But for the record, it is our considered view that the proposal is based on a false foundation. Our thesis is that in extreme, exceptional circumstances, 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 jeopardizing Nigeria’s long term economic interests. It will be a historic mistake for the reasons stated below. Let me start by noting that the objective of policy is mistakenly identified in terms of getting the economy out of recession. Recession is short-term.
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 sympathize with them. 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.
Second, there is little basis for the figures being bandied (only God knows how they did the valuation and by whom to get $10- 15 billion expected from the asset sales), and there is no basis for the expectation that shoring up reserves by this amount will magically restore investor confidence and stop speculation on the naira. What they seem to suggest is that there is a sense of “optimal level of reserves for confidence” such that once investors see $35 billion or $40 billion as reserves, they will stop speculation. This is a strange argument.
Private economic actors are much smarter. There is more to investor confidence than 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 rate (which we claim to have), and of course also enough to cover short term forex liabilities for countries with open capital account. 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 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.