When Japanese prime minister, Shinzo Abe, assumed office in December 2012 for the second time, (he first led Japan 2006-7), he introduced some radical policies now referred to as ‘Abenomics’ to awaken the economy of the Far East country which had suffered stagnation for about two decades.
As a doctrine, Abenomics departs from the previous piece-meal measures of past leaders of Japan and antagonises powerful political constituents in a country that was the second largest economy after the USA, until it was overtaken by China in 2010 and relegated to the third position.
From an economic recovery prism, Abenomics is an aggressive set of monetary and fiscal policies combined with structural reforms geared towards pulling Japan out of its 20 years long economic slump which she descended into after attaining soaring prosperity heights in the mid-1980s buoyed by a property boom.
Like Japan (although to a far lesser degree), Nigerian economy has dropped from its lofty GDP heights of between 4-5 percent a couple of years ago arising from buoyant international oil/gas price, to its current position of a little over two percent and like Abe of Japan, President Muhamadu Buhari, in a bid to give Nigerian economy a shot-in-arm, following oil/gas price crash, seemed to be poised to ruffle the feathers of entrenched powerful political blocks that have ruled the country since her return to party democracy, some 16 years ago.
Despite not officially having a standing economic management team to reflate the Nigerian economy and pull her out of the brinks (Central Bank of Nigeria, CBN governor, Godwin Emefiele, recently warned, Nigeria could descend into recession next year if remarkable growth is not recorded), Quantitative Easing, QE, measures like the actions taken by the Japanese president, are being introduced.
And that has been coming by way of the $2.3 million bailout distributed by Federal Government to 27 State Governments that had fallen behind in payments of salaries of public servants in addition to the Debt Management Office, DMO, conversion of short term money market debts of ailing state governments totaling #660m to long term bonds to Deposit Money Banks, DMBs.
In a bid to reflate the struggling economies at the state levels, so that Nigeria does not slide into recession, the CBN, like Bank of Japan, BOJ, is also at the heart of the economic rescue mission, so she is also providing generous loans to the financially challenged states up to the tune of N338 billion.
By way of comparison, at the end of the stimulus exercise, it is estimated that about one trillion naira would have been pumped into the Nigerian financial system with a GDP of about $516 billion in less than four months, just as information gleaned fromReuters, Bloomberg Business News Africa, BNAandFinancial Times, FTindicate that Japan has injected up to $210 billion into her economy with a current GDP of $4.6 trillion in a space of about three years.
The aggressive infusion of massive funds into the Japanese economy which is a sort of shock therapy, initially produced the desired result of modest growths of about 1.7% GDP growth in the economy, bearing in mind that the economy has been in stagnation for two decades , during first and second quarters, although it has slipped in the third quarter.
Unlike the Japanese situation, the jury is still out on the effect of the generous injection of funds into the Nigerian economy by Buhari’s administration in a bid to jolt it into a return to impressive growth trajectory again. Perhaps, a few months gestation period may be required for results to kick-in. Nevertheless, the administration appears not to be resting on its oars as other aggressive structural reforms are already being implemented to bolster the effect of the stimulus package.
One of such bold initiatives is the newly-introduced Treasury Single Account, TSA, and the soon to be adopted Zero Base Budgeting, ZBB ,which would be the flagship economic policies of the Buhari administration and represent a major paradigm shift in public sector governance.
While the TSA is aimed at streamlining the Nigerian revenue into a single account at the CBN to stem the financial leakages arising from maintenance of multiple accounts by Ministries, Departments and Agencies, MDAs, the ZBB initiative is expected to promote efficient and effective allocation of government funds saved through TSA by adopting a budgeting concept that is hinged on cost benefit analysis and facilitates optimum utilisation of government scarce revenues, as opposed to building on historical experience which is currently the practice.
In a nutshell, ZBB is performance-based budgeting as individual budget items are evaluated for their merits or demerits before funds are committed.
Recall that when the idea of TSA was first mooted, there was palpable fear by bankers that the exercise would result in about a trillion naira public sector funds being pulled out of the banking system and it would negatively impact on the ability of banks to lend to customers but at the end of the exercise, Nnamdi Okonkwo, GMD of Fidelity Bank, under the auspices of Bankers Committee, has revealed that less than one trillion naira was actually mopped up.
The good news is that although public funds have been withdrawn, it has had minimum impact on availability of liquidity; so the anxiety by bankers was hasty, as the withdrawn funds are actually going to be re-injected into the financial system by way of payment to local contractors whom according to information from DMO, Nigeria’s local debt is in excess of N10 trillion. The fear of jobs lay off by labour activists has also been allayed.
Regarding the ZBB, which Nigeria is bracing up to adopt, it may be recalled that Jimmy Carter of the USA was the first to introduce the budgeting method into government when he was the governor of the state of Georgia at about 1971 and it had salutary effect in the allocation of funds in government after Peter Pyrr first mooted the idea in Harvard Business Review, HBR, article in 1970. Subsequently, Carter introduced it at the federal level when he became president around 1977. His predecessors, Ronald Reagan, George Bush and Bill Clinton, retained it when they held sway as presidents of the USA until the 1990s when the concept was discontinued.
Going forward in Nigeria public sector, when ZBB is fully integrated, budgets will no longer be based on historical experience which entails building on the previous budget’s provision like adding 15-20 percent to the last year’s budget but each project or venture in the MDAs budget will be assessed line by line and allocated funds based on effective need and expected impact on the society.
No more would funds be spread thin across many budget subheads just to fulfill all righteousness, which is presently the situation.
Based on my understanding of the concept, with ZBB in the new era, government officials would no longer regale Nigerians with the volume of money to be invested in a project as is currently the case. Rather, the expected impact of the project would be the focus of the announcements after Federal Executive Council meetings and at the end of the budget circle, Nigerians would have the opportunity to know how well or how not well the project budgeted helped the society. This is because with ZBB’s template , emphasis is on measuring, comparing and weighing of benefits of projects against other competing initiatives before scarce government funds are appropriated for priority projects only; hence it is also known as performance budgeting.
For instance, under the current regime, if a ministry or agency of government budgeted N100m this year as expenditure for travels, it just increases the margin by about 20 percent in the next year’s budget. More often than not, such unjustified budgets get approved hence each succeeding year’s FGN budget surpasses the previous one and worst still, most MDAs stash away (carry over) unexpended allocations in doggy bank accounts which TSA is aimed at eliminating.
It is important to note that ZBB is only applicable to capital budgets and not the recurrent which covers employees emoluments and other overhead costs that are by nature variable, therefore salaries and other entitlements won’t be entangled in zero base budgeting complexities.
Of course ZBB is not a magic bullet expected to create a eureka feeling in public accounting, so its implementation is expected to be fraught with challenges such as the tedious process of starting budgeting from ground zero as opposed to building on the previous year’s and the resultant delay.
Just like the International Financial Reporting Standard, IFRS, which organisations in Nigeria, were compelled to adopt as global best practice, was pursued with determination, with equal zeal, ZBB can equally be adapted to by civil servants over a short period.
Such sacrifice will be worth it if at the end of the day, it facilitates the Change which the ruling party, All Progressives Congress (APC) promised and of which Nigerians have been patiently waiting.
Amongst other intentions, the funds saved from the unfolding prudent financial management measures, would be applied in providing some of the social services promised by President Buhari such as offering at least one free meal a day to students and payment of N5,000 monthly stipends to the unemployed, a cause which Vice President Yemi Osibanjo seems to be so passionate about.
At this juncture, it is pertinent to point out that Quantitative Easing, QE, also known as economic stimulus package has been in existence since the Great Depression of 1933 when Lord Maynard Keynes first recommended it as a policy measure aimed at lifting the USA out of the recession quagmire and the concept was most recently applied by President Barack Obama in pulling out from the brinks of recession, the USA economy when he took the reins of office in 2008. It entails government buying public assets like bonds and sometimes ailing companies with a view to keeping them as going concerns to provide jobs etc. Assets Management Company of Nigeria, AMCON, is a typical example of a QE vehicle. The risk of descending into recession of the world’s largest economy, was a consequence of George W Bush Jnr, Obama’s predecessor in office, dragging the USA into two wars simultaneously -Iraq and Afghanistan – resulting in budget deficit of nearly $19 trillion against a GDP slightly in excess of $17 trillion which the country is now groaning under.
Notice that while USA’s budget deficits more or less squares up with her GDP, ($17-$19), and her economy has been recording modest GDP growth of two percent, Japan’s $4.62 trillion GDP is less than half of her domestic debt of about $8.62 trillion which is very risky and therefore reason for remaining stuck in stagnation mode.
With such huge public debt, a new dawn in the land of the rising sun, maybe long in coming.
Compared to Japan’s negative GDP to public debt ratio which is in excess of 100 per cent, Nigeria’s 2.7 percent before re-basement and 13 percent post re-basement GDP/ debt ratio, is quite healthy. With such good economic fundamentals, re-injecting about one trillion naira into the Nigerian economy as payment to contractors who government probably owe about N10.4 trillion (estimated public debt) would yield positively and not lead to inflation as feared by some pundits . According toBloomberg Business News, Africa, BNA,Nigeria’s GDP to debt ratio is one of the lowest in the world and certainly the lowest when ranked amongst 30 largest sub-Saharan Africa’s economies.
So President Buhari’s adoption of Obama’s QE concept which the USA franchised to Japan as Abenomics is remarkable because there are other options like austerity measures usually recommended by the International Monetary Fund, IMF, as best path to economic recovery.
As a matter of fact, Buhari inherited such austerity measures from former President Shehu Shagari in 1984 during his first stint as Head of State and he even introduced stricter control measures through trade restrictions such as trade by barter and ban on imports of some items which resulted in Nigerians queuing up for the infamous essential commodities in that era.
Buhari’s predecessor , Ibrahim Babangida, eased it by modifying the austerity measure into Structural Adjustment Programme, SAP, when government failed to reach an agreement with the IMF to accept a loan considered obnoxious by Nigerians.
So apart from refining his political beliefs from autocracy to democracy after the collapse of the former Soviet Union,(as he confessed to his audience at Chatham House, UK and contained in hisNew York Times ,NYT,article) President Buhari has also upgraded his economic policy proclivity from welfarism to market forces driven capitalism. Well, maybe not totally so, as Mr. President’s reluctance to remove the resource guzzling fuel subsidy is hinged on his concern about the negative effect that the policy could have on the masses in terms of increased cost of transportation, housing and food, so Buhari is still a sort of dye-in-the-wool socialist.
What ever the case may be, President Buhari’s economic policy tendencies which are leaning more towards capitalism are commendable and welcome.
After all , Quantitative Easing, QE, also known as economic stimulus seems to have worked for Barrack Obama in the USA as the economy has been pulled out of recession and it is currently growing at two percent GDP- ahead of all developed economies, conversely, similar measures don’t seem to have worked for Shinzo Abe and the Japanese people as evidenced by the data coming out of that country earlier highlighted.
It is poignant to note that Japanese debt to GDP ratio is at least twice the size of her GDP of $4.6 trillion and debt of $8.62 trillion while USA debt to GDP ratio is less at $17 trillion to $18.157 trillion hence the different outcomes.
Nevertheless, if diligently and painstakingly implemented, the QE policies derived from the Keynesian school of thought in economic development which is preferred, favoured and presently being implemented by Buhari’s government now taggedBuharinomicsappears,in my view, to be capable of pulling Nigeria back from the brinks of economic collapse in the face of the prevailing 60 percent slump in oil price.
***Magnus Onyibe, a Development Strategist, Futurologist , former Commissioner in Delta State Government and an Alumnus of the Fletcher School of Law and Diplomacy, Massachusetts, USA.
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