The Nigerian economic crises: Before it is too late, By Akpan H. Ekpo

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Reading Time: 9 mins read

The Nigerian economy is at its lowest point since Independence. All the macroeconomic fundamentals have been moving in the wrong direction, and the performance of various sectors is nothing to write home about.  The eight years of President Muhammadu Buhari, with the APC mantra of ‘change,’ was a disaster in terms of economic performance. The rate of unemployment averaged 40 per cent from 2008 to 2022, with the inflation rate trending at double-digit and approaching a run away level. Lending rates averaged 26 per cent, with the misery index standing at 86 per cent in 2022.

Since independence, the manufacturing sector has never contributed more than 10 per cent to GDP. Broadly speaking, the Nigerian economy remains at the primary stage of development, in spite of an average growth of 6 per cent between 2017 and 2022, and notwithstanding the two economic recessions of 2016 and 2020. The economy has been in a stagflation phase from 2010; and recessions are common features in economic systems that depend heavily on the market; that is, market capitalism.     

The Buhari administration approved a development plan for 2021-2025 and an Agenda 2050 economic blueprint. The new administration of President Ahmed Bola Tinubu, in assuming office on 29 May, 2023, came up with a seven-point priority within its Renewed Hope Agenda. Most of the priority areas are embedded in the approved economic development Plan 2021- 2025. Moreover, the same party, APC, is in power. However, there seems to be a disconnect between the APC of President Buhari and that of President Tinubu. My concerns centre on the pieces of advice given to President Tinubu in implementing his Renewed Hope Agenda under the so-called ‘Bold Reforms’. 

The implementation has resulted in untold hardship to millions of Nigerians who were already suffering under President Buhari. The entire reforms rest on market fundamentals coated with neo-liberalism and the Washington Consensus. Let me argue upfront that neoliberal policies will not solve the economic problems of Nigeria. It should be stated that countries in Asia rejected neo-liberalism garnished with pieces of advice from the World Bank and the IMF in order to leapfrog into sustained growth and development. The newly industrialised countries of Singapore, Malaysia, Indonesia and China rejected the World Bank/IMF prescriptions. These countries conceptualised, formulated and implemented home grown solutions to escape from backwardness and underdevelopment.

The World Bank and the IMF have become too visible in our appetite for advice. Their one-size-fits-all policies must be rejected if Nigeria is to make progress. Let us not forget history. We implemented the Bretton Woods model of Structural Adjustment Programme from 1986 and the Nigerian economy was in disarray up to 1988 and beyond. It took Chief Anthony Ani, the honourable minister of Finance under General Abacha to salvage the economy by conceptualising and implementing the philosophy of 

guided-deregulation.

 During the period of Chief Ani, macroeconomic fundamentals such as exchange rate, unemployment and inflation rates moved in the right direction, prompting some observers to label the period the 

Abacha Miracle

. I will suggest that the present economic team seeks the wise counsel of Chief Anthony Ani.

On 29 May, 2023, it was wrong for the President to pronounce that “oil subsidy is gone”. It was unnecessary, for after all there was no oil subsidy (which was a scam) from June, 2023. Economists call such a situation an “announcement effect”. That single error sent the entire economy into the panic buying of petrol and all prices, as I predicted in 1996, went up by more than 400 per cent, exhibiting structural inflation. The Nigerian economy depends structurally on the export of crude. The country would have been better off with the refineries functioning, finding better ways of intervention, as well as punishing those who benefitted from the oil subsidy scam. It is important to state that those who are against subsidy benefit from subsides of all kinds; for example, the IMF, World Bank and the United States economy have different kinds of subsidies. The elites in Nigeria benefit from all kinds of subsidies that are too numerous to mention.

Another area of concern in which the President was not properly briefed was the exchange rate regime. It was wrong to open up the foreign exchange market and merge the so-called I&E window with the street rate(s). In the Nigerian context, the foreign exchange market is not a competitive market. The supply of forex in US dollars, euros and pounds sterling (including the market of access) is never enough to meet the demand. The supply curve of forex is not a well-behaved one. The main source of forex supply is through the export of crude petroleum, whose revenue is used to import refined products (this makes no sense!). The domestic currency, the naira, is not a convertible currency, so its depreciation/devaluation would bring no benefit to the economy. All things being equal, the depreciation of the naira should make our exports cheaper and thus the economy can export more to earn forex. However our main export is crude petroleum whose price and output are exogenously determined.                     

Our economy is both not developed and industrialised, hence forex is not earned through the manufacturing and exporting of non-oil goods and services. The economy is more of a consuming one. Hence, the depreciation of the naira has resulted in rising inflation through the exchange rate pass through. Inflation now stands at 28.2 per cent, with food inflation at 30 per cent, thus compounding the already unbearable hardship on millions of Nigerians.

The Nigerian economy is presently not a normal one. For now, the appropriate exchange rate regime should be a 

managed float,

 with emphasis on 

managed.

 The regulatory authority must watch both the supply and demand side of the forex market and make adjustments accordingly. Opening the forex market would result in distortions and shocks, which the economy cannot absorb. The competitive market model is only a benchmark – all markets must not be competitive. Let us not forget that equilibrium in competitive market must exhibit stability, existence and uniqueness – these are impossible in reality, not to talk of the forex market in Nigeria, given the structure of the economy. Nonetheless, the long-run is to have a productive economy which is diversified, manufacturing non-oil goods and services for exports and earning foreign exchange.

The recent trade data from the NBS cements the argument. The trade surplus was driven by the export of crude petroleum (83 per cent of total trade); manufacturing imports (42 per cent of total imports); manufacturing export (about 2 per cent). Clearly, why the GDP is diversified (46 sectors), the economy is not.

Nigerians have been told to tighten their belts, to be patient and that soon the economy will recover. The ‘reforms’ are not in the interest of the working people and other vulnerable groups. Trickle down economics is inappropriate in an economy that is at the primary stage of development. How long is the long-run – in the long-run, we are all dead! The private sector may reap some of the benefits from the current intervention by government. However, while the private sector is one of the engines of growth, it is not an engine of development. The primary objective of the private sector is to realise returns on its investment. Development is the main objective of government.

Consequently, President Tinubu’s economic team should not allow, as it is happening, businessmen and their various pseudo organisations to become policy makers. Their motive is essentially profit making and accumulation for themselves and their families by capturing the state.

There is too much emphasis on raising/increasing revenue. The government plans to raise the tax/GDP ratio to 18 per cent within three years. The country’s problem is not from the revenue side, if more taxable persons are brough into the tax net. In addition, if all the subsidies given to the rich are withdrawn and paid into the treasury, there would be enough revenue to run the government. The fiscal rascality of government rests on the expenditure side. The political class – the Presidency, ministers, members of the legislature, as well as other political appointees must govern by example.

As part of reducing the cost of governance during this period, salaries and allowances of the political class should be reduced by 50 per cent. The purchase of luxurious cars for members of the National Assembly and other political appointees make mockery of the Renewed Hope Agenda. It clearly demonstrates the insensitivity of the administration to the sufferings of the people. There should be a moratorium on new borrowings while discussion on rescheduling external debts should be on the table.

It is an open secret that an economy must not only grow double-digit but such growth must be sustained for at least 15 years to have a dent on poverty reduction. Growth is only a necessary condition for economic development. The Nigerian economy exhibits positive growth rates, though less than the population growth, yet major economic fundamentals such as unemployment, inflation, lending rates, deficits, debt/GDP etc. have been moving in the wrong direction over the years. The positive impact of growth on poverty reduction is very marginal. What is required is the implementation of concrete projects and programmes to move millions out of poverty. Market forces would not reduce poverty even in the long run. In fact, market forces need poverty to intensify primitive capitalist accumulation.  

It is sad and disturbing that the intellectual and emerging middle class are now part of the multidimensional poverty in Nigeria. To have the intellectual class in poverty, coupled with the already reserve army of the unemployed, is dangerous for the country. Something must be done before it is too late.  

The administration of President Bola Tinubu is committed to sanitising the Central Bank of Nigeria. Let me state upfront that CBN’s autonomy is a sine qua non for macroeconomic stability. We should not throw away the baby with the bath water. Amending the CBN Act to allow for a Chairman of the Board would create serious problems for the economy. In our context, if the Chairman is a politician, it would portray danger regarding his role with that of the Governor of the Bank. There are several reasons why the CBN Governor is also the Chairman of the Board. The economy is dynamic, hence certain decisions on the monetary side of the economy, like the exchange rate issue, may require quick decisions; the CBN is banker to government; the issue of ways and means; ensuring confidence to both domestic and foreign investors, among others.

The board of the CBN should have very few politicians – same for the Monetary Policy Committee (MPC), which is the engine room of the bank. However, the Governor and management team should deliberate on how best to involve the branches, which are essentially cash centres, in policy making. The zones and/or states in the country are not homogenous in terms of economic activities. The branches should be part of the economic policy process than being mere cash centres.

of government to restore recovery. The economy is sinking and reliance on the private sector and market forces would further deepen the crisis. There are forces more powerful than the market, for example the World Bank and the IMF with their one-size fits all approach. Sometimes, the market has to be created but for now it could be used as an instrument. 

The CBN must exercise caution in requesting banks to recapitalise.  It would not be wise to force or direct all banks to recapitalise because the economy has entered a trillion naira phase. Incentives should be created such that banks willing and able to take advantage may do so; directing all banks to recapitalise at this time would result in mergers and acquisitions, which would lead to further unemployment and uncertainty in the banking and financial sub-sectors in the short and medium terms.

Before it is too late, notwithstanding all pieces of advice given to the administration of President Bola Ahmed Tinubu, the following needs urgent attention:

Fix power (electricity). No economy develops on generators. For now, power supply remains epileptic for businesses and individual usage. The epileptic power supply is affecting micro, small and medium-scale enterprises – the engine for growing the economy. Let constant power supply be one of your legacies. It is not rocket science.

Fix the security situation in the country. No serious investor (foreign and domestic) would be attracted to the country given its present security challenges. Nigeria is not the only destination for investment. Those foreigners who have dual citizenship would come to the country, change their US dollar and/or pound sterling into millions of naira and open fast food businesses and supermarkets. What the economy needs is factories, which would manufacture goods and employ thousands of Nigerians. Solving the security challenge would return and reinvigorate the dwindling agricultural situation; farmers would be able to enhance production, thus lowering food inflation.

Fix the oil refineries. It remains shameful that an economy with three refineries imports finished petroleum products. The import of petroleum products gulps almost two-thirds of our foreign exchange reserves. In the 1980s, the refineries exported finished products. Once the refineries are functioning, the challenge of supply of PMS and relevant products would be partly solved. Though prices are sticky downwards, the price of PMS would decline, thus affecting prices of all other goods and services.

The economic crisis requires the 

Visible Hand 

of government to restore recovery. The economy is sinking and reliance on the private sector and market forces would further deepen the crisis. There are forces more powerful than the market, for example the World Bank and the IMF with their one-size fits all approach. Sometimes, the market has to be created but for now it could be used as an instrument. 

The economic philosophy that can ensure urgent recovery is that of a developmental state economic blueprint, which implies the visible hand of government in economic activities. President Tinubu exhibited this in Lagos State when he fully supported and invested in the GSM network, which is today’s Airtel. Government went beyond the enabling environment scenario as Lagos, Akwa Ibom and Delta States invested heavily in the GSM network, thus solving the telecommunication problem which the private sector alone was unable to address. Today, the GSM is private sector owned but government was the catalyst. The present economic realities support a public sector led economy which may later become private sector driven and/or a public-private partnership.

 

A visionary and transformative leader must give the people hope. Let your administration, Mr President, walk the talk through concrete action, so that your Renewed Hope Agenda does not become renewed misery.  

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