Amina Salihu, Development Sector Specialist, Civil Society
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Subjects of Interest
- Sustainable Development
A window into Nigeria’s 2022 macroeconomic landscape 03 Apr 2022
On January 25, 2022, the Nigerian Economic Summit Group (NESG) released its 2022 macroeconomic outlook report. Entitled “The Last Mile: Reforms Toward Significant Improvement in National Economic Outcomes”, the presentation of the report generated passionate critique, engagement and some intriguing propositions from a panel of discussants. To make it more accessible, the report is available in digital form. Its presentation on the NESG radio also took what was a discussion among the elites to the populace.
Of interest to the panel that comprised representatives from government, academia, and the private sector in discussing the report were removal of subsidy on Premium Motor Spirit (colloquially called petrol), revenue, taxation, the agricultural sector, and political will to enact and implement the right policies to improve the economy in significant ways.
The report was presented to the public against the backdrop of a recent ‘policy somersault’ on petrol subsidy. The Federal Government had changed its mind about removing the subsidy after weeks of threats of resistance by labour body and the citizens. On this, the views of the panellists coalesced around the difficulty of removing the subsidy on the eve of the 2023 general election. Nevertheless, it was thought that ending the subsidy is inevitable because of its strain on the federal treasury.
The debate re-enacted old arguments. It advised that the subsidy should be withdrawn in phases, rather than in one fell swoop. To alleviate the pains the removal of the subsidy would cause, fiscal gain from ending the decades-old programme should be given directly to the poorest consumers, using a data-driven approach.
Politics managed to get a mention in the discussion. It was thought that the administration of President Muhammadu Buhari may have settled for having his successor deal with the thorny issue of removal of petrol subsidy – passing what he termed as a non-issue during his campaign for the 2015 election to his successor in 2023! Vested interest, inefficient public service, labyrinthine political economy and insecurity were also considered as major factors that will impact Nigeria’s economic growth in 2022.
More policy bottlenecks were identified including the management of state-owned enterprises (SOEs) and fiscal viability of many states given their low internally generated revenue (IGR). At N1.2 trillion in 2021, the total IGR collected by the states was less than one percent of the GDP. And the total IGR hides sharp disparities among the states. For instance, about 30 percent of the IGR was collected in Lagos alone. The entire 19 states in the north collected only 50 precent of what Lagos State collected. Five states collected 65 percent of the IGR by states.
The paradox of the Nigerian economy is staggering as the report points out: “Despite a GDP growth of 3.2 percent in the first three quarters of 2021, data from the National Bureau of Statistics (NBS) show that average prices of goods and services were high; trade balance remained in deficit and foreign investment inflow was constrained in the year. The World Bank estimated that an additional 8 million Nigerians fell into poverty between 2020 and 2021 due to lower purchasing power. Although Nigeria’s potential is enormous, job creation across sectors has been lagging, increasing in unemployed individuals.”
In this context, determining real economic progress in Nigeria is challenging. For instance, a “rice pyramid” was recently showcased in Abuja and some cities. Perhaps it was meant to make Nigerians to relive the experience of the groundnut pyramids of the 1960s, which signified the productivity of the country’s agrarian economy. But, frankly, the Abuja rice pyramid seemed staged, perhaps to serve as evidence that the policy to ban importation of rice since August 2019 and the billions of naira that have backed it have dramatically increased local production of the Nigerian stapple food. Six to seven decades ago, the groundnut pyramids were a holding inventory for export. If the locally produced rice is not for export, it would be unnecessary to have a pyramidal showcase of it – except for making a political statement rather than economic one. As a political scientist, it is the likely political motive that makes sense to me. It may be more strategic to get the rice to market to bring down price for the common person.
Another big topic in Nigeria’s 2022 macroeconomic outlook is Dangote Refinery. When completed later this year, the refinery will have the capacity to refine about 650,000 barrels of crude oil per day, making it the largest single-train refinery in the world. The refinery alone has a 400MW power plant – which is suffient to meet the total power requirement of Ibadan power distribution company.
But there are pertinent talking points about the refinery. Given the transition to clean and renewable energy, is the refinery too late to arrive and can it be of much relevance in the future energy market? The justification for the government support that the refinery has enjoyed was based on the projection that it would help the country to end its dependency on the importation of refined pretroleum products to meet domestic demand. In which case, the country would start to conserve foreign exchange earnings previously used to import pertrol. However, it is believed that Dangote Refinery will serve export markets as well in order to recoup its dollar investment, making it unclear whether importation of petrol will continue in Nigeria despite Dangote’s refinery.
A consensus among the panellists that reviewed the NESG report was that the government needs to concentrate on creating an enabling environment, including infrastructure, and leave economic production to the private sector. To this point, the decrepit state of the four government-owned refineries in Kaduna, Port Harcourt and Warri serves as a reminder that the government should leave business to businesspeople.
A debate on how government can generate revenue without raising more taxes was also quite lively. This is of particular interest to me because with taxation, the people are actually subsidizing the State. The more so in Nigeria where, despite the fact that we power our businesses and homes with generators, pave our neighbourhood roads, provide ourselves water by sinking boreholes, we are still meant to pay taxes to the government that cannot provide basic social amenities including quality healthcare and education. Nevertheless, Nigerians pay a multiplicity of taxes – over 60 of them as of the last count. The number climbs up to over 200 if we consider the illegitimate ones that are levied by state and nonstate actors in the country.
To ease payment of taxes, the panellists advised on the use of technology. Digitalising the collection of taxes will improve collection and efficiency. In the meantime, as a result of the inefficiency of the tax authorities, private consultants are being contracted to collect taxes, especially by the state governments. About 10 – 15 percent of the total tax collected is used to pay commission income to the consultants.
Efficient technology platforms and harmonized tax reforms can help increase tax revenue. Kaduna State raised revenue by over 400 percent by harmonizing taxes and using technology that cut back on political patronage in taxation. To foster cost-efficiency in tax administration in the country, it was suggested that the Nigeria Customs Service (NCS) and Federal Inland Revenue Service (FIRS) should be merged. The Nigerian Postal Service (NIPOST) should also stop collecting tax.
The role of the citizens was muted by the discussants, perhaps because politics was really a big elephant in the room. But the agency of the citizen is too fundamental to be ignored. If citizens continue to elect incompetent politicians into office, it is certain that the micro- and macro-economic reality of the country will remain dire. Nigeria’s high unemployment rate of over 40 percent is not just a matter of statistics; lives are being affected and majority of those unemployed are young people. The electoral decisions the people make – or fail to make by not voting for the right candidates – affect them.
There was a begging question for the philosophical underpinning of economic management by the government. As for the incumbent President, the matter of his economic legacy was the concern.
The panel commended the new appointment of the Chairman of the Presidential Economic Management Team, Doyin Salami, as an old hand around policy tables. The meeting urged him to help in tackling the problem of the foreign exchange rate by bringing clarity and transparency to its management, as well as in unifying the multiple exchange rates. Coordination of fiscal and monetary policy was also advised to improve investor confidence in the economy.
The exchange rate is influenced by the level of the country’s foreign reserves. Importation of petrol contributes not only to the depletion of the reserves but also to price instability through the ‘imported inflation’ phenomenon. These are long-term issues that our economic management has not been able to fix. It is also important to more forcefully bring the subject of economic viability of the states into the conversation.
National economic progress is determined by human – not divine – factors. Political leadership is a key requirement in this regard. This is why the 2023 general election should be seen as critical. The key events leading to the election will take place this year and therefore serve as the basis of a brighter macroeconomic outlook for the country in 2022 and the following years.
Amina Salihu is a development sector specialist.