By: A.G. Abubakar
There is a parallel between managing a distressed economy and going to war. In both situations, the choice of the battles and fronts to be attacked should be based on such principles as critical paths analysis, existing capacity (men, material, terrain) of the “foe” and available options. Choices are usually informed by the desire to bring about the greatest success with the least losses and hardships.
In reforming an economy , the fundamentals and options could pass for the contentious battle grounds that calls for delicate choices and the prioritisation of same. Students of Economics, on the whole, actually define it as “a science of scarcity and choice,” with principles and precepts that have proved to be very handy in policy formulation and implementation. This, the handlers of the Nigerian economy all know even as they put “too much” and atimes conflicting recipes on the reform plate. They need to weigh some of their options further.
Opening so many battle fronts at the same time usually leads to avoidable disaster, or needlessly put people’s wellbeing in more jeopardy or harm. A sort of economic phyric victory. It is the possibility of this scenario that brings to question timing and propriety of some of the government’s macroeconomic reform programmes. Specifically as regards to some of the monetary and fiscal policy elements.
Over the last one year the government tinkered with interest rates more than four times, devalued the naira by over 50%, raised some levies/charges on a wide range of consumer goods, increased the tariffs on power and even tuition fees. All at the same time in a nation where over 60% have been battling multidimentional poverty for over a decade. The government’s intention may be altruistic but it smacks of policy coordination challenges.
Almost all Nigerians are basically agreed that at the time Buhari left office, on 29th May 2023, the Nigerian economy was in dire strait. After heavy borrowing and undertaking what professionals call “money creation,” a euphemism for unorthodox currency printing, which is believed to be in the region of N35 trillion! He went on to sell or rather morgage the nation’s crude in advance to address the government’s grinding insolvency. President Buhari even contemplated removing the opaque fuel subsidy payment after reaching his wit’s end but found it too dangerous to carry out for two reasons or so. First, it would have the last straw to break the highly fragile economy into free fall capable of triggering a mass uprising. Second, the Petroleum sector was the cash cow for the Boys; the Aso cabal, and cronies.
The NNPC in cohort with the CBN became the PMB’s darkest spots on his administration. Most of the economic fundermentals were being managed through what could pass for “first aid” (short term interventions through ways and means). If the national economy were to be a vehicle, it had a “knocked engine” with half of its four tyres flat. In statistical terms the GDP growth stood at less than 2%, inflation was 27%, youth unemployment was 33%, interest was 19/22% and the value of Naira was deceptively around N700 to the dollar. A debt stock of over $114 billion with a concomitant debt-service to government revenue ratio of over 90%, completed the gory picture of the economy by mid 2023.
Even crude oil, the main source of the nation’s foreign exchange wasn’t spared of the government’s “manipulation.” Using the cover of the Africa Export-Import Bank (Afreximbank), the NNPC mortgaged future crude output worth $3.3 billion in a “cash-for-oil” deal, with 11.85 interest add-on. The insurgency in the North East was believed to be “technically defeated” though many enclaves remained unsafe and ungoverned.
By the time President Buhari left office the gains in the North East has gotten offset by a rise in deadly terrorist activities and banditry in the North West region. A crisis that has since debilitated economic activities, especially agriculture and commerce in the region and states. This is aside the thousands of lives needlessly lost. Tinubu took over in this trying period. And as it would be expected from a citizenry that has been under serious socioeconomic challenge, they looked up to him with a lot of optimism and hopes. In addition, Tinubu and his “boys” have been hyped for “transforming” Lagos and so would bring the “magic” to bear at the center.
One year plus, down the line the high hopes have given way to justifiable cynicism and apprehensions. Many discerning Nigerians have agreed with the fact that difficult and hard economic decisions needed to be made including the removal of fuel subsidy, with the understanding that a “social safety net” (plan B) had been worked out, ab initio. Endemic corruption too, which was Buhari’s weakest point, it was felt, would be tackled head-on. The same benefit of doubt was held by many in dealing with the insecurity across parts of the country. It would be naive to believe that corruption and insecurity could be eliminated in a span of one year or thereabout, but long enough for promising interventions to become apparent and latently felt across board. This does not seem to be the case.
Turning around the fortune of a highly stressed and vulnerable economy as currently obtains in Nigeria, could be very onerous. Especially within the context of a volatile global capitalist economic system. Success in the circumstance depends on delicate policy choices, managing economic tradeoffs and ensuring overall balances in applying the conventional tools available to policy makers. They are the brake and throttle systems of the economy that needs to be applied harmoniously.
The basic and fundamental ones being the monetary and fiscal ones. A nation’s CBN or Reserve Bank has the primary responsibility for the monetary while the finance Ministry/Department handles the fiscal. The basic monetary tools for a developing economy like Nigeria are the interest rate, exchange rate and credit supply in relation to such macroeconomic objectives as inflation, unemployment, productivity etc. The appropriate manipulation of these variables could make or mar a national economy’s performance.
The corollary of the monetary policy is the fiscal one run under the purview of government dealing with government revenue and expenditure. The common tools used include taxation, tarrif, levies, subsidies etc among others. The effective synchronisation application of the two macroeconomic policies and inherent tradeoffs and opportunity costs is what set a side a performing and a struggling economy.
Tradeoffs exist within and between both policies, that should be managed diligently. For illustration, under the monetary policy, raising interest to tame inflation (liquidity mop up), could raise the cost of borrowing with the potential of discouraging investment and ultimately stagnate economic growth. No growth, no employment opportunities. Poverty ensues. The same thing in raising exchange rate ( and devaluation) when the economy produces little and the nation is import dependant. It builds inflationary pressures from both the national and international economies and equally undermine growth. No growth, no employment opportunities. Poverty ensues. There are many other sub policies variables in between.
On the fiscal side the temptation for policy makers in government is to manipulate (increase or reduce) existing subsidies, tarrif regimes, taxes and levies. Among the arguments in favour of subsidy removal in an economy is to reduce inefficiency and engender better scarce allocations. It strives to channel resources into the most productive sectors of an economy and as well cut corruption associated with its administration. This ideal might have informed Tinubu to remove subsidy on fuel on the first hour of his assumption of office. A move not only contemplated by his predecessor but the other presidential hopefuls like Obi and Atiku. The duo vowed to remove same if elected.
Tinubu’s hope could not however materialise for maybe two factors.One, the needed plan B, to mitigate the expected negative fallout of the policy in the form of the attendant massive and devastating inflationary spirial, didn’t seem to have been worked out before hand. If it was, then it wasn’t cogent enough.
Two, the resources so freed seemed to have been “truncated”, or substantially ploughed back to address the new levels inflation induced by the eroded value of naira to still import PMS and other critical products. Subsidy thus went out through the front door and returned via the window. Metaphorically, the guest that was seen off, had simply made triumphant return, with no practical benefits to the nation. And given the centrality of fuel energy as a critical input in productive activities, transportation and services, the haphazard removal of the fuel subsidy simply a devastating cost-push inflation. A disposition that forced down the aggregate national consumption and invariably its output down, thereby stagnating the economy.
The end result became a widespread hunger and poverty as people could ill afford what was available in the market as suppliers/sellers resist lowering prices due to the need to cover costs of inputs. Cost-push inflation actually remains one of the hardest economic phenomenon to tame because it is caused by too much money supply.
The same argument for the removal of subsidy on fuel might have informed that of tariff on power. Unfortunately, like the negative consequences arising from fuel the rise in electricity tariffs simply pushed the cost of production of goods and services to a prohibitive level. Including homes, educational and health institutions. In the process, the have invariably become more impoverished. The end result, poverty. The government equally tinkered with other less apparent charges/taxes/levies that exacerbated the dwindling quality of people’s wellbeing across board.
One may not be privy to what the handlers of the economy are seeing on the dashboard, but to have decided to embark on more than half a dozen reforms on the nation’s macroeconomic fundamentals at the same time is real cause for concern. Moreso against the backdrop of the precipitous economic hardships Nigerians are facing.
Even in the best of climes policy choices and fall-out are not easy to contend with, especially the thin balance between the variables as earlier elucidated. Governments in the USA, and EU countries can ill afford to raise taxes, remove subsidies and increase tariffs on energy in one full swoop. The contradictions between them are explosive to handle by any government in power. It is therefore not surprising that the ongoing reforms have brought untold hardships on all and sundry. A fine tuning has thus become more than an imperative.
For a start the government needs to reassess its spending by stepping down cumbersome projects and also reduce cost of governance especially the budget of the legislature by about 50%. Nigeria is only rich in potential and resource endowments but poor in real terms. For a nation of over 200 million people having a GDA size that’s below $400 billion is arguably not cheering. It’s contemporaries with lesser or similar population are doing far much better economically. History has informed us over and again that India, Malaysia, Indonesia, Brazil, South Korea were on the same pedestals in the 60s but have exponentially gone ahead to transform their nations while Nigeria battles existential threats.
The economy needs emergency stimulation to give it a shot on the arm. The residual funds realised from the subsidy removal should be channelled to agriculture, mining and ICT. These are low hanging activities with high potential for mitigating economic hardships on the citizenry. There are many literature on past initiatives to draw lessons from. Policy makers should be able to work out a time and generation-appropriate framework to empower and put people back to work. America did it a program called New Deal, Europe used massive public infrastructure works programs, China used agrarian revolution, and India is currently employing agriculture and ICT to launch the ecomomy into an advanced one.
Back home modest achievements have been made with such programmes as the DFRRI, NALDA, NDE, PTF, FEAP, NAPEP, Green Revolution, OFN etc. Vital lessons could be mined from their archives to enhance current interventions. Some may argue that a lot of them failed. The truth however was that most were victims of successive governments’ policy summersult and the penchant to sacrifice existing initiatives, and create a new one just to claim credit at a huge cost to the nation. Yet others failed because of the operators have but certainly not the ideas behind such programmes. Government should revitalise and/or use the principles accordingly.
Plug the leakages in the economy by dealing ruthlessly with the corrupt officials and crooked private sector operators. A lot could be saved to fund empowerment initiatives in every local government. The starting point should be the books of the NNPC, CBN, FIRS, Military (procurements/Niger Delta operations) etc.
Agriculture and agro processing should be brought to the front banner. It is not beyond government to access farmers to timely input and chemicals. The same thing with the acquisition/fabrication of simple farm tools. It should also revitalise and rehabilitate the numerous Dams and River Basins to support the process. The value chain in this sector could go a lot way in addressing job creation, food security and poverty reduction. And save the nation the enormous foreign exchange expended on food import.
Let agriculture, mining, ICT, SME promotion take centre stage now to mitigate hardships. Hardships that three of the nation’s living former leaders, namely Obasanjo, Babangida and Abdulsalami recently had cause to collectively draw the attention of government do something about before it is too late. In the short and medium terms, social and physical infrastructure should follow. They shall be the nation’s launching pad for greatness and prosperity. However things can only work if there is a paradigm shift in attitude, starting from the top and going down.
A.G.Abubakar agbarewa@gmail.com
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