Akpan Ekpo: Tinubu Was Wrongly Advised on Petrol Subsidy Removal

Few months to his retirement as Professor of Economics and Public Policy at University of Uyo, Akwa Ibom State, Prof. Akpan Ekpo, who is a former member of the Board of the Central Bank of Nigeria; former member of the Monetary Policy Committee; former Director General of West African Institute of Financial and Economic Management, former Chairman of the Academic Staff Union of Nigeria, in this interview, proffers solution to the economic hardship and exchange rate crisis the country is facing presently. Ekpo, who is currently the Chairman of the Foundation for Economic Research and Training in Lagos, advises President Bola Tinubu to urgently address the hunger in the land. Dike Onwuamaeze brings the excerpt: 

In a recent opinion article you wrote on the state of the economy, you warned that the government should act urgently before it is too late. What will you tell President Bola Tinubu or his economic management team if you have the opportunity to meet with them today?

I will tell him that his policies have not worked and if I was to part of the team that advised him on those policies I wouldn’t have recommended them. advised such. So, if they are bold enough the best is to reverse some of these policies. The suffering is too much;  they should reduce petrol prices. If you crash it, all prices will come down. The structure of the economy for now, in our context, depends on petrol. They should be bold to reverse the petrol subsidy removal. Secondly, I will tell them to go back to a managed float exchange rate system. The inflation we are seeing now is what we call exchange rate pass through. The economy is not productive; it is not diversified, because there is a difference between an economy being diversified and the Gross Domestic Product (GDP) being diversified. The GDP has 46 sectors, but the economy itself is not that diversified. So go back to managed float. I am stressing the word “managed.” The problem of that market is on the supply side that is virtually vertical. The demand side is there and you can curtail it if you want to. But the problems are supply and access. Therefore, return back to managed float. No country opens up its foreign exchange market, especially a developing economy, completely to the forces of demand and supply. Those two things – returning petrol subsidy and reversing floating of the exchange rate – are very crucial if they can be bold to reverse them. Before the inception of the President Bola Tinubu’s administration, the rate at Investors and Exporters’ (I&E) window was just above N400 per dollar, now the rate is approaching N1,700 or higher. Definitely, anybody that imports by buying dollar at that rate, the price of your goods or services would go up. We are having a free fall of the Naira because people are buying dollars as if they do not know what will happen tomorrow and before you know it, we are going to have runaway or hyperinflation, which we are almost getting into. So, reverse the petrol subsidy removal and go back to a managed float system, at least in the short to medium term. The other thing they have to do, and it is no longer a rocket science, is the problem of power. No economy grows with generators. None! We know the companies that do power in the world. They should be brought on board instead of using these people that have captured the state to bring power and they are just milking the economy. The suffering is too much. So reverse those policies at least in the short to medium term while you now plan for a long term. Then, they should walk the talk. There is too much talk but you cannot see any action. You have to be very careful in any economy where the emerging middle class have now entered the poverty class. What that is needed now is quality government intervention. The market forces we are focusing on would not help us. If they will look at economic history, those countries that leap-frogged growth and development within a very short time did not do that by depending on market forces. They looked at their economies and prescribed solutions suitable to them. A lot of them rejected the International Monetary Fund (IMF) and World Bank policies, which are mostly one size fit all template. China, Malaysia and Singapore that we all admire abandoned the IMF and World Bank policies. Nobody is against market forces, but there are some forces more powerful than the market. Like the foreign exchange market for instance, as I was saying earlier, it is not a typical competitive market. So, I will advise that they do not open up the foreign exchange market but they should go back to a managed float system. The recent data from National Bureau of Statistics (NBS) showed that our economy is not yet diversified. Manufacturing as a ratio of trade export was about two per cent while manufactured import was almost 48 per cent. When I saw this administration’s economic policy document I knew that it will not work because they were all neo-liberal policies that had been abandoned long time ago. When the government opened the foreign exchange market, it benefits a few elites who have domiciliary accounts. They will take out their dollars and become multi-billionaires in Naira. The past government printed a lot of Naira that people used to buy dollars on the streets and put them in their domiciliary accounts. A government that is radical should have gone to the banks and demand to view peoples’ domiciliary accounts for them to explain how they earned millions of dollars. Going to arrest people and forex traders on the streets will not solve the problem. If you have a properly managed float system, you can supply forex to genuine users. What you are seeing now is exchange pass through and it is a free fall.

But the CBN under the immediate past government practiced a managed float system, which requires the government to defend the naira, why are you asking us to go back to that when we don’t have the buffers to defend the naira?

The former CBN Governor did not practice a managed float forex system properly. That is because the idea is to observe the market and make adjustments at any time. But some of them at the CBN were also gaining from it. For example, you had N415 as the I&E window rate and a street rate of N600. When you see that the parallel market rate has moved, you move the I&E window close to that rate. But they were not doing that because a lot of them where gaining from it. When you bring in your dollar they would change it for you at above N500 and make money. The banks were colluding to re-export dollars. So, we had a managed float system, but it was not well managed because of the corruption in the system. An economy that has crude oil and has three or four refineries must ensure that the refineries work. There is no reason exporting crude oil and use the dollars you have earned to import finished petroleum products. Singapore has no oil but it has refineries. Let our refineries work. In the 1980s Nigeria was exporting refined petroleum products. So, what happened? As long as government will not punish people who misbehaved, it will not set a good example. If refineries work today we will have supply of petrol and other refined products, you will see a turnaround in the economy. What they are calling subsidy never really existed but they were inputting the money and taking it out. Subsidy is very simple. It is saying that the price is too high that people cannot pay and the government comes in to help. But in the oil sector, the demand side is exaggerated. People were giving wrong numbers on consumptions so that they can import petrol. So, where do you have the so called appropriate price before you can determine the subsidy? I was involved in building some macroeconomic models for this economy for years. The subsidy they claim does not exist. They just input the money and take it out. As I have said in that article I wrote, the President was wrongly advised. When you are being sworn-in as a country’s president, you make a short speech and leave. Do not make a statement that will create problems. That statement that oil subsidy is gone is the problem that we are having. He did not have to say it because the budget for 2023 had already removed the so called subsidy. He ought to have kept quiet and observe what was happening for three months before making pronouncements. We have done this reform before. After all, what was the Structural Adjustment Programme (SAP)? It was all about market forces when everything was deregulated and there were crises in the economy. In fairness, it was Chief Anthony Ani as the Minister of Finance that came with the idea of a guided deregulation to get some succor from the crises. So, we are going back to the same policies that gave us problems. The problem that I have with my colleagues, especially the so called economists and analysts is that they do not think deep outside the box. There is nothing like market forces where you can have an appropriate value of the Naira to the dollar. We know that it does not exist in reality. It is theory. There are three basic conditions before you have the equilibrium they talk of: existence, uniqueness and stability. You cannot find them in practice even in the United States of America. Whenever there is problem with crude oil prices the government of the United States of America does not wait for the market. It sends officials to Saudi Arabia to discuss how Saudi will pump in more oil to bring down prices. They do not wait for the market. What we call competitive market is just one benchmark for comparing other models. Why do we have regulated monopoly? It is the government that comes in and says that this cannot happen so let us regulate it. I have looked at President Tinubu’s advisers and see maybe two or three are economists. But economists have different tendencies. So, you must have to look at the structure of our economy. What we have now is called structural inflation that is caused by the oil wahala. I warned since the 1990s that prices will go up about 400 per cent if one wrongly touched petrol subsidy.  

 What will you predict that will be the end of this second coming of a structural adjustment programme?

You are already seeing what that is happening: strikes and protests everywhere. How it will end? I do not know. It may end up in mass uprising, which will not be good for the economy. All this talk on foreign investment will not materialise. They will not come. No genuine investor will come when you have insecurity problem. Foreign Direct Investments is what we need so that people will come and build factories, employ people and not portfolio investments, which may not even come if we don’t address the forex crisis. There is a lot of confusion. Government said it will not borrow but it is borrowing. What it needs to do is to assemble a team of experts to discuss and agree on how to move the economy forward. It is to rescue the system back to what it was, which was not even that good but it was not as bad as this. Let me give you an example. I am a Professor and my salary is N414,000 per month. What do I do with that? The system that builds manpower is being destroyed because the younger ones that have first class will not enter, because the entry level salary for a PhD holder is N120,000 a month. What will he do with that and why must he be a lecturer? We now look for the dregs to teach. The ones who are very good in every field are leaving the country in droves. I am sad because our great grandparents were taken there as slaves and they built North America and Europe. Now the ones that we have trained here cheaply are going back to also build those countries. Unfortunately, the President came in “out of civil struggle” for the realisation of June 12 mandates, so I think he needs to look at his advisers again and use experts who understand the Nigerian economy and are not slavish to IMF/World Bank’s prescriptions.

What are the low hanging fruits that can assuage the hunger and hardship in the country? 

It is very simple. Most Nigerians have bank accounts. The government has to put money in their pockets. The N35,000 salary award is not good enough. It should be increased. People need money to buy goods and services. That is the low hanging fruit now. Also, I felt sad when I read that the government will not import food. It should import food now. People are hungry. There should be massive import of food. We should not rely on local farmers because if you plant corn today you will not eat it tomorrow. It will take a while. So, we should import food massively for people to be able to eat. We have the money to do these imports. Look at the money they are spending on other things and the cost of governance and readjust them by doing what we call expenditure switching. Use that money to import food to assuage the vulnerable groups. Where we are having protests today in Nigeria are where we never had protests years back: the north.

What do you think should be the role of the Monetary Policy Committee (MPC) at this point in time?

Well I sympathise with the members of the MPC now because the only instrument the CBN has is to increase the interest rate. The inflation we are seeing is not essentially demand-driven inflation. It is more of supply and cost pull inflation. If I am at the MPC, I will just observe and stress that the fiscal side should do its work. The central bank is becoming a commercial bank. When I look at its board members many of them are commercial bankers and not academicians and experts. Most countries try to make their central banks little bit neutral and they bring experts to the MPC and the board. In the time of Prof. Chukwuma Soludo as CBN Governor, there was Prof. Olofin, myself and a few others. And from my experience some members were just politicians. If you do not have a strong board and a strong MPC, which is the engine room, you will create a problem. The CBN has serious technocrats who know what to do. From what I am seeing, if you let the bankers’ committee run the central bank then you are no more a monetary policy institution. The commercial banks will now dictate monetary policy, which is wrong. The way this works is that the government through monetary and fiscal policies ought to surprise the private sector and the private sector is supposed to try and predict government. Where that does not happen you are in trouble. That was the problem Emefiele had. When you bring a banker to head central bank you are going to have problems.

Do you think that having and implementing a national development plan could have saved Nigeria this trouble?

There is a national development plan, which former President Muhammadu Buhari approved for 2021 to 2025. That plan should have been followed through so that we will not need this Renewed Hope Agenda they are talking about. I was a member of what they called the senior technical review of that plan. Since it is the same political party, Tinubu should have continued with its implementation. The capital components of this 2024 budget should have been drawn from that plan. But that was not done and there is a complete disconnect. Any country like ours must have a development plan. Any country that has made progress has a development plan. Even the United States of America has what they call educative planning. Why I am shocked was that it is the same political party and this administration is not following the plan. But the greatest mistake this administration made was announcing the removal the petrol subsidy on the first day. The President should have just kept quite over it because it was no longer in the budget. Also trying to collapse the exchange rate is not possible because we are running a capitalist system that will always have speculators.  

What should the federal and state governments should be doing with the increased revenue they have been receiving following the removal of subsidies?

First, import food for the people. Secondly, put money in the pockets of poor people to relate the economy because people are suffering. The minimum wage is now useless. For me our problem has never been revenue but the cost of governance. They can increase taxes forever, but it will never help them. The more you increase tax you will reduce growth because you will scare away companies. What they should be doing is to bring more people into the tax net. For me our problem is expenditure problem and not revenue problem. Our cost of governance is too high. The presidential system is too expensive.

Finally, how has life been since you retired from WAIFEM?

It has been exciting although I am retiring formally as a Professor in June. I will deliver my valedictory lecture on June 26 at Uyo, Akwa Ibom State. I am still active. I still supervise students and I still have some global engagements once in a while. I just came back from a conference in America where I read a paper on how policies of developed countries create problems for developing countries. They give us grants and aid that is not working and still they keep giving them. It may be working for them. You know that in economics we have tendencies. I have no apologies because I am in the left of the profession. But luckily I know what those on the other side are doing. So, I will remain active and as one of my friends used to call me I will remain an unrepentant critic of any government that is not doing its job. I criticise to make government to do its job so that many people will benefit. There is no economy where everyone is happy. But at least 85 per cent should be doing relatively well.