Budgets and blind alleys

Budgets, for governments, are annual refueling stops, in which the administration gives a statement of affairs of the commonwealth, and lays out how, over the next governance cycle, she intends to fuel the vehicles of state (factors of production), to the desired destinations.

Arriving at the desired destination has more to do with the direction of travel than with the vehicle of travel. So, if you drive down a blind alley in a rickshaw (Keke-Maruwa) or a Rolls Royce, the type of vehicle will not alter the arrival point.

For instance, President George Bush thought heavy government spending on big projects and corporations would trickle down; and then Governor Bill Clinton said, no Mr. President, markets work with detailed hands-on engagement.

Over the past thirty years, in my view, we have been fueling whatever vehicles of choice travelling down blind alleys. Three critical ones come to mind, (Micro, Medium and Small Scale Enterprises (MSME), Power as a utility and Currency management with money as the lifeblood of the economy.

We have, through the fuel mix of policies, wiped-out the real sector (big industrial enterprises), and are about to grind the medium and small scale enterprises into the ground. If you add to that the fact that many (from the level of university professors to MDA clerks) do not earn a living wage, then the strength of the demand pull for goods and services has been seriously weakened.

With the shutting down of many manufacturing plants, local importers have through various imaginative ways ensured the supply of critical replacement components of the few large industries still in operation, imported used vehicles to keep the nation moving, supplied spare parts to keep the generators running and ensured that our dispensaries are stocked with essential drugs.

You cannot buck markets, not by money, not by government fiat!

The dislocation of the real sector (big industry) started with a poorly thought through indigenization programme (1970-1974 and 1976-1978), which the government tried to support with a discounted forex window. This was followed by a selective import licensing regime, and finally, a tariff schedule without a long view. This was the beginning of a multiple exchange rate regime.  The only way to support markets is by first understanding them, the best administrative solutions from the coziest sinecure offices won’t cut it.

From then on, it had become clear to keen observers that the military intervention of 1966 and the change of the reins of power had given a man’s job to boys, and the rigmarole began.

With the foregoing, if the MSMEs are wiped-out, the economy would be in very dire straits. The supply chains now supporting services will not be there to support heavy industry, even if they are bought in; turn-key.

It is instructive to note here that the United State is not really a country of the big industries, but one of small companies in organized supply chains, flowing into the assembly plants of big industrial designers. (Big corporations).

The fuel mix of the MSMEs has always been for capital, but in my view, it is beyond funding, supply and demand. It may also need shared (common) services, like;

We have over time fueled a fertilizer racket even as the rural economies are decimated.

Rural and urban trade syndicates need to be up and running, before you can start talking about commodity exchanges, whose third-party contracts are based on steady underlying physicals’ transactions.

The money spent so far in funding MSMEs from the SMEEIS levies on the banks, to the many intervention programmes, could have by now, established at least three urban nodes of the ten or so nodes required for a nation our size.

Point of Note. Funding alone will not drive MSMEs to the desired destination.

No real progress or economic growth can happen if the power sector is not run as a proper utility. The focus on collections alone will not necessarily alter the relationships of supply and demand. At a presentation to PHCN in 2003, I made it clear to the board that the sector needed a single office of power to manage the power market, using competition elements to optimize value extraction. The world class advisers they appointed, produced a thick document on collection strategies, which unfortunately has not attracted the natural local oil majors and large industrials to the sector. The pitching to foreign investors continues, in the hope that the successes in the telecoms industry will soon be repeated in the power sector. The very many regulators in the sector are confused about their roles, and the resulting weak linkages, means that even district collections are not remitted.

Point of Note: The use of world class advisers, without local knowledge, does not make the market.

It is becoming a thankless job; everybody wants the CBN to solve their problems, including providing ransom money for kidnapping; providing differential forex rates for indigenized companies for which the buyers had no skills to run; funding small and medium scale enterprises by fiat when thrown out of supply chains. The list is endless and still growing.

Caught between an often confused sovereign, a floundering bureaucracy and a loud selfish elite, the Central Bank has tried to be all things to all men.

The mess that became of these arrangements is what the central bank has been trying to clean-up with various interventions. They ought to know that bucking markets confuses them even further.

With the number of failed interventions growing, the bank is beginning to look like a poorly armed errant knight, convinced that trapped unproductive sectors could be freed directly. The reality is that some of those interventions are like taking coal to Udi (Newcastle) and peanuts to Kano. Observers are beginning to take the view that these moves are delusional, though the executing authorities are convinced about their patriotism.

Point of Note: It is like going down another blind alley.

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