented as it will make its exports cheap and internationally attractive. But for a country that exports little of value but imports most things, a weak currency is almost suicidal. One solution, short of exporting valued-added products and curbing imports, is to attract significant foreign capital. But foreign investors won’t rush into a country whose macroeconomic fundamentals are not stable and strong and whose business environment is not investor friendly. Again, to repeat, Nigeria suffers acutely on both fronts.

Nigeria must diversify its export base and reduce its import bill, not through protectionism but by Nigerian industries producing quality goods that Nigerians would want to buy and consume. But that requires radical economic transformation. However, in the meantime, the government has a duty to stabilise the macroeconomic environment. It must rein in public spending and borrowing and tackle inflation to prevent capital flight and incentivise investment inflows. Floating the naira, without capital controls to stop money leaving the country, means that any irresponsible fiscal or monetary policy will trigger capital flight and discourage capital inflows. Sadly, Tinubu’s government is fiscally reckless, borrowing heavily and spending profligately.

Furthermore, Nigeria lacks strong and credible economic ministers that can inspire the confidence of foreign investors. The finance minister, Wale Edu, budget minister, Abubakar Bagudu, and CBN governor, Yemi Cardoso, are Tinubu’s cronies, who lack the international stature to wow the international markets. Indeed, the CBN’s recent policies would discourage foreign investors. For instance, the CBN recently banned payment of remittances in dollars and stopped International Oil Companies (IOCs) from repatriating 100 per cent of their earnings; they can only repatriate 50 per cent. That’s capital or exchange control and won’t incentivise investment flows and diaspora remittances into the country.

Coming back to the fuel subsidy, well, it’s expensive, costing about $10billion annually. But corruption probably accounted for half of that amount; the government should have tackled the corruption instead of abolishing the subsidy itself. Subsidies aimed at reducing the prices of goods for consumers are prevalent worldwide. As for the currency peg, it had to go. The utterly corrupt arbitrage that allowed powerful people to buy dollars cheaply at the official rate and sell them at the parallel market, scooping millions, even billions, of naira was unsustainable. Equally, a fixed currency regime that resulted in the rationing of dollars, thereby preventing investors from taking their money out, damaged investor confidence.

Yet, scrapping the fuel subsidy and the naira peg won’t transform Nigeria’s economy without strong macroeconomic fundamentals and a diversified export base. Thus, Tinubu’s chest-beating, while his half-cooked “reforms” devastate lives, is grating. He truly deserves an entry in the Guiness Book of Records. Well, for economic illiteracy and immiseration!