The Chicago Boys of Nigeria

Quote 1: “Every leader is only as effective as the advisers that surround the leader.” Anonymous

Quote 2: “The trouble with good advice is that it usually interferes with our plans.” Croft Pentz

President Mohammed Buhari has announced a new economic team that will offer him economic advice on a timely basis for managing and directing the Nigerian economy. This new team will report directly to him.

This is a positive development, especially when one looks at the composition of the new team — almost all the members are economists. The team includes Dr Doyin Salami, Prof Charles Soludo and Bismark Rewane. Quality.

As with every advisory team, their success is based not just on the quality of sound advice given, but by the amount of their advice that gets taken and implemented by their principal. In Chile, a group of economists were also given the task of advising the President on turning around a Chilean economy that had stalled. They were called the Chicago Boys (because they attended the University of Chicago).

The Chicago Boys implemented a broad programme of economic reforms that liberalized the economy and slowly reduced the over-controlling hand of government. Their policies achieved some success. The World Bank stated, “Between 1990 and 2000, poverty was reduced from 40% of the population to 20%. 60% of this reduction can be attributed to GDP growth, with the remaining 40% attributable social policies.”

The economic reforms implemented by the Chicago Boys were studied and adopted by subsequent governments — for instance, the Chilean model of Defined Contributory Pension Scheme was adopted by Nigeria.

To me, there are three economic issues that hang over the Nigerian economy at the moment. They are:

• Should the naira be devalued to reflect fair prices outside the CBN official window of N306.90?
• Should the Nigerian government keep subsidizing the price of imported PMS?
• Should Nigeria pass and implement the Petroleum Industry Bill PIB?

The debate on these policies are not new; every economic decision has a cost and a benefit. President Buhari has his own personal economic ideologies which he has to reconcile with Nigeria’s fiscal realities, and it is the job of the new economic team to not just present the facts, but to guide the President into making those right decisions. Let’s delve into these decision points.

Devalue naira?

Nigeria currently has multiple exchange rates: the official rate, the Investors and Exporters forex window, the Inter-bank window, the window for Small and Medium Enterprises (SMEs), Business Travel Allowance (BTA), Personal Travel Allowance (PTA), etc.

These multiple rates allow the Central Bank of Nigeria (CBN) to offer devalued naira at N360 on the Investors and Exporters window, while maintaining N306.90 at the official rate window. So what is the CBN policy on naira? Devalued? Strong? Both?

The reason for the multiple rates is a lack of forex inflow. A strong naira has not attracted enough Foreign Portfolio Investment into Nigeria. Thus, CBN has configured fx rationing via a list of 43 items banned from accessing the CBN Forex market. Bismark Rewane, a member of this new team is quoted in June 2019 as saying, “Unifying the exchange rate will impact the Nigerian economy more positively than the current multiple exchange rate regime does, which creates opportunity for arbitrage.”

Remove the PMS subsidy?

The Nigerian National Petroleum Corporation (NNPC) stated that it spent N650.2 billion in subsidizing petrol from April 2018 to March 2019. To put this in perspective, the amount is more than what the Federal Government spent on Power, Works and Housing, Health, Water, Education and Agriculture COMBINED in 2018 budget year.

Is there really a debate about whether Nigeria should spend more on education and agriculture than PMS imports? The Economic Team will need to articulate this imperative to a President who is clearly not keen to remove subsidies on PMS because the removal “will hurt the poor.” However, we have another member of the team Prof Charles Soludo speaking on PMS subsidies. “I am convinced that President Buhari has the moral authority and legitimacy to quickly remove the (PMS) subsidy and privatize the refineries. The fundamental case against subsidy removal is not economic. It is the fact that the citizens do not trust the government to optimize the use of the proceeds for their welfare. If President Buhari does not deal with these issues NOW, I wonder when, if ever.”

Pass Petroleum Industry Bill

The Petroleum Industry Bill (PIB) aims to bring in sweeping reforms to the entire petroleum sector in Nigeria. We cannot go into detail on this vast law but the summary is that existing laws governing the petroleum sectors are now outdated, in terms of fiscal arrangements and cost sharing. The PIB increases the Nigerian government take from oil and gas assets while reducing direct ownership.

Former Chairman of the NNPC, Ike Kachikwu, said that the non-passage of the PIB was costing Nigeria N3 trillion a year. You would think any bill that guarantees $15 billion a year in investment would have been passed 18 years ago but the PIB has been stuck in a holding pattern of legislative and executive wrangling. Dr Doyin Salami has made the case that Nigeria is an “oil dependent nation” not an oil rich nation.” if that statement has any value, then a PIB to boost investment in the oil and gas sector in Nigeria is welcome.

In Chile, advice from the economists and experts was not only given but also heard, accepted and implemented, and the results were positive and apparent.

The Nigerian economic think tank has to ensure that their own recommendations, which are based on economic realities and past positions held by the economists, are heard, understood and acted upon.

Success comes from action.