Renowned author and erudite scholar Sebastine Hon (SAN) suggests ways out of recession through law.
fter many months of dangerously playing the ostrich, the Federal Government, just last July, admitted that Nigeria was in an economic recession.
That our economy was already in recession two years ago was crystal clear, even to the toddlers; but the Federal Government kept playing over our collective psyche until 21 July, 2016, when the Finance Minister, Mrs. Kemi Adeosun, admitted that the national economy was in recession.
Following this pronouncement, a flurry of (most often) misguided remedies has become the order of the day, some stemming from egocentric epicenters. The Government, too, without any profound or even slight engagement with the Nigerian public, first flirted with the idea of selling off Nigeria’s national assets, before beating a quick retreat when there instantly sprung up raging fury from Nigerians.
There are many options open to the Government on the way out of the economic recession; and the least acceptable, given our circumstances, is that of sale of our national assets. In spite of the belated denials from high ranking officials of Government, I will still briefly examine the viability of selling of our national assets as a way out of the economic recession, before I will examine the other possible solutions. In both cases, I will cite historical, legal, economic and empirical examples.
The New Zealand model on sale of national assets
If we must sell our national assets, all Nigerians, via the process of a national referendum, must give their consent – and in this wise, I will suggest the recent New Zealand example.
The 2013 New Zealand asset sales referendum, which took place from 22 November 2013 to 13 December 2013, involved the New Zealanders voting either in support of or against their government partially privatising some of that country’s national assets and the reduction in the government’s share in their national carrier, the Air New Zealand.
Above all, however, I hereby maintain that sale of our national assets is not in the best interest of Nigeria. One pertinent question is: if we sell off such assets and the recession refuses to abate or even develops into a full depression, what will be our next step as a nation? Sale of national assets, apart from being questionable, is only a short-term measure which will have no answer to possible economic challenges of the longer future. It should be resisted vigorously. And this takes me to the Australian example.
The Australian example
Recently, the question whether or not the Government of Australia should sell off some of its precious national assets arose. In the heat of this debate, Australia’s National Treasurer, Scott Morrison, rejected outright, bids for a controlling interest in the Ausgrid electricity network and the government-owned State Grid Corp. On 11 August, 2016, Mr. Morrison declared in a press conference thus:
“I have informed the Ausgrid bidders of my preliminary view that their foreign investment proposals are contrary to the national interest.”
Earlier this year, the same Mr Morrison had blocked the sale of Australia’s largest cattle rancher, S Kidman & Co., to a Chinese international business concern, saying it would be against the national interest to do so. Rather than outright sale,
Morrison has always insisted that the government is readily disposed to foreigners investing their money in Australia. A 99-year lease of the concerned assets is being offered by the Australian Government through him, instead.
The best way out: Fine mix of macro-economic and legal measures
Historically and economically, nations that either faced economic recessions or depressions adopted fast-track macro-economic and legal measures that produced wonderful socio-economic and even political results. We shall explore these, starting with the famous Keynesian theory adopted most by such countries.
Keynesian economic theories
British-born economist, John M. Keynes, submitted in his “The General Theory of Employment, Interest and Money,” that lower aggregate expenditures in an economy contribute to a massive decline in income and to employment that is well below the average. In such a situation, he submitted, the economy reaches equilibrium at low levels of economic activity and high unemployment. His solution is this: to keep people fully employed, governments have to run deficits when the economy is slowing, as the private sector would not invest enough to keep production at the normal level and bring the economy out of recession. Accordingly, that during severe economic crisis, government should increase spending and or cut down taxes.
These theories were later expanded to include another important element: that during such austere times, the government should also extend credit guarantees and lower interest rates.
We shall examine the regimes of two US Presidents which employed these theories, utilising sound legislation and fiscal policies, to pull the US out of deep economic climb downs at two different historical intervals.
President Franklyn Roosevelt and the Great Depression
Leading economic historian, Irving Fisher, has argued that the controlling factor that led to the Great Depression was a vicious circle of deflation and growing over-indebtedness. He outlined nine intertwining factors, which in his opinion contributed to that Depression, thus:
- Debt liquidation and distress selling;
- Contraction of money supply;
- A fall in the level of asset prices;
- A still greater fall in the net worth of businesses, precipitating bankruptcies;
- A fall in profits;
- A reduction in output, trade and employment;
- Pessimism and loss of confidence;
- Hoarding of money; and
Economic historians have segmented “The New Deal” into two. The “First New Deal” (1933–34) dealt with the pressing banking crisis; and this was achieved through the Emergency Banking Act; the Federal Emergency Relief Administration (FERA) and the Civil Works Administration (CWA). While the FERA provided hundreds of millions of US Dollars to the various States and major cities’ administrations, the CWA provided quick funding for localities to undertake projects in the 1933-1934 period.
The “Second New Deal” covered the period 1935-1938; and during this time, the “Works Progress Administration” (WPA) programme consolidated on the gains of the First New Deal, by deliberately providing massive capital to ensure the US Federal Government was by far the biggest employer of labour. And to prevent labour being mindlessly exploited, the Fair Labour Standards Act, 1938 was enacted.
There were also the Farm Security Administration of 1937 and the Social Security Act, which were protective legislations that targeted the rural and poor/challenged segments of the population.
As stated above, President Roosevelt, with the backing of the US Congress, pulled the US economy out of the Great Depression, a feat that contributed in earning him a historical four terms in office!
Clearly, therefore, Nigeria which is only in recession and is not yet in depression will quickly opt out of this quagmire if just half of what President Roosevelt did is implemented. And for a reminder, President Roosevelt massively cooperated with the US Congress to achieve that feat. Our dear President Muhammadu Buhari should, with respect, do no less.
Enters President Barak Obama
It is too soon to forget that President Barak Obama assumed office of the USA when that country was on the roller coaster to economic recession. What instruments of government and governance did he deploy in trying to pull back his country from that journey to the dark? We shall examine the efforts, highlighted in the following bullet points.
- Less than one month upon assumption of office, President Obama pushed for the promulgation by Congress of the American Recovery and Reinstatement Act, which enabled the provision of $800billion in government spending and tax cuts – to jumpstart the economy. Out of this amount, a princely $54billion a year as provided for, to expand unemployment insurance. These legal and fiscal measures alone rolled back unemployment by over 3 million jobs.
- In early 2008, the Government lowered interest rates; and later that year, it completely erased interest rates – by adopting a zero-interest rate regime.
- Rather than sell national assets, the Congress, in October, 2008, established the Troubled Asset Relief Program (TARP). The Federal Treasury used part of the proceeds from this to inject massive funds into the nation’s banks, which in turn dished out interest-free loans to large scale, medium scale and small scale businesses. The effect this singular policy had on the US economy can only be imagined.
- Between 2009 and early 2010, the US Government engaged itself in massive ease-offs, by buying treasury bonds and mortgage securities – to consciously lower long-term interest rates. The Government also guaranteed bank debts for responsible corporate organisations – to give then stability and growth, which in turn was to help grow the national economy.
- The Federal Government also gave tax rebates to the lower and middle income earners – for the purpose of further strengthening the economic and purchasing power of these groups and therefore stimulating the economy. Through this and related efforts, close to $1trillion was injected into the national economy.
With these and several other measures, the Obama-led government successfully pulled the USA out of recession and rapidly placed it back on the fast lane of growth, earning President Obama a well-deserved 2nd term in office. Thus, in his last State of the Union Address in January, 2016, Mr. Obama proudly announced thus:
“Let me start with the economy, and a basic fact: the United States of America, right now, has the strongest, most durable economy in the world. We’re in the middle of the longest streak of private-sector job creation in history. More than 14 million new jobs; the strongest two years of job growth since the ’90s; an unemployment rate cut in half. Our auto industry just had its best year ever. Manufacturing has created nearly 900,000 new jobs in the past six years. And we’ve done all this while cutting our deficits by almost three-quarters. Anyone claiming that America’s economy is in decline is peddling fiction.”
The present economic difficulties faced by Nigeria and Nigerians are not too peculiar as to attract panicky measures. The President as the father of the nation should be proactive, patriotic and unrelenting, as did Presidents Roosevelt and Obama of the USA, which saw the US pulling out of the economic complexities of those times.
I will add that, with the resumption of bombing of oil facilities by the Niger Delta militants, coupled with the growing uncertainty in the international oil business, the best bet for the Buhari-led administration is to channel efforts towards agriculture and manufacturing, using the Keynesian economic theories, intermixed with a proactive legislative effort as adumbrated above. And of course, the sooner the herdsmen-farmers’ dispute is put behind us, the faster we shall achieve these goals and move Nigeria out of recession.
President Buhari himself acknowledged this role of agriculture and manufacturing on 29th September, 2016, at the 44th Annual General Meeting of the Manufacturers Association of Nigeria, held at Transcorp Hilton Hotel, Abuja, when he told his audience that given the present realities, these two sectors remained the surest ways out. Both sectors of the economy will, however, serve this purpose if there is peace and equity in Nigeria.
Admittedly, the Federal Government of Nigeria is having severe liquidity problems; but better options include borrowing from friendly international organisations. In any case, it is shocking that Mr. President’s economic team recently rejected lowering of interest rates, which as shown above is a very important component of the Keynesian economic theory of arresting receding economies! This policy should be reversed immediately! The same thing goes for the Government’s annoyingly restrictive policy on foreign exchange, which has unwittingly soared the price of forex, thereby nearly bringing down the entire economy!
God bless Nigeria.
Sent in for publication by:
SEBASTINE HON, SAN, FCIArb.
(Abuja-based Private Legal Practitioner/Constitutional Lawyer)