Nigeria plans to spend some $30 billion this year as Abuja enters a fourth straight year of expansionary spending that began in 2016. To breathe life into an economy that was receding almost as fast as the hairline of a young Wayne Rooney (British footballer who played for Manchester United), Abuja had aimed to loosen the public purse strings to spend its way out of the recession.
It is a strategy that draws comparison with the Keynesian economic theory developed by British economist John Keynes during the Great Depression in the 1930s.
The thinking is that a substantial injection of government spending can jump-start a weak economy.
The theory assumes that the money spent by the government will goose growth and create a ripple effect as producers hire people to deal with the increase in “aggregate demand,” thus triggering an economic recovery.
And so, the Nigerian government would unveil three record budgets that were coloured by increased spending in infrastructure to stimulate commerce and save its ailing economy in Keynesian style.
In came the N6.06 trillion 2016 budget, the N7.4 trillion 2017 budget and the N8.6 trillion 2018 budget. Each budget earmarked some 30 percent to capital expenditure.
With the benefit of hind sight, however, three years of the so-called “expansionary” budgets haven’t worked for Nigeria.
Economic growth is yet to eclipse the 2.5 percent recorded pre-recession and expansionary budgeting in 2015.
Instead, when the economy has not contracted, it has remained sticky below 2 percent at best, and average incomes have contracted every year since then.
Job creation has also disappointed. Unemployment rate climbed to a six-year high of 23 percent as at the end of Q3 2018, according to NBS data.
It is no surprise that those budgets have fallen short of expectations to stimulate economic growth and create jobs. Here’s why.
As if the small size of the budgets relative to an economy the size of Malaysia ($314.5 billion) and Ghana ($47.3 billion) put together was not enough, the Nigerian government actually spent less than budgeted, as a disappointing revenue outturn led to a cut back in capital spending.
In 2016, only N4.3 trillion was spent, 28 percent below the planned N6.06 trillion. Even much less was actually spent on capital projects, so much so that it was the lowest in a decade.
That meant the most critical spending item for a developing nation only got trickles of the requirement, as a paltry N173 billion was spent on capital projects. That worked out to 11 percent of the N1.59 trillion that was budgeted.
How then can it come as a surprise that the budget had no impact on the economy which would go on to contract every quarter in 2016, leading to a full-year decline of 1.5 percent.
Nothing could be further away from Keynesian economics than the fact that the N4.3 trillion spent that year was even less than the N4.8 trillion spent in 2015, a year when the budget was not designed to be “expansionary.”
Even if the budget was fully implemented, it would have still been like a drop of water in an ocean. After all, N6 trillion is less than 7 percent of the country’s GDP.
The 2017 and 2018 budgets have followed a similar path to the 2016 budget, with government spending lower than planned, despite an increase in capital spending compared to 2016’s record-low.
In 2017 and 2018, a combined N3.4 trillion was spent on capital projects.
In each of the two years, capital expenditure was less than 1.5 percent of GDP and the economy did not hold back in showing signs of one starved of infrastructure spending.
Though the economy exited recession in the second quarter of 2017, the expansion did not come from government spending, rather, the largest contribution came from net exports, which was fuelled by an uptick in oil exports.
Ironically, government consumption expenditure contracted 19.46 percent that quarter. Surely, there’s nothing Keynesian in contracting government expenditure.
At the heart of Nigeria’s failed attempt in using public spending to stimulate economic activity, has been underperforming revenues.
The economy is still experiencing a hangover following 2016’s recession, tax revenues have grown but remain less than 8 percent of GDP while oil revenue is as volatile as ever and cannot be relied on.
With these, it appears Nigeria is short of the kind of revenues needed to be Keynesian, never mind the theory in itself has a long track record of failure.
So here we are with the wrong idea of Keynesian economics.
A possible alternative will be for the government to attract private capital on a large scale. No matter how much the current administration says it is working with the private sector to attract investment capital, the numbers simply do not support it.
Despite budgeting nearly a billion dollars in privatisation proceeds between 2016 and 2018, the Federal government has only raised N5 billion ($16 million), 14 times less than it made from selling only one company in 2006, following the $225 million sale of Port-Harcourt based olefins and polyolefin maker, Eleme Petrochemical to Indorama Group.
The country’s privatisation agency had said it would raise N289 billion ($797 million) by selling 10 state-owned assets to bridge an appalling revenue shortfall and meet up with key projects in its budget.
While largely shunning equity capital, the government has shown a preference for debt, with the total debt stock for the federal government alone rising to N19 trillion as at the end of September 2018 from N10.9 trillion as at the end of December 2015.
Though provision was made for N10 billion (USD$ 32 million) in privatisation proceeds in the 2017 budget, not a kobo was raised and the amount rolled over to 2018, an indication that the government does not really look at privatisation as a good option not only to boost economic growth but even to grow revenues.
The government’s attitude towards privatisation needs to change if Nigeria must grow at a rate above population growth. The government simply does not have the financial muscle to drive economic growth and cannot borrow in the next four years as it has done in the last four.
The job of stimulating the economy is better left to the private sector as is the case in developed and developing markets.
LOLADE AKINMURELE
