During the Asian Financial Crisis of 1997-1998, South Korea faced severe economic hardship, which led to a national crisis. In a remarkable display of collective sacrifice and patriotism, many South Koreans donated their personal gold items such as jewelry and family heirlooms to help the country repay its debts and stabilise the economy. This effort raised billions of dollars and played a crucial role in the nation’s recovery. Some South Koreans took voluntary wage cuts, unpaid leave or reduced working hours to help companies stay afloat during this economic downturn.
Would Nigerians do the same for Nigeria during these tumultuous times? Simple answer is No. The political class and elite have failed in exuding fiscal prudence which has led to a vote of no confidence demonstrated through the August protests.
Erstwhile Presidents Dr. Goodluck Jonathan said he had no pair of shoes growing up, Muhammadu Buhari said he lived in a mud house in Daura, Labour Party Presidential candidate in the April 2023 elections Peter Obi said he has only owned one watch in 17 years. Former British Prime Minister Rishi Sunak said his family couldn’t afford the “luxury” of cable television when he was a child, while the current British Prime Minister Keir Starmer said he would rather queue on the NHS waiting list than take a loved one for surgery in a private hospital.
Politicians tend to always participate in poverty Olympics when pandering to their electorate. But when asked about the source of his wealth in a BBC interview in 2022, President Bola Ahmed Tinubu likened himself to Warren Buffet – saying “his investments have yielded great value and he will not deny his wealth”. Just as he owned up to his affluence, he needs to understand that the government’s out of touch optics may not buy him the time for his reforms to yield similar ‘dividends’ on the lives of Nigerians.
During the course of the election, the President said he was going to hit the ground running – which he did. On the first day he announced the discontinuation of petroleum subsidies. Months later, the federal government devalued the currency seeking to find a convergence between the official and the black market. He then went on to appoint the Fiscal policy partner and African tax leader from PWC, Taiwo Oyedele as the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms.
After embarking on trips seeking to attract capital from the New York stock exchange, the UAE and India, whilst exploring gas trade deals with the German government – market participants and economists saw his vision. The President wanted to kickstart an economic revival on the pillars of oil and gas, FX inflows and a simplified taxation system.
After one year, how has that worked out?
Nigeria has not grown its wealth in almost two decades. It has stagnated and while the cushions of subsidies and interventions protected the citizens from its reality, it was only a matter of time the smokescreen would dissipate.
One year ago, the general assumption from economic experts, was that the reforms would be the catalyst for a more liquid financial economy which would provide a solid base for wealth creation and prosperity for Nigerians. By removing fuel subsidy and deploying oil earnings into infrastructure, education and health, human capital development which is usually the prerequisite for economic growth would be prioritised. However, when you look at the macros, revenue generation capacity, alongside Nigeria’s debt obligations and FX liabilities, the last six months has painted a different picture on the objective of the reforms.
If you were driving a fuel tanker with brake failure on a highway, the most recommended option every responsible driver would take would be to drive towards a pavement either side of the road to avert a major accident ahead. The reform the current administration has embarked on is the equivalent of driving towards a pavement to avoid a much larger economic crisis that would make Argentina and Venezuela empathetic towards the West African giant. The reason for the discrepancy of reform expectations lies in the value of the dollar. The government assumed the fair value of the dollar was N750/N800, but the structure of Nigeria’s import-dependent dollar-demanding economy means N1500 is more of its fair value.
One thing people tend to underestimate is that there is no bottom for how low an economy can decline. The economy is not like a stock, it’s like a derivative contract – you have to set your limit when the trend has gone against you.
The boomer Nigerian generation has spent pounds as an official currency, and they have witnessed the naira trade equally to the dollar. They’ve also seen the naira depreciate and stabilise at N150 to a $1. They’ve experienced it at Godwin Emefiele’s artificial and pegged N400 and they are experiencing it at Cardoso’s liberated N1,500 region. Something had to change, or else Nigerians would get nostalgic of today’s rates when the dollar trades at N5,000.
What would Nigerians consider as success for this administration?
Fed Govt moves to implement naira crude sales initiative for local refineries
There seems to be two sides of the divide. Some Nigerians would view success as “fuel at 200 naira, the dollar trading at N450, a bag of imported rice at N15, 000” etc. Other Nigerians would view progress as a stable currency, an enabling business environment that would create jobs where rice and locally refined fuel is affordable for all. The former scenario as we have seen is unsustainable and costs the country billions of dollars that unfortunately does not exist anymore. The latter scenario is how most countries are run.
But there are questions on how the government intends to turn around the corner. The fuel tanker is stuck at the pavement now, so how does the FG kickstart the engine? Does the government still believe the dividends of the reforms would still yield prosperity or are they open to the unpalatable possibility that the reforms were not meant to yield anything but just to cut the country’s losses?
These are questions the Minister of Finance who doubles as the Coordinating Minister of the Economy would have to answer. As a first time Minister, Mr. Wale Edun would presumably have spent the first few months taking stock of his own MDAs and other ministries while having sleepless nights over the country’s debt to revenue ratio, and coordinating the economy to respond to the reforms his new government has delivered.
He would juggle the aforementioned with seeking different avenues of revenue to fund the country’s needs as well as responding to the unintended consequences of everything not panning out as designed. Uneasy lies the head that wears the crown for the President’s most trusted ally. How does he build the economy from brick to brick? Where does the country start from? What does Nigeria have going for itself that it can use as a springboard? Is it time to reposition NNPC in a way that better serves the country and not individual interests?
The Central Bank governor, Olayemi Cardoso seems to have steadied his own ship. There has been an empirical rise in FX inflows as he battles to fix a broken FX management system. Convergence of the different exchange rates looks more likely to be achieved although it has come at a cost that has decimated the purchasing power of Nigerians. But there is a much bigger battle in inflation. The United States Federal Reserve chairmain Jerome Powell would have some sympathy for him.
Would his successive interest rate hikes have the desired effect on Nigeria’s sticky inflation? Some quarters suggest high rates have stifled the lending environment for businesses thereby increasing the cost of capital which in turn is making goods expensive. Some wrongly say monetary policies are inefficient as the issues are more structural/fiscal, but what does conventional economics say?
It appears some solutions lie in the proposals of Mr. Oyedele who began his task with interacting with Nigerians at home and abroad to discuss some of his ideas that may liberate some of Nigeria’s potent economic challenges. There are plans in his reforms on how the country would eliminate informal and implicit taxes, harmonise tax administration, rationalise tax incentives, leverage technology and big data, modernise customs administration, simplify compliance, optimise resources and government assets.
The proposals also discuss how the country can budget better – Restructure the budget (classify items under infrastructure; human capital investment; personnel cost, headcount and productivity; administrative overheads; debt service and sinking funds), while fully implementing zero based budgeting, and introducing long term appropriation. This would be in line with spending better, tackling systemic corruption, prioritising spending on basic needs to address multidimensional poverty, restricting borrowing to productive spending and self-financing projects, leveraging PPP and equity financing for viable projects, while enhancing public procurement effectiveness.
Nigeria would be better off if the government finds ways to leverage technology for revenue, debt, and expenditure management while adhering to fiscal rules and benchmark with strict penalties for violations, it would be essential in building a solid foundation for the country.
The question is when would these plans come into fruition? Are there legislative and political hurdles in the implementation phase that the President can use his almighty political capital to scale? What timeline can they give Nigerians that things would get better?
Time would tell with how everything shapes up as the government seems to be running on little time to resuscitate the economy. That time can be extended by low hanging fruits and most importantly, fiscal prudence. Tick tock.
•Dapo-Thomas, a public affairs commentator writes from Lagos
