QUESTIONS NATIONAL ASSEMBLY DID NOT ASK SOLUDO! 20112006

The House of Representatives Committee on Finance played host to the CBN Governor on Thursday, 16th November 2006, as part of the on-going process of evaluating the proposed 2007 budget. However, the concern of the Committee and the response by Prof. Soludo on the issue of excess reserves was given more prominent exposure in the media.  I listened to the eminent professor’s adamant position on the issue of our  so-called excess reserves of over $41bn on the News at Ten on Channels TV later that evening.  The CBN Governor raised several issues which need to be examined to expose the half truths which are being peddled by the architects of our economic policies to defend untenable positions with regards to keeping huge dormant reserves in the face of biting poverty for over 80% of our people.  Indeed, this column addressed some of the existing contradictions in a piece titled “Is It Better to Keep Huge Reserves?” (Rational Perspectives, 06/11/2006).  

It is unlikely that the House Committee had access to this article or indeed our other piece titled “I am under Pressure to Share Excess Reserves – Soludo”, which was published in this column a week earlier!    Be that as it may, a member of the Committee asked for a clearer definition of the phrase “excess crude reserves”; i.e. excess for what?  We gathered that the Professor defined excess as  revenue expectations over and above the 2007 budget benchmark of $40/barrel.  Some analysts maintain that this value should be more appropriately defined as additional revenue rather than excess, as the word excess connotes a value that is over and above immediate requirements!  

Today, most government schools and colleges are under-funded; our hospitals have become mere consulting clinics; less than 20% of Nigerians have access to pipe-borne water; our transportation systems, particularly the  Railways and Waterways remain as they were left by the colonial masters.  Intercity road transportation is not only expensive relative to our minimum salary structure, but also very dangerous!   Both intercity and intra city highways are inadequate and lack regular maintenance e.g. the failed Benin-Ore Road!

Furthermore, the level of unemployment is probably at its highest-ever in this country, as over 60% of school leavers cannot find jobs since industries and businesses continue to be suffocated by decrepit infrastructure and high interest rates of over 20%, which make ventures very precarious undertakings.  The labour market is further worsened by the ‘rightsizing’ or mass sack of employees in the civil service and lately the banks also, as a result of banking consolidation.  So, the House Committee had every reason to wonder if Prof. Soludo meant that Nigeria had excess or more dollar reserves than we need!  The answer, of course, must be no, and the touted $41bn reserves may seem grossly inadequate under the circumstances!

In this event, why would an enlightened Professor of Economics admonish that we consider the accumulated reserves as excess, which must be held rather than deployed to remedy the above deficiencies?  Well, the Daily Independent front page report on the meeting 17/11/06 with the House Committee indicated that Prof. Soludo believes that if the money is shared, it would be diverted to consumption rather than upliftment of infrastructure.  That maybe true if the money was shared to the three-tiers of government, especially in view of ample evidence that most of our political office holders sought power for the purpose of treasury looting.  In this regard, it may not be wise to share the money, but it makes abundant sense to SPEND most of the money in its pristine form i.e. the original dollar receipts without prior conversion to naira on major projects that would improve our nation’s physical and human capacity in line with the millennium development goals.  

There is no reason why we cannot embark on power projects that would ensure that the 7,000 megawatts current shortfall in power generation is met within two years; or why we cannot build up to six North-South and at least another half a dozen East-West major modern rail tracks in the country?  Intracity and intercity highways could be expanded, upgraded, etc, and we can embark on a major investment to make potable water available to all Nigerians!  The so-called excess reserves need not be shared, but it certainly needs to be spent on those areas enumerated above. After all, Mr. President did not have much difficulty in persuading the National Assembly to approve appropriations for the $12bn debt repayment to the Paris Club or the $2bn or so appropriated for providing additional 2000MW to the national power grid from the Niger Delta.  These monies were not at any time converted to naira before spending so that Prof. Soludo’s eternal fear of excess liquidity (too much cash in the banking system) and the concomitant inflationary spiral becomes meaningless!  

The CBN Governor is, no doubt, aware of this fact, but it probably serves his purpose to throw up excess liquidity and inflation as reasons for not spending our fortuitous additional revenue.  The excuse by Prof. Soludo that our economy has reached the comfortable limits of its absorptive capacity and the poor analogy of the severe inflation which would arise in his home village if billions of naira was suddenly pumped into his community without commensurate productivity or back up of goods and services do not hold water.  Surely, if the billions were not just scattered to passersby in Prof. Soludo’s village, but instead applied to building of good roads, provision of functional and modern schools and hospitals, with potable water for everyone, I am sure that generations yet unborn from the professor’s village would have their human and physical capacity greatly developed and would eternally remain grateful to the good man!

As for the Professor’s village, so it is also for the rest of the nation at large; our people would not suffer spiralling inflation as feared but would enjoy a standard of living that lends dignity to their lives.  It is interesting that Prof.  Soludo thinks nothing of sharing an unsolicited, uncollateralized and time-unlimited $7bn and more of our reserves between Nigeria’s commercial banks, but finds everything wrong in spending our dollars to improve our economy and lives of our people!  It is also interesting that inspite of the dislocations caused by excess liquidity, the CBN insists on changing the dollar revenue in the federation pool into naira before sharing to true owners i.e. three-tiers of government yet, it finds nothing wrong in selling $400,000 of the same federal dollar revenue to each registered bureau de change in the country every week so that looters of the treasury and smugglers of contraband goods could find a cheap source for their dollars!  The question is, who owns the dollar revenue, and what constitutional Act gives the CBN the authority to apply these reserves as they please?  In any case, it is unrealistic and not economics compliant  to talk of limits of our absorptive capacity in the face of huge unemployment and less than 50% capacity utilization in industries!