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The first 100 days of the Tinubu government will go down as some of the most frenetic in Nigeria’s history. Certainly, it is almost as if this government is trying to compensate for the languid pace that has characterised policymaking in the last two decades. Marked by a flurry of changes to existing procedures, and interventions that look like having the potential to broadly improve governance, the government struggles to flee from the charge that the most important of these initiatives have an improvised feel to them. Understandably, concerns have also been expressed as to the pitfalls to the reform effort from improper sequencing.
For instance, should the new government have removed the subsidies on petrol before making the downstream sector’s supply chains more flexible? Without addressing the latter constraint, price signals will not elicit the desired optimal supply responses. Nor will the market reach a useful equilibrium very soon. Should it also have floated the naira before fixing the perverse incentives from the central bank’s fiscal repression policy? Negative real interest rates having been implicated in the dollarisation of the economy, a free floating local currency will be driven to distraction without first fixing the monetary transmission problem.
While the immediate consequences of the reforms have included a lot of confusion, much of the associated colic is just so much quibbling. For too long, successive governments in the country, especially since the current assay at democratic rule launched in 1999, have held off implementing reforms because of a fixation on process. Barely able to discern the trees from the woods upon taking office, mission creep soon erodes whatever room new governments have for manoeuvre. In this context, a central advantage of the “Big Bang” announcements that the Tinubu government has made is their apparent irreversibility.
Now work may begin on addressing the processes without which those announcements will not amount to much, and at worse, may compound an already sickly economy. The discontinuities between the central bank’s policy rate and retail rates in the financial services sector matter for the success of reforms to the foreign exchange market. Similarly, positive real interest rates will be necessary for attracting deposits and discouraging lending
both required responses from the market, if monetary policy is to have any chance of reining inflation in. The rates dynamics will also matter if the eventual return of the asymmetric cash reserve requirement (CRR) “recovered” by the Central Bank from commercial banks is not to drive banking sector liquidity higher still. As they will be for attracting both foreign direct and portfolio investment. A big problem for non-resident investors over the nine years that Mr Emefiele ran the central bank was how to repatriate profit from their local operations to non-resident shareholders.
However, the part of the conversation over the pace and trajectory of the economy that matters more, is where we begin to acknowledge that the Nigerian economy is unlikely to pick up pace simply because of the reform initiatives recently put in place by the Tinubu government. An increase in the trend growth rate of domestic productivity matters far more for the domestic economy’s outlook. This process will benefit from investment in new technology, equipment, processes and factories. Along this path, the reduction in the cost to businesses, both big and small, of plying their trade, is a task that this government will need to accomplish with far more brio than any of its predecessors ever did.
It is easy to describe this task in terms of both better industry regulation, a slimmed down, more focussed, and therefore more efficient public sector, and the removal of the many oligopolies that currently sit at the intersection of government and the private sector (this will require razing barriers to entry and exit to businesses in nearly all sectors of the economy) in the country. In addition the police, the judiciary, the army, our local government administrators, all have to be nudged to learn to support level playing fields across the economy.
If the larger point of these additional adjustments to the organisation of the local economy is to help improve the returns to domestic investment, a small part is about smoothing out economic outcomes in a way that encourages domestic economic units to save more. Of the sundry uneven playing fields that currently constrain domestic economic activity, education is, unfortunately, the most glaring and mission critical. We have far too many eligible nationals out of school, not undergoing (indeed who have never gone through any) training, and all out of (again a sizeable number have never been in) work. Then there are questions as to how fit the current school curriculum is for the purpose of jumpstarting the economy.
Are we sufficiently invested in the processes, institutions, and persons that will boost education across tiers in science, technology, engineering, and mathematics? Can we begin to teach programming and coding skills from primary through secondary school? The questions are myriad, and how the answers influence themselves often unclear. But we have not scratched the surface of the problem of how to fix this economy.
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