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How Wale Edun can shift Nigeria from ‘palliative’ economy 05 Sep 2023

The appointment of Wale Edun as Minister of Finance and Coordinating Minister of the Economy (CME) came at a very inauspicious time. A successful investment banker, Mr. Edun has the responsibility of driving the revival of the Nigerian economy that has lost growth impetus for years. Between 2015 – 2022, the average real GDP growth rate was below 2 percent on an annualised basis. During this period, the public debt skyrocketed while government revenue dwindled. As a result, debt service cost as a percentage of government revenue now hovers above 75 percent.

Data from the National Bureau of Statistics in November 2022 saw Nigeria’s national poverty rate rise to 40.1 percent. Nevertheless, President Bola Ahmed Tinubu, who has avowed a commitment to poverty reduction, has willy-nilly created a downward pressure on economic activities and, at the same time, a new momentum for poverty to increase, by removing petrol subsidy. Many citizens have taken to trekking because they cannot afford the high cost of transportation that the subsidy removal has brought about. Many are skipping meals as others are absenting themselves from work, in the face of rising costs and growing lack of affordability.

Seeing the increasing privation caused by the policies it vehemently advocated for the country, the World Bank now warns that without an effective social protection an additional 7.1 million Nigerians will fall below the poverty line following the withdrawal of petrol subsidy and introduction of market exchange rate. In his response to the situation, President Tinubu announced a N500 billion palliative programme for poor and vulnerable citizens. After its withdrawal due to public criticism of the structure of the palliative fund, the administration announced a new federal programme that provided the 36 states and the Federal Capital Territory with N5 billion each for the procurement of food and fertiliser and five trucks of rice each to be distributed to the people.

The success of this palliative programme is now out of the hands of the federal government. But unfortunately, the distribution of small packages of rice in at least one of the states featured chaotic and dehumanising scenes. Throngs of young and elderly citizens jostling to catch the items being tossed at them from lorries indicated that the demand for the items far outstripped their supply. A next iteration of palliatives is, therefore, envisaged, not least because the absence of production and payroll support for businesses could see many of them collapsing, further aggravating poverty.

Nevertheless, a fixation on palliatives will detract attention from the fundamental requirement of reflating economic production. Thus, the provision – or non-provision – of palliatives may become the main feature of the economy. To avoid this trap, the CME needs to lead multi-agency efforts to design an evidence-based approach for making social protection work in Nigeria. The provision of a systematic social protection system should be driven by a national register of poor and vulnerable households. The database should collect information such as location, occupation, skill, income, etc. of potential target beneficiaries. While social protection should support consumption, it should also seek to boost earned income. Both impacts must be a subject for continuous monitoring and evaluation.

A direct intervention to reduce poverty is one of two broad policy recommendations for the finance minister. The other is boosting domestic production and productivity growth. For this purpose, the following policy actions are imperative. The first is a strong fiscal support for the local refining of petroleum products. No one refinery should be solely relied upon. In the mix should be multiple, small modular refineries and two state-owned refineries that are well fixed and fully operational – with the assets of the remaining two sold off.

Two, tax relief should be provided to local manufacturers and service providers. The aim is to keep businesses in operation and support jobs. Additional interventions to boost business revenue and consumer spending – including through government procurement – should be introduced to support local businesses and productivity increases.

Three, the CME should lead the formulation of an economy-wide reform programme and its technical presentations to different stakeholders and market participants. Such a reform package should seek to boost foreign investment inflows (foreign portfolio investment (FPI) and foreign direct investment (FDI)), professionalise the public service, and deliver e-governance as an efficiency and anticorruption framework. As our recent experience shows, isolated reforms can mutually reinforce their negative impacts. Conversely, an integrated governance reform can deliver multiple and compound positive impacts.

Four, more deliberate efforts should be made to lock in the benefits of the ongoing reform process, especially from foreign investors who are likely to generate handsome returns from investing in Nigeria. This is one of the oversights of the subsidy removal and market foreign exchange rate policies, which targeted no direct and immediate benefits.

Five, once a competent governor has been appointed for the Central Bank of Nigeria (CBN), there should be a strong coordination of monetary and fiscal policies, with both authorities recognising the importance and boundaries of their collaborative efforts. Going forward, the CBN needs to focus more on its mandate of achieving price and financial stability. Direct support for industries should become a responsibility of the finance ministry, which is discharged through fiscal policy and not for specifically identified beneficiaries.

The country needs to focus strongly on domestic production and productivity growth, not on the value of the naira. Progress with economic production will revalue the naira.