New Telegraph

Economy Set For Reboot Under New Administration

Nigeria’s economic indices are not by any means robust. The gross domestic product (GDP) is at con- traction point of 2.31 per cent in the first quarter of 2023. Inflation has fixated on a double-digit figure in the last two years, settling at 22.2 per cent in April. There is an acute low revenue challenge amid rising debt stock, a spiralling unemployment tide, a heavily burdened fuel subsidy contraption, and huge governance costs to deal with.

Instructively, the current economic challenges didn’t start eight years ago. Rather, Nigeria’s woes are rooted in not being pragmatic with resource diversification decisions. A blessed nation gifted with huge oil resources, no doubt, not being proactive about embracing a diversified structure of the economy leaves it with a plethora of challenges. The last eight years have been pathetically challenging for the economy.

Stacked with domestic bottlenecks, which manifested in low revenue earnings occasioned by massive crude oil theft on the one hand, it has international headwinds such as the COVID-19, among others, to contend with. The economy endured a gruelling journey in the last eight years, saved only for its inbuilt resilience. Excitedly, a new government has taken over the leadership mantle after eight years of gruelling journeys.

On Monday, May 29, 2023, former President Muhammadu Buhari handed over the leadership baton to the newly elected Nigerian president, a former governor of Lagos State, Asiwaju Bola Ahmed Tinubu. There’s a yearning for an economic re-boot given his past achievements and track record when he presided over the affairs of Lagos as governor in 1999.

Buhari regrets the economy’s pains

The administration of immediate president Muhammadu Buhari initiated a number of radical economic decisions in his eight years. The border closure, naira note redesign, and cashless transaction policy were among the toughest decisions of the administration and inflicted maximum hardships on a large number of Nigerians. He pleaded for understanding, saying they were not intentionally designed to inflict pain on Nigerians.

He said some of the decisions ended up making the economy resilient. Reflecting on the state of the economy in his farewell speech, Buhari said his decision, though painful, was protective of the economy. He recounts: “In the course of revamping the economy, we made some difficult choices, most of which yielded the desired results. “Some of the measures led to temporary pain and suffering, for which I sincerely apologised to my fellow countrymen, but the measures were taken for the overall good of the country,” he pleaded.

However, he said the pain leaves the economy shielded from untoward vagaries, as according to the former president, “the Nigerian economy has become more resilient due to the various strategies put in place to ensure that our economy remained afloat during cases of global economic downturns.” He referenced disruptions caused by CO- VID-19, which left devastating consequences for the domestic and global economies.

“You would all recall the supply chain disruptions and economic downturn that the world witnessed between 2020 and 2022 as a result of the COVID-19 pandemic. The deftness of our response to the pandemic still remains a global best practice.” “Furthermore, we increased the ability of the poor and rural Nigerians to earn a living, provided more food for millions in our villages, and gave our women opportunities to earn a living.

Young men and women in urban centres were also supported to put their skills to productive use. Our administration also provided an enabling environment for the private sector to engage in businesses for which their return on investment is guaranteed. “The private sector proved a strong partner in our drive to build a resilient and sustainable economy, as evidenced by the growing number of turn-key projects in various sectors of the economy,” Buhari enthused.

Experts set the agenda

Given the parlous state of Nigeria’s economy, experts in the field of economics have tasked President Tinubu with a quick economic reset. The President of the African Development Bank Group (AfDB), Dr. Akinwumi Adesina, told President Tinubu at the president’s inauguration lecture to begin with macroeconomic and fiscal stability. According to Adesina, unless the economy is revived and fiscal challenges are boldly addressed, the resources to develop will not be there.

He said no bird could fly if its wings are tied. “Nigeria currently faces huge fiscal deficits, estimated at six per cent of GDP. This has been due to huge federal and state government expenditures, lower receipts due to dwindling revenues from the export of crude oil, vandalism of pipelines, and illegal bunkering of crude oil. “According to Nigeria’s Debt Management Office, Nigeria now spends 96 per cent of its revenue servicing debt, with the debt-to-revenue ratio rising from 83.2 per cent in 2021 to 96.3 percent by 2022.

“Some will argue that the debt-to-GDP ratio of 34 percent is still low compared to other countries in Africa, which is correct, but no one pays their debt using GDP. Debt is paid using revenue, and Nigeria’s revenues have been declining. Nigeria earns revenue now to service debt, not to grow. “The place to start is to remove the inefficient fuel subsidies. Nigeria’s fuel subsidies benefit the rich, not the poor, fueling their and the government’s endless fleets of cars at the expense of the poor.

“Estimates show that the poorest 40 per cent of the population consume just three per cent of gasoline. “Fuel subsidies are killing the Nigerian economy, costing Nigeria $10 billion alone in 2022. That means Nigeria is borrowing what it does not have to if it simply eliminates the subsidies and uses the resources well for its national development,” he said. The AfDB President suggested support be given to private sector refineries and modular refineries to allow for efficiency and competitiveness to drive down fuel pump prices.

Other areas he wants the new president to tackle with immediate effect include the high cost of governance. “The cost of governance in Nigeria is way too high and should be drastically reduced to free up more resources for development. Nigeria is spending very little on development.” Professor of Finance and Capital Markets at the Nasarawa State University, Keffi, and the current President of the Association of Capital Market Academics of Nigeria, Prof. Uche Uwaleke, advised the new government to address the unemployment situation in the country.

Tackling unemployment, according to the former commissioner for finance in Imo State, will be like using a stone to kill several birds. “Addressing unemployment, in my view, should be the focus of the next administration. It’s like a silver bullet to tackle many other challenges. “More jobs, especially in the productive sectors, would translate to lower inflation and reduced insecurity. For this to happen, the key binding constraint, which is power, must be fixed.

You will agree with me that all these speak to human capital development, namely functional education, health, and sustainable jobs. Without stable electricity, very little can be achieved in these critical areas. I think the current plan to decentralise. power and encourage off-grid solutions by state governments and the private sector is a step in the right direction. So, I expect the incoming administration to continue with it. Indeed, continuity is crucial if the country is to make progress in developing productive capacities.

The good news is that there is now a medium-term National Development Plan (2021-2025) as part of a perspective plan known as Agenda 2050. What this means is that the new government already has a working document to work with, which gives it a head start. “I advise the next administration to make efforts to reduce budget deficits, including by plugging leakages. The current unwieldy size of the federal government should be trimmed. For goodness sake, this country does not need as many ministers as we have today.

The number should be reduced to 37 since the Constitution makes provision for ministers drawn from each state of the federation and the FCT. The number of ministries can also be pruned to less than the current 28 through merging related ones.” Speaking on foreign exchange management and other related troubling economic policies, Uwaleke proposed that the “the National Development Plan recommends harmonisation of multiple exchange rates as well as fuel subsidy removal among measures to achieve macroeconomic stability and fiscal consolidation.

It’s a no-brainer that multiple exchange rates encourage round-tripping and are inimical to capital inflows, while in the case of the latter, it has promoted opacity in the operations of NNPC Ltd. as well as contributed significantly to worsening the government’s fiscal position through increased borrowing. “So, both are undesirable and need to be phased out. It’s equally important to advise that the CBN’s independence in the conduct of monetary policy should be respected by the incoming administration.

While the issue of fuel subsidy removal is within the purview of the government, issues to do with maintaining price stability, which include exchange rates, should be left to the CBN. “In this regard, the new administration should set up a Fiscal and Monetary Policy Coordinating Committee, comprising seasoned finance experts and economists, saddled with the responsibility of synchronising fiscal and monetary policies.”

A new era beckons

President Tinubu isn’t oblivious he is inheriting an economy gasping for air when Nigeria’s leadership baton was handed over to him on May 29, 2023, by former President Buhari. Tinubu inherits a struggling economy with record debt, shortages of foreign ex- change and fuel, a weak naira currency, nearly two decades of high inflation, skeletal power supplies, and falling oil production due to crude theft and under- investment.

The former Lagos governor said he didn’t deserve pity for job he set out to do. At his swearing-in on Monday, he vowed to expand the economy by at least 6% a year. He pledged to lift barriers to investment, create jobs, and unify the exchange rate, while also tackling rampant insecurity. “On the economy, we target higher GDP growth and to significantly reduce unemployment,” he said, adding that this would be achieved through budgetary reform, boosting power generation, and improving food security.

“I have a message for our investors, local and foreign: our government shall review all their complaints about multiple taxes and various anti-investment inhibitions,” he said. In addition, he promised to halt fuel subsidies and conduct a thorough house- cleaning of monetary policy, adding that the central bank should work towards a unified exchange rate. “This will direct funds away from arbitrage into meaningful investment in the plants, equipment, and jobs that power the real economy,” he said, among other key economic reforms to be entitled.

Last line

Nigeria’s economy is set to witness a major paradigm shift with President Tinubu’s hands on it.

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