Nigeria’s Economic Awakening: Embracing Hope through Fiscal and Monetary Policies

The Nigerian economy has become too dire at the moment that any attempt to prescribe a solution leads to multiple other problems- it has become a vicious cycle, otherwise called a wicked problem. I could only imagine what races through the minds of the regulators on whose shoulders lay the problems and the heavy expectations of the millions of Nigerians who love this country and want a solution that leads to prosperity for them and their children. Reforms are not easy, it is a difficult pill that no one wants to take as it involves enforced habit changes- people rarely wish to change their habits. Reformers are also never loved, perhaps only with hindsight are they praised. The dilemma for policymakers at this point would be to court the short-term love of the people and promote our judgement day or to tackle the perennial hydra-headed economic problems and incur the curse of the people and a possibility of civil unrest. Unfortunately for them, our judgment day is here and we can no longer postpone it.

The common thinking on the street is that there is an easy way out to this situation- that there is a possibility that the government can turn on the tap of FX inflow and the country will have excess FX liquidity for everyone to play with and life goes on soft and easy. This is not true. Every human action has an economic consequence either in a positive or negative direction- no one can eat their cakes and still have them. This simplistic assumption has fueled the overtly focus on the CBN for a miracle, whereas the CBN does not print dollars and the Nigerian economic crisis is centered on FX instability- which began in the year 2013 with the global collapse of oil prices.

While the previous managers of the CBN in their wisdom sought to manage the crisis by focusing on the demand side economics, the present management led by Yemi Cardoso has focused on the supply economics and to be fair to him, he has returned the CBN to its core function of monetary policy and has not sought to interfere or intervene in fiscal policies like was obtainable in the past. He has floated the currency in the hope of unification with the parallel market and has removed the restrictions on the cap on FX spread, permitting the banks and IMTOs to transact on FX based on prevailing rates.

Cardoso has also discontinued the outrageous ways and means that have chiefly been responsible for the FX crisis and to mop out excess naira liquidity is set to auction bonds worth N2.5tr. At the same time, interest rates have risen to 18% in a bid to attract FPI investors, while this might have its effect on local investments, it appears FX stability is a necessity that Nigeria can not trade off.

While the CBN has continued to move in the right direction with swiftness, the fiscal authorities which ought to complement its efforts are either too slow or have taken a do-nothing approach. For emphasis, the CBN does not generate dollars, this job is for the fiscal authorities – the CBN only manages what is remitted to it and if nothing is remitted the CBN has little to nothing to do. Hence it is my view that the fiscal authorities must wake up and move swiftly to ameliorate what is already a bad situation

The fiscal authorities which include the sub-nationals and the FG must go beyond swinging an arm and begin to act quickly because in the long term, “we are all dead”.

Here I have listed nine measures which I think if taken by the government will ameliorate the economic condition in the country and bring stability to the economic crisis.

Austerity Measures

As quickly the FG and its sub-nationals must enforce austerity measures and reduce government expenditures to only critical investment in infrastructure. Any expenditure which doesn’t target infrastructure that affects the long-term productivity of Nigeria can wait. It is time to put a stop to unnecessary conferences, large travelling contingents, overhead costs, cash transfers and all forms of palliative which have become entrenched in systematic corruption. Constituency projects must be streamlined to target only key rural infrastructure that incentivizes rural productivity. Politicians must lead by example and stop the dollarisation of the economy-scarce FX should go to the productive sectors and not be chased by politicians for non-productive use.

Increase Petroleum Output

The major reason for the FX instability is the reduction in petroleum oil export occasioned by high theft of crude oil and reduced investments in oil production. It is necessary that the government and all stakeholders agree on the need to ramp up oil production as quickly as possible. Whatever can be done to increase oil production must be done immediately. If the government can not defeat those stealing our crude oils then it must negotiate and appeal to their emotions

Seek FX bailout

Nigeria must seek a dollar bailout from wherever at this point. I know Nigerians do not love to take loans from the IMF, but if our allies in the USA or the rich Arab countries can not give us a bailout, then we must approach the IMF. The government must reach out to our diaspora community and appeal to them to remit funds through the official system especially now that the currency has been floated and rates are moving towards unification. Nigerian remittance is presently left offshore to be traded in crypto platforms especially Binance which is now the de facto leader of the parallel market. A diaspora infrastructure bond should be pursued aggressively to mop up any FX we can get from our diaspora

Improve access to Raw materials

The key to local productivity lies in the availability of raw materials. Made-in-Nigerian goods are much more expensive than imported finished goods because the raw materials for local production are imported whereas these raw materials are in abundance in Nigeria. The Ministry of Mines and that of Agriculture need as quickly as possible identify the most critical raw materials needed by local manufacturers and create a short timeline to increase the local production and supply of these raw materials.

Clear up the ports for Export

Nigeria needs to diversify its FX revenue as quickly as possible. To do this, the Nigerian Port Authority must eliminate all bureaucracy at the ports that hinders export. I suggest all export fees should have a moratorium of six months for exporters with the condition that the FX earnings be ploughed back into the system. Conversely, while I understand the urgent need for the CBN to earn FX at all costs, it must for the sake of Nigerians put a stop to the practice of charging import duties in dollars as recently attested by the BUA group, this is making it impracticable for businesses to plan and it is mounting heavy pressure on inflation. I would suggest that the import duties be charged in naira and adjusted quarterly for inflation.

Exports through AFCTA

The Devaluation of the Naira now makes viable Nigerian exports. This is a good time for Nigerian manufacturers to double output and target the African markets, with Intra-African trade at 18%, devaluation will increase demand for Nigerian products. The Ministry of Trade and other relevant agencies should collaborate to incentives production and encourage the export of Nigeria products across Africa using the AFCTA

Investment in Infrastructure by Sub-nationals

The removal of petrol subsidies and currency devaluation is putting much more money in the hands of the state and FG government. To have the most effect, The FG and its subnational should collaborate to ensure that these funds are ploughed back into infrastructure and are not squandered. More investment in roads, Education, Electricity, gas pipelines and health.

Curtail food inflation

Agricultural production should not be left to the FG alone. States should get involved and ensure that each state has a practical agricultural policy that targets the needs of its inhabitants. The FG must put an end to insecurity in the North so that farmers can return to the farm and the Southern States should complement the North in food production. A balance also needs to be struck between the need to export for FX earnings and the need for local consumption

Encourage Innovation and Local Productivity

In the long term, Nigeria needs to encourage innovation and enshrine local productivity. The value of our currency is a function of our productivity. It is impossible to have a strong currency and create jobs when we are not productive. The government must create an enabling environment by investing in critical transport and Energy infrastructure to support businesses and also retool regulators and government agencies to understand their roles in fostering innovation and productivity and to stop its institutions from being extractive

Finally, policymakers must factor in the role of culture in shaping policy execution- culture eats strategy for breakfast so says Peter Drucker. Nigeria needs a cultural change more than ever to build a productive base. The government must also have a project management office that itemises priorities and has a breakdown of deliverables and a timeline for execution