Nigeria Economy Requires Quick, Radical Revamp – President Tinubu Says

Nigeria Economy Requires Quick, Radical Revamp – President Tinubu Says

Taking office at a time of spiralling economic adversity, President Bola Tinubu certainly has a lot on his plate in the days ahead. From the debt crisis to the petrol subsidy debacle, the crashing naira to escalating inflation, receding foreign direct investment to food scarcity and unemployment, to a depressed electricity sub-sector, Tinubu has no respite. Since he knew the odds before running for President, he will be judged, not by what he inherited, but by the swift transformation he is able to implement in these difficult economic times.

Therefore, the President should start by going for the low-hanging fruits; he should aggressively revive the privatisation, commercialisation, liberalisation and concessions programme that was unwisely abandoned by his predecessor, Muhammadu Buhari, who presided over eight years of unprecedented economic hardship.

The world’s current 11th largest crude producer, Nigeria is plagued by wholesale importation of refined petroleum products, which fuels the scandalous petrol subsidy quagmire. The national shame is complete with fuel shortages and industrial-scale smuggling of refined products across its borders.

In his inaugural speech Monday, Tinubu emphatically endorsed the preceding administration’s removal of the subsidy by July this year, bringing it in line with the other petroleum products, whose prices had been deregulated. Gleefully, he declared, “Subsidy is gone.” This is a major policy pronouncement that may define Tinubu’s tenure. Instantly, the declaration provoked a predictable reaction: queues resurfaced in Lagos and Abuja and satellite cities and states on Monday. Many petrol stations shut down to hoard; others sold at astronomical prices ranging between N250 and N400 per litre, up from N184/187pl. The unfolding reaction spells ominous times ahead for the economy and higher poverty, and jobless rates.

The controversial petrol subsidies cost Nigeria N4.6 trillion from January to June this year and were on track to gulp over N7 trillion by December if continued. The President says the savings from the subsidies will be directed to infrastructure, education, and health. But this same promise has been made by every past administration – military and civilian – accompanying their frequency increases in petrol prices. Without exception, the price hikes had the same negative results of triggering inflation, job losses, business closures, more poverty, and very little positive outcomes to show.

The PUNCH has repeatedly canvassed that the subsidy should only be removed in phases and second, that it should be accompanied by a national emergency programme of achieving self-sufficiency in domestic refining.

Tinubu should opt for this formula, mainly because petrol is central to Nigeria’s economy, more than any other refined petroleum product. Petrol impacts transportation, food, and goods distribution, and small businesses, most of which are in the informal sector. A seeming window of escape, the 650,000 barrels per day Dangote Refinery, is uncertain; some experts doubt its capacity to begin churning out petrol as promised by July.

Therefore, the President should immediately organise the transparent privatisation of the four moribund public refineries run by the Nigerian National Petroleum Company Limited to achieve domestic self-sufficiency. Retaining them in state hands is foolhardy.

In private hands, they will offer the Dangote Refinery much-needed competition. Experts say “competition can yield lower costs, and prices for goods and services, improve quality, improve economic growth and development, and efficiency in productivity.” This is the model free economies adopt. The United States had 129 refineries out of the total 700 refineries in the world in 2022, all run by private investors. According to the US Energy Information Administration, a 626,000 bpd refinery in Texas is the largest and is owned by Saudi Aramco. Among other owners of refineries in the country are BP, Chevron, ExxonMobil, and Marathon Petroleum, Tinubu must unfailingly instil this model in Nigeria.

Other pressing economic matters include tackling the fiscal recklessness of the past. Although Buhari met debt at N12.12 trillion in June 2015, after eight years and two recessions in 2016 and 2022, he left a whopping total public debt ofN77 trillion, including the N22.7 trillion ‘Ways and Means’ borrowings from the Central Bank of Nigeria. Trading Economics says Nigeria’s debt-to-GDP ratio was 38 per cent in 2022 and is projected to reach 43.18 per cent by 2028.

The President should avoid this path; he should strictly place a moratorium on borrowing. The IMF aptly says, “It is about fiscal discipline. People should not permanently spend beyond what they generate in revenue because it becomes unsustainable.” Dangerously, the revenue-to-GDP ratio now stands at 7.0 per cent, says the World Bank.

As the governor of Lagos State 1999-2007, reckoned to be Africa’s sixth largest economy, Tinubu brings some worthwhile experience to the table. But he has inherited a disjointed, disarticulated, and broken economy. The naira has nosedived dangerously. He needs to work hard to fulfil his promise to unify the multiple exchange rate regime, reboot agriculture, stimulate jobs, double the electricity supply, and diversify revenue sources.

Inflation hit 22.22 per cent in April, an 18-year record; it was a single-digit 9.0 per cent in June 2015. In the 2022 Hanke’s Annual Misery Index, Nigeria was ranked 42nd out of 157 countries partly because of its inflation rate. With the removal of the petrol subsidy, inflation will soar even higher.

The National Bureau of Statistics put food inflation at 24.61 per cent in April, from 18.37 per cent in April 2022. The triggers are persistent insecurity, shabby road infrastructure, inadequate rail network and Fulani herdsmen rapine in farming communities. Food prices are bound to escalate with subsidy removal. He needs to address these fundamentals.

The naira is distressed, exchanging at N461.45 to $1 officially, but selling at between N740 and N780 at the parallel market. Unifying them as Tinubu promised requires thinking outside the box. In June 2015, the naira had exchanged at N197 to $1. For years, investors and manufacturers have sourced forex from the parallel market. Arbitrage is prevalent, and currently, international airlines cannot repatriate their $800 million proceeds from Nigeria. All this needs to be sorted out swiftly. Domestic manufacturing should be revived through policies improving electricity, security, and ease of doing business.

In November 2015, the benchmark interest rate was 13 per cent; this was reduced to 11 per cent in January 2016. In May, the CBNhiked the rate to 18.5 per cent. The President rightly acknowledged this as too high, a major disincentive to investors that has to be brought down to a single digit. Unlike the petrol subsidy and price, it cannot be legislated by fiat.

The jobless rate currently stands at 33.3 per cent, and KPMG projects it at 40.6 per cent in 2023, from 37.7 per cent in 2022. A survey has found 133 million Nigerians to be multi-dimensionally poor; Tinubu’s plan to ameliorate this by creating one million jobs in the digital economy sub-sector is the right step, but with youth employment at 53.4percent, this is not enough.

Without constant and efficiently priced electricity, the economy cannot soar. Despite billions of dollars spent over the years, the power supply in Nigeria has not surpassed 5,000 megawatts, though it has an installed capacity of 12,522MW per the United States Agency for International Development. Estimates of current aggregate national demand range between 24,000MW and 30,000MW.

With determined leadership, within five years, the output can meet demand as seen in Egypt, Africa’s third-largest economy. President Abdelfattah al-Sisi launched a power revolution, including a $4.4 billion deal with Siemens, that raised capacity from about 24,400MW to 60,000MW within six years. Egypt is now a net exporter of electricity.

Tinubu should quickly and transparently privatise or concession all state-owned enterprises. The moribund steel assets headlined by the Ajaokuta Steel Company and the associated mills should be sold openly, and to only recognisable global champions, avoiding the fraudulent concession template.

The removal of petrol subsidies will be helped by immediately selling the four moribund, loss-making refineries. He should extend the privatisation of the power sector by reducing the state’s stake in the Transmission Company of Nigeria. He should also reduce the government’s stake in the Nigeria Liquefied Natural Gas company through an IPO, and concession the airports and seaports. He should stop the Nigeria Air charade, which Buhari’s Aviation Minister, Hadi Sirika, dubiously foisted on the country hours before his departure.

Another low-hanging fruit is effective tax collection, widening and deepening the tax net. In Nigeria, the rich routinely evade tax without consequences. With no retribution for their misdeeds, the country remains dependent on oil income. Two authorities – Bode Augusto, a former director of the budget, and Chukwuma Soludo, a former Governor of the CBN – argue separately that by effectively collecting its revenue, the Federal Government can realise between N14 trillion and N30 trillion annually. The President should move with dispatch to identify and block all revenue leakages.

The Federal Inland Revenue Service collected a non-oil tax of N5.96 trillion in 2022, compared to N4.09 trillion in oil revenue. The government consequently relied on borrowings. Nigeria spent 96.3 per cent of its revenue on debt servicing in 2022, said the World Bank. That is projected to reach above 100 per cent by 2025. At 5.5 per cent in 2021, Nigeria’s tax-to-GDP ratio is among the poorest in Africa, as the OECD says the average for 31 African countries, excluding Nigeria, was 16.0 per cent in 2021.

Other areas of leakage, which Tinubu must focus on include the Treasury Single Account, stamp duties, revenue-generating agencies and companies, repayment of the loans to the Asset Management Corporation of Nigeria, cost of governance and judgement debts.

He must also improve the ease of doing business, and reform the security architecture to make the country safe for production, commerce, and travel, and attract tourists and investors.

Overall, Tinubu should steadily direct all policies towards achieving a private sector-led economy, and away from the current model of preponderant state involvement.