Nigeria: The unending economic reforms

When President Goodluck Jonathan introduced his transformation agenda upon assumption of office, I was elated. I thought someone was getting it right at last. Nature transformed the country from an agrarian economy to an oil-dependent economy and someone was going to take us away from that to the industrial revolution, a kind of transformation, even if the foundation would be based on oil. That is what Justin Lin called comparative advantage following development strategy; whereby your production is largely based on the domestic endowment. I was wrong. Someone must have sold the word transformation to the President without disclosing his intention. As it turned out later, Jonathan was to transform the lives of some Nigerians from “sandal-less” to “high-heeled shoes” or from landless to sky-scraper ownership.

Fortunately, at that time, the resources were flowing, and crude oil was selling above $100 per barrel most of the time. That was in addition to the huge foreign reserves and sovereign wealth funds he inherited from Obasanjo and Yar’Adua. It was easy for him to achieve the desired human-centred transformation. Newly minted corrupt politicians emerged with brazen effrontery and more sophisticated tastes. The older generation of looters were envious and struggled to get themselves back in the fold. Some of them were eventually accommodated. By the time Jonathan lost the election of 2014 with the ensuing open confrontation on how the PDP bigwigs shared the election campaign largess, it became clear to uninformed Nigerians that the country’s finances and economy were in the hands of pen robbers. It was an infamous period in modern Nigeria.

The economic reforms during the time of Obasanjo produced the National Economic Empowerment Development Strategy. It was a reform backed by the World Bank, IMF, and United Nations Development Programme. The economy grew not because of the reforms but because of continuous oil production improvement and international prices. It was a period characterised by jobless growth. Actually, the reform was to find a way of promoting employment through agriculture and small-medium scale businesses. The NEEDS came a bit late and it was a medium-term growth programme couched in the garb of neo-classical economic doctrine or capitalism. It was not mounted for development which requires long-term or sustainable programmes.

President Umaru Musa Yar’Adua introduced his reform tagged seven point agenda. It had the same framework as the Obasanjo’s NEEDS but also included food security, transportation, power, and energy. It was to form the basis of his VISION 20:2020 which he did not live to see its conclusion. Of course, Jonathan did not continue with the seven point agenda but introduced his own transformation agenda. He allowed the conclusion of the Vision 2020 and shelved the document to continue with his transformation agenda or reform Yar’Adua’s agenda. By the time President Jonathan ended his tenure in 2014, he had frittered away about N92 trillion oil money and accumulated new foreign debts, as well as, shared the billions of naira to PDP party leadership for elections and incidentals. The economy was in recession arising from mismanagement and unprecedented knee-deep corruption, leaving his successors with no option than another economic reform.
President Muhammadu Buhari’s government of All Progressive Congress assumed office confused about what to do with the power entrusted to his hands by Nigerians, as it took him about six months with pressure to inaugurate his ministers. That delayed whatever economic reforms were required to lift the country out of the recession. The COVID-19 that shook the global economy in the year 2020 further compounded the Nigerian economic woes with incompetent managers in charge.

Multiple reforms were later introduced with the help of the World Bank and IMF but without success. The monetary policy and fiscal policy managers were working independently of each other with resultant policy ineffectiveness. The economy lived on borrowed funds from domestic and foreign sources for payment of wages and salaries and government consumption. It was the most unproductive, highly indebted, highly corruptive, and highly deceptive economy. The President who was voted on the basis of bringing down corruption left the stage with a hydra-headed monster mafia of different shades. The major source of revenue was mortgaged in a manner Yorubas call paro or trade by barter, or in a more refined language; counter trade. The government left an economy that reforms would not correct but transform.

When President Bola Tinubu, at his inauguration on May 29, 2023, declared that “subsidy is gone”, I thought the transformation of the economy had started. I felt that the fight against corruption and the oil sector mafia had commenced. Finding out later that there was no prepared policy to counter the expected shocks that would result from the subsidy removal made me conclude that the statement was a mere statement of illusion. When a few months later, the second major policy of harmonisation of the foreign currency markets was made, it became clear that we were back with the doctrine of free market forces. The laissez-faire economy with a foundation in the neoclassical economic doctrine normally imposed by the World Bank and IMF, with serial economic reforms failure in developing countries whose economic structures do not support free market mechanism. It is the same doctrine that we have been pursuing under different political regimes.
What Nigeria needs is not economic reforms but economic transformation, The economic managers should emphasise production rather than a rental economy whereby revenue is generated through taxation and levies. The production focus has to change from the extractive sector to the industrial sector. In this case, the outputs from the extractive sector would be the feeder for the industrial sector. The economy should transform from primary product producers to value-addition producers. The transformation should recognise producers and consumers as deserving of financial support in the form of indirect financial subsidies.

Let us explain. Transforming the economy from agrarian to industrial will require that small and medium-sized industries convert by-products of the oil refineries to multiple finished products like liquid motor oil, servicing oils, bitumen, etcetera. SMEs should be given start-up funds at concessionary rates through the Bank of Industry with a tax-free period of three to five years. The same policy should be extended to SMEs converting agricultural products to manufactured products.

Existing large-scale companies should also be given some tax rebate if they can expand the business to meet up to a pre-determined minimum level. Giving tax relief to the oil companies like Dangote is unnecessary but allowing such companies to buy crude oil at some concessionary price and in naira is the way to go.  Asking local industries to buy domestic raw materials is like killing the domestic currency with the pressure of looking for naira to exchange for foreign currencies.

 The practice of placing taxes on exports discourages export activities and needs to be reviewed to avoid extinction. It is not the way to encourage exports unless the country wants to discourage exports of raw materials, but it must create markets for value addition of these products. The announcement that the government wants to discourage exports of raw materials must be backed up by the promotion of the existence of value-addition private or public-private industries.

The way the Dangote Refinery management was able to meet the timetable for the production and marketing of its products shows that the NNPCL is headed by incompetent management. It promised that the Port Harcourt refinery would start production and failed more than three times. It is clear that the management deserved to be changed totally and replaced by more competent hands with the company further privatised through public offer of its shares to run it as a truly public company. The present management must be made to account for all the funds they have expended on the repair of the refineries that are not working. By the same token, the accounts of the company should be audited by credible auditors.

Finally, we need to realise that consumption or effective demand will promote production which invariably results in employment generation. There is a need to review worker’s tax rates downward to increase their take-home pay and improve consumption of products. The high level of inflation arising from rising prices of transportation, energy, and other basic needs has eroded the income from the minimum wage and will have negative effects on consumption. Transformation of production is what the economy needs, not unending reforms.