Slump in Oil Prices: Tinubu and his Utopian Way Out

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Slump in Oil Prices: Tinubu and his Utopian Way Out

The former governor of Lagos State and Chieftain of the bourgeois opposition party All Progressives Congress (APC) Bola Ahmed Tinubu wrote an article which appeared in many national dailies with the tittle : " Slump in Oil Prices: A Progressive Way Out". The two main lines of arguement of the article were criticism of fiscal austerity and monetary tightening and a prescription of fiscal and monetary expansion, which in Nigeria means decoupling fiscal spending from dollar receipts.

Before going into critique of Tinubu's letter, it is important to give some background against which the bourgeois politician wrote. Nigeria, as a monocommodity economy, depends on oil exports for 90% of her foreign exchange earnings and 80% of government revenues. Over the last four months, crude oil has lost more than 30% of its price; from the June peak of $115 per barrel to less than $78 per barrel, below the benchmark price for Nigeria's 2015 budget. Nigeria's excess crude account balance fell by twice as much, losing more than 60% of its value; from $4.1 billion to $1.4 billion at the moment. Naira lost more than 7% of its value so far this year. The fate of Nigeria's economy will not be decided internally; events on global level are the decisive factors. A lift of ban on American export of crude oil, coming in 2015, will lead to a catastrophic consequence on crude oil prices, Naira and Nigeria's economy. Acceleration of the slowdown in China, India, Brazil etc will only make things worse. The emerging market crisis is the third wave of global crisis of capitalism which broke out in 2008 ( The first and second waves were respectively the subprime mortgage crisis in United States and the Eurozone crisis). This crisis of capitalism globally has led to intensification of class struggle and deepening of the splits among the ruling classes. In Nigeria, we witnessed the historic January Uprising of 2012 triggered by removal of fuel subsidy, emergence of APC merger opposition and the implosion of PDP as we have explained in our perspective document.

Tinubu is writing under such upheavals and with a full awareness of an impending mass movement. Burkina Faso must have been haunting him. Thus Tinubu saw it necessary to intervene and save his class and Nigerian capitalism. His criticism of fiscal austerity and monetary tightening was to prevent a spark of revolution such measures may ignite. In contrast, he advocated fiscal and monetary expansion deceitfully employing pro-working class rhetoric. However, this leading bourgeois strategist revealed his doubt and lack of confidence as he desperately tried to different his APC from the ruling Peoples Democratic Party (PDP). He knew the advanced layers of workers and youth can see right through his APC deceit. This is what he wrote:

"I confess to writing this also for a reason essentially political but non-confrontational. It accentuates the distinction between the conservative Peoples Democratic Party (PDP) and the progressive All Progressives Congress (APC). The nation faces momentous elections when next year turns to its second month. The choice is a stark one; but many people do not believe as such. The differences are vast especially regarding economic policy. On the one side, the PDP champions a conservative, elitist economic model based on the theory that wealth money must first go to the already rich and well-heeled who shall determine how small a fraction of it will trickle down to the rest of society. On the progressive side, we believe government can fillip economic growth and development in such a way that brings the fairness of prosperity to all of society. We don’t seek to penalise those who already have but we will do our utmost to remove from the clutch of poverty the bulk of our people. We seek to turn the hungry suffering of our poor and working classes into a dignified livelihood that provides a dignified existence for all."~Tinubu

Tinubu correctly pointed at the destructive and counter-productive nature of austerity championed by Jonathan's administration and spearheaded by The Coordinating Minister of Economy, Ngozi Iweala. He wrote: "...Nigeria is one nation with two economies. For this government to speak of austerity is to further enrich the affluent while casting the average Nigerian into greater hardship and deeper socio-economic depression. As with the Euro zone the past five years since the global financial crisis, austerity has not solved the dire economic weakness of the nations that employed this sickening remedy. All austerity has done is tighten the grip of the wealthy on the economy while weakening the position of the middle class and the poor. Austerity weakens aggregate demand, deflating an economy already fatigued and against the ropes. Those with hefty portfolios, profit as the value of their holdings appreciates by the very dynamics of deflation. Those who don’t have, find money even dearer to come by. Jobs and commerce disappear. Debt climbs. Deflation turns a noble but poor household into a committee of beggars and street urchins. The austerity that the current administration offers is an insensitive, myopic policy that lends primacy of favour to meaningless accounting figures instead of the material wellbeing of the people. Austerity undermines our economic pillars and breaks the spirit of the people. Austerity is the merchant of pessimism and hopeless futility. If you desire a nation of thralls, by all means continue this bleak path. If we want a nation of prosperity and economic justice, a different course is our due."~Tinubu

Is Austerity Necessary under Capitalism?

While Tinubu correctly points to the devastating effects of austerity on the workers and poor and how it ends up benefitting the rich and widens the gulf of inequality, he appears to deny that austerity and its devastating effects inevitably follow from the very logic and laws of capitalism. He asserted that austerity is nothing more than a doctrine of the conservative ruling PDP which "is not based on any unassailable economic principle. It is statement of economic bias that beckons to the wealthy while auguring unnecessary hardship for most Nigerians." Also declared illogical by Tinubu was monetary tightening secondary to the tight connection of Naira and its subservience to United States dollar, the international reserve currency. As with fiscal austerity, Tinubu declared monetary tightening accidental and illogical when he wrote: "The dollar intake is basically irrelevant to determining the amount of naira the government commands and places into the political economy." He also declared: "There is no logical reason to peg the flow of naira into the economy to the flow of dollars received."~Tinubu. This bourgeois strategist also appeared to be particularly disturbed by not only the tight connection between Naira and US dollar but also the subservience of the former to the latter. He lamented that the policy of austerity and monetary tightening "serves to enthral the fiscal policy of our sovereign nation to the monetary policy of another country. That nation plies monetary policy to serve its interests and not the economic interests of Nigeria. I am baffled why this government would give such power over the fate of our economic wellbeing to another nation that does not incorporate our interests into its decisional processes. This government makes our nation the economic servant of another so that government may turn about to make the Nigerian people its economic servant. While there is a certain logic to this dynamic, it is a perverse and debilitating one."~Tinubu

Basing his whole article on the premise that fiscal austerity and monetary tightening and the subservience of Naira to dollar are neither necessary nor logical under Nigeria's capitalism, Tinubu went ahead to prescribe the counter policies of fiscal and monetary expansion. He summarized his position as follows: "the federal government needs to reverse the inimical “dollarization” of the national economy in two ways. First and most importantly, it must abandon the out-dated peg of fiscal policy and expenditures to the dollar intake. The one actually has no correspondent nexus to the other. Any commanding connection we give it is an artifice not an economic necessity........As this is done, the government’s infinite ability to issue naira will come to outweigh the limitations inherent in the overuse of the finite supply of another nation’s currency for transactions wholly internal to our domestic economy."~Tinubu

Balance of Payments and Tinubu's Narrow-Mindedness

Tinubu conveniently ignored the overbearing influence of global capitalism and foreign capital on Nigeria's domestic economy. The domestic economy is not an island on its own; its bound inseparably to other world economies through exchange of goods, services and capital (assets). These exchanges are captured statistically as balance of payments. Nigeria is as much dependent on oil exports as on imports of everything from spare parts and raw materials for businesses, food, clothes, electrical appliances to match sticks and toothpaste. The country is equally dependent on inflows of capital of all sorts from Foreign Direct Investment (FDI) of International Oil Companies (IOC) to foreign borrowing by governments (Federal and States) and corporate entities (so-called Eurobonds) to foreign ownership of domestic stocks. The ruling classes also export capital to acquire assets such as real estate, bonds and shares in advanced and emerging economies. Tinubu forgets that Nigeria is currently in crisis not because of developments in the domestic economy but because of events at global level. The Shale oil revolution in United States, crisis in euro zone countries and slowdown in China and other emerging markets collectively brought down the price of crude oil. Because of this inseparable connection of Nigeria's economy and its subordination to global economy, it becomes impossible to pursue solutions to the crisis with total disregard to global events in general and disruptions in the balance of payments in particular. Let us follow Tinubu's narrow-minded prescriptions and see their implications in real interconnected world of global capitalism.

Tinubu was correct in pointing that pegging Naira and subordinating it to US dollar leads to austerity and hardship borne exclusively by workers and poor. But is this outcome necessary under capitalism? Could Naira supply be decoupled from dollar supply without disastrous consequences? Tinubu the first question in the negative and second question in the affirmative. Tinubu accusses Jonathan's administration of mechanically pegging Naira supply to inflow of dollars. But Tinubu himself mechanically decoupled Naira supply from dollar inflows. Reading Tinubu's prescription the most striking thing is this total disregard of balance of payments and dollar inflows. As oil prices crumble and as Fed ended Quantitative Easing with dollar strengthening and prospect of rising interest rates in America on the horizon, Naira and external reserves came under heavy pressure. This pressure is not only from portfolio outflows but also from domestic business elite taking their money, in dollars, outside the country. This dynamic leads to weaker Naira which the Central Bank has been trying to defend by draining its external reserves. This is the state of things currently. Any solution out of the crisis must be implemented within this context. For Tinubu, this is not necessary. All that needs to be done is to print and spend more Naira notes. However, the question that needs to be asked is: what are the effects of printing more Naira notes on the emerging balance of payment crisis?

Printing more Naira notes in the context of decreased inflow of dollars from oil sales will mean further devaluation of Naira. This will make it more difficult for foreign investors to repatriate their returns and assets they wish to sell. The immediate effect will be significant reduction of portfolio dollar inflows compounding the reduced inflows from slumping oil price. Outflow of dollars by foreign investors and domestic business elite will also accelerate. The combined effect will be acceleration of depletion of foreign reserves. But this is not the end of the story. Increased Naira supply to stimulate consumption, as suggested by Tinubu, also means increased demand of imports of everything from food to spare parts and other inputs needed by domestic businesses. But devalued Naira means imports are more expensive. This will erode the profits of businesses needing imported inputs and also hurt consumption of workers. The increased demand of imports also means increased demand of the increasingly scarce dollars. A severe contraction of the economy and crisis of balance of payments is thus inevitable. Should this occur, even Tinubu has to surrender to the logic of austerity. Tinubu's prescription simply delays the inevitable and reproduces the crisis on a higher more devastating level. All ways out of the current crisis on the basis of capitalism inevitably lead to immense suffering visited on the workers and poor by the ruling classes. The liberal reformist Keynesian approach of Tinubu will not be any better than the neoliberal conservative approach of Ngozi Iweala.

Which Way Forward?

If neither the conservative austere pill nor the reformist Keynesian approach can save Nigerian capitalism from its current crisis, what is the genuine alternative way out? The first step is expropriating the international and local capitalists through nationalization of oil and gas industry, banks, power firms and other commanding heights of the economy and putting the freed wealth under the deocratic control and rational management of workers for the development of power, roads, agriculture and industry as well as provision of qualitative and free health and education for all. In the short and medium term, this will mean astronomical increase in dollar receipts from oil sales as the current order of favouring IOCs is reversed. Illegal dollar outflows through NNPC and over invoicing of imports will also come to a halt as foreign trade is brought under the monopoly of Nigerian socialist state. Outflows through debt servicing will also diminish as the socialist government repudiate/structure foreign debt. The combined effect of these socialist measures is a qualitative improvement of Nigeria's balance of payment going hand in hand with qualitative improvement of the standards of living of the masses. However, this does not mean socialist revolution in Nigeria will stop global decline in oil prices or free the country from the dominance of imperial capital. One thing is for sure: a socialist Nigeria will be more dependent than a capitalist ever was. To run a socialist government, we will need greater import of skilled labour and advanced technology. But socialism in Nigeria will create and might be a creation of repurcussions of socialist revolutions elsewhere. Socialist revolution in Nigeria will immediately be a part of worldwide socialist revolution. Our class brothers and sisters in advanced and backward countries will come to our aid. Overthrowing Nigeria's capitalism is just a step to enable us participate in a decisive way in the struggle to overthrow capitalism on a global scale. The final solution to capitalism can only be achieved through overthrowing the system on a global scale. Our entry point into this global struggle is overthrowing capitalism in Nigeria.