Sale of Assets as Dangerous Policy Myopia - Charles Soludo

 Soludo, who is the founder of the African Heritage Institution, expressed his opposition to the assets sale yesterday in an article titled: “Nigeria: Sale of Assets as Dangerous Policy Myopia”, stressing that if the president endorsed the proposal, it would be a historic mistake made by the country.

While commending NEC as well as the Senate for advising the president, saying times such as this require all brains at work and all hands on deck, the former CBN governor held the view that the proposal for the sale of national assets was based on a false foundation.

“Our thesis is that in extreme, exceptional circumstances, the sale of certain assets could be a last resort option but that Nigeria is currently not near that threshold and the institutional framework for its effective use is also not in place.

“Furthermore, we argue that any sale of assets now amounts to chasing pennies when by acts of omission or commission, we are losing pounds.

“Such a hasty auction of national assets can only benefit a privileged few with cash and access while jeopardising Nigeria’s long-term economic interest. It will be a historic mistake for the reasons stated below.”

Soludo went on to express concern over the proposal to sell some valuable national assets “in order to build reserves and provide funds for immediate spending” and thus ensure that this recession will be the “shortest” ever.

He acknowledged that some people had bandied the same suggestion in the past but he largely dismissed it as a joke.

“But when the Senate and NEC joined the convenient but flawed call for the asset sale, I have a citizen duty to join others in letting our voice be heard.

“Part of the legacy of the oil resource curse on matters of public finance is a mindset that resorts to easy, albeit a lazy approach to ‘quick fixes’ — with a gaze on the short-term even when the issues are structurally long-term.

“So, I understand the mental framework that drives such a proposal, especially given the pressure to show immediate results,” he added.
He noted that the objective of the policy was mistakenly identified in terms of getting the economy out of recession.

According to Soludo, recession is short-term, adding that “with good rains and bumper agricultural harvest, Nigeria’s Gross Domestic Product (GDP) growth can easily recover and the economy would be out of the recession”.

Specifically, he pointed out that a GDP growth rate of even 0.01 per cent next quarter would be enough to take the economy out of the recession.

“What does this actually mean for the average Nigerian? Really very little! The fundamental issue to focus the attention of policymakers is that the economy has dramatically compressed by more than 50 per cent in US dollar terms.

“The GDP compressed in dollar terms from about $575 billion (as at the time this government took over) to about $252 billion currently—depending on the exchange rate used (currently estimated to be about third largest economy in Africa after South Africa and Egypt; with per capita income closer to $1,300 from over $3,000 in 2014).

“With the current policy regime, it will be a miracle if the current government can, after eight years in office by 2023, succeed in returning Nigerian economy just to the size of GDP (in US dollars) it met it in 2015.

“To be fair, the wheels of the economy were already falling off by the time this government took over plus other complications of the oil sector and I sympathise with it.

“But it is also fair to note that some of its policy choices have made matters worse. Now that the government is showing seriousness in tackling the crisis, focusing on short-term next quarter GDP growth misses the key point and has the danger of understating the serious work required,” he argued.

Furthermore, Soludo said there was little basis for the $10-15 billion being bandied around as likely income to be generated from the proposed asset sales.

He stressed that there was no basis for the expectation that shoring up reserves by this amount would magically restore investor confidence and stop speculation on the naira.

“There is more to investor confidence than a temporary boost in stock of reserves when everyone knows that the underlying political environment as well as the policy regime and its credibility make the flow of reserves unsustainable.

“The IMF calculates reserve adequacy in terms of the amount to finance at least three months of imports especially for countries with flexible exchange rates (which we claim to have), and of course also enough to cover short-term forex liabilities for countries with open capital accounts.

“Nigeria currently has much more reserves to cover even six months of imports (size of imports also depends on exchange rate). So, what is the problem?
“No amount of reserves can stop currency speculation in a poor policy environment. There is much more to confidence than absolute or relative size of reserves.

“Look around our West African neighbours that are doing far better in economic terms and check out the size of their reserves (even as a percentage of GDP).

“Until 2004, Nigeria never had more than $10 billion in reserves, and we have survived oil prices below $10 without selling Nigeria. The British pound has been down for months against major currencies since the Brexit vote in June, while China (with trillions of dollars in reserves) experienced major stock market and currency attacks recently and the Yuan had to be devalued.

“Before the 2008/2009 crisis, Russia had robust reserves but it lost tens of billions struggling to defend the local currency and eventually yielded to the market,” he added.

Continuing, Soludo noted that the argument that the sale of assets remained the only way to reflate the economy out of recession was troubling, and “suffers what economists might call policy myopia or time inconsistency problem”.

He added: “First, imagine if previous governments used asset sales as a strategy to ‘reflate the economy’ during previous periods of economic recession or crisis.

“Alternatively, if we auction away some valued national assets for the short-term goal of reflating the economy out of recession, what will happen during future cycles of recessions and economic crises?

“The global economic system is inherently and cyclically crisis-prone. Prudently managed economies are preparing for the next cycles of global crisis, and the IMF has already warned of persisting vulnerabilities. What shall we sell then?

“Besides, a hasty auction of the assets will short change Nigeria. Privatisation of national assets is not an ideological matter for me. It is plain pragmatism. Reasonable people can have a good debate about the composition of public assets for sale at any time.

“Although government is yet to be definitive about the assets being proposed for sale, it is reasonable to object to any scheme that will hurriedly sell performing public assets that guarantee future flows of revenue and forex to future generations such as the NLNG, AFC shares, JVs in oil and gas sector, etc.

“Even for non-performing assets, when privatisation is forced and assets auctioned on an emergency basis to meet short-term needs, the danger signs are there for all to see. Nigeria will never get value for money under the circumstance.

“We all know what happens when someone urgently needs to sell his or her property to meet an emergency. What happens to the valuation/pricing? If we price them properly and wish to go through proper due process, the deal might take several years to conclude thereby defeating the advertised purpose of immediate spending.

“On the other hand, if we insist on forced sale because we need cash urgently, we might as well imagine how the valuation will be done and how buyers will bid for them.

“In all, the proposal is largely self-serving and convenient. For some privileged private sector operators with cash and access, the temporary rump up of reserves as well as temporary strengthening of the naira will enable them to take whatever forex they can get (at the official rate) knowing that it is just a temporary elixir.

“They can then round-trip same a few weeks after and rake in billions. Furthermore, the attempt to sell valuable national assets under duress guarantees these same interests to cherry-pick the assets on the cheap.

“For our Senators and government, it is very convenient in the sense that it provides easy money to continue with the expenditure trends. So, for both government and its private sector collaborators in this scheme, it is a win-win. The only losers are Nigerians and the economy.
“In this apparent short-termism or myopia, no one seems to care about tomorrow.”