THE naira has continued to take severe bashing since President Bola Tinubu unilaterally collapsed the multiple exchange rates on June 14. From N472.50 to $1 at the Investors and Exporters window pre-rate unification, and N763 at the parallel market, the naira has steadily depreciated, oscillating between N740 and N800 per $1. This is taking a heavy toll on the economy and the cost of living. The President has to swiftly implement other critical policies to save the naira.
From the start, Tinubu has shown his preference for an unfettered free market economy. From yanking off petrol subsidy a month ahead of schedule, and prompting the Central Bank of Nigeria to float the naira, he has swallowed the long-standing recommendations of the World Bank/IMF, which previous governments resisted. Shocks have followed. Instantly, petrol price jumped to N500 per litre from N198 per litre, while the value of the naira nosedived, and is inching towards the N830 per dollar mark.
Tinubu’s laissez-faire policies have won praise, especially from economists, and the multilateral agencies, which see them as bold and necessary. Apparently, however, Tinubu and the optimists are disconnected from the harsh realities. Emerging evidence shows that the administration neither made preparations, nor undertook a thorough diagnosis of the existing conditions in the economy.
The euphoria is evaporating, as the shock waves upturn businesses’ and households’ survivability and the government flails in confusion. Last week, the naira plunged to N820/$ before appreciating slightly to N798.25/$ by Monday as the distorted market forces manifest. Worse, petrol prices shot up to N590-N620 per litre on Tuesday and are set to rise even higher on the back of volatile crude prices and currency exchange rates.
Danger looms. Stripped of the hype and cheerleading, Tinubu’s “shoot first and ask questions later” approach is tipping the economy into disarray. Bold reforms and the courage to initiate and see them through require meticulous planning, preparation, and fallback measures to absorb the shocks and protect critical economic sectors, and the vulnerable sections of the polity.
Optimists are mistaking hastiness and lack of rigour for competence. Just as he did not plan for the anticipated impact of subsidy removal, Tinubu apparently made no accompanying policies to cope with the naira devaluation he triggered. Evidence of this is demonstrated in the scrambling for loans to provide “palliatives” and the flirtation with the failed cash distribution policy of the immediate past administration. Manufacturers and other private sector operators that are undergoing a reality check. Importers and students cannot find or afford the dollars to import goods or pay overseas tuition.
Tinubu and his advisers are not taking Nigeria’s realities into consideration. Free market policies are good and desirable; but policies adopted must be creatively adapted to domestic conditions.
Nigeria’s economy is disarticulated: it is overwhelmingly dependent on oil and gas revenues; it is import-dependent; it imports what it has or can produce in abundance such as petroleum products and food; over 60 percent of the economy is in the informal sector; the government has an outsized role in the commanding heights; and it is a federation where only the central government has economic plans and targets and the component states are prohibitively parasitic cost centres.
Added to this is corrosive corruption that has rendered state institutions ineffective, including regulation, and fostered massive insecurity and revenue leakages. For decades, oil thieves have been stealing up to one quarter of its daily crude oil production.
Although it is the largest in Africa with a GDP of $477.39 billion, productive activities are underwhelming, having failed to develop its agricultural, mining and human capital. It massively imports basic items, food, and raw materials. It sold crude worth $27.73billion in 2020; but with virtually no domestic refining at its four public refineries, it imported petroleum products worth $71.28 billion, a loss of $43.56 billion.
While Nigeria’s total non-oil exports rose to $4.82 billion in 2022 according to the Nigerian Export Promotion Council, its food import bill in the six years to 2022 was N7.8 trillion, with N2 trillion spent in 2022 alone. Food inflation has reached 25.25 percent, says the National Bureau of Statistics.
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With these metrics, it is obvious that the naira will be battered, and overall inflation, that hit 22.79 percent last month, will impact on domestic prices, including petroleum products. The national debt stood at N77 trillion in May.
Pre-rates unification, the CBN reportedly defended the naira with $17.81 billion in 2022. Irrationally, part of this was used to service the renegade bureaux de change, with $110 million per week or $5.2 billion year-long in 2021 alone. Though the central bank stopped the weekly allocation of $20,000 per BDC, reports indicate that substantial forex flowed through them, nevertheless.
Government incompetence, corruption, and the high cost of governance also afflict the naira. Debt servicing gulps 96.6 per cent of revenue; budget deficit is very high. During his recent visit to Lagos, Tinubu drove from the airport to Ikoyi in a 100 plus-vehicle convoy. The National Assembly is buying SUVs –all imported– at N40 billion for members. Political office holders at the federal, state, and local levels are living and retiring into opulence with public funds.
Industrial scale oil theft greatly reduces the dollar inflow. NEITI said Nigeria lost 619.7 million barrels of crude oil valued at N16.25 trillion, or $46.16 billion to theft between 2009 and 2020. For years, Nigeria cannot meet its OPEC production quotas because of this grand larceny.
The decline in education is mirrored in the $1.38 billion Nigerians spent on international education fees in January to September 2022. Widespread smuggling and poor electricity supply compound the weakness of the domestic economy. Farmers are unable to produce because of the twin menace of banditry/Islamic terrorism and Fulani herdsmen’s attacks.
The President puts the cart before the horse, as it is obvious that monetary policy manipulation alone cannot save Nigeria’s fragile currency. This and subsidy reforms should be accompanied by bolder reforms to stimulate productive activities, household incomes, public services, and job creation.
Tinubu needs to quickly restore confidence in the financial system by naming a substantive CBN governor, and a minister of finance, and constitute a strong economic management team. His informal team does not inspire confidence, offering little beyond the outdated IMF prescriptions.
Unlike Muhammadu Buhari, who governed without a strong EMT, Tinubu should make this a priority. US President, Joe Biden, reconstituted his Economic Team last February, naming Lael Brainard to serve as director of the National Economic Council, and Jared Bernstein as chair of the Council of Economic Advisers, joined by other competent economists.
Tinubu should also headhunt a competent economist as Governor of the CBN, avoid another banker like the ousted Godwin Emefiele that mortgaged the independence of the bank and plunged the economy into disarray. The CBN needs a clean sweep and extensive reforms. The BDCs and commercial banks must come under strong regulation. Together they are hurting the economy with their forex malpractices and facilitating massive money laundering and illicit outflow.
Declaring an “emergency” on food security is not enough; it needs to be backed by actionable production-boosting policies. Security must be a top priority. Open cattle grazing must give way to ranching. The Nigeria Customs Service should be equipped to stop smuggling. No country swallows the standard IMF/World Bank adjustment format wholesale anymore; acceptable templates must be adapted, taking the peculiarities of Nigeria into consideration.
Tinubu should stop the corrupt maintenance of the refineries and sell them off immediately to competent foreign and local investors. The government should remove the obstacles to exports at the ports and undertake infrastructure development. Nigeria should stop borrowing for consumption. The $800 million World Bank loan earmarked for ‘palliatives’ is another national folly, another source of self-enrichment for a few. Such funding would be better channelled to MSMEs. The government should raise money by privatising the four public refineries, the Ajaokuta Steel Complex, and operations at the airports and seaports. Tinubu should revive the Presidential Executive Orders on the ease of doing business and make them work. Rather than increase taxes, government should simplify the tax system, expand the net, and collect the tax backlog from defaulters. All the 36 states, the FCT and the 774 LGs must become separate economic units. States should revive cocoa, groundnut and palm oil production, rice, beans, cassava, and mining in their respective domains. Above all, Tinubu should stop ‘shooting from the hip,’ announcing policies without prior rigorous planning and preparation.
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