Putting Ongoing Reforms on a Stronger Footing

Waziri Adio

Nigeria is not new to economic reforms. Since 1984, the country has gone through at least four episodes of consequential economic reforms. The Muhammadu Buhari/Tunde Idiagbon regime opted for austerity measures, currency redesign, import restrictions, counter-trade and rationing of essential commodities. The Ibrahim Babangida regime, through the Structural Adjustment Programme (SAP), shrank some subsidies, devalued the Naira, and reduced the footprints of the state in manufacturing, oil and gas, banking and the media. The Olusegun Obasanjo government layered further privatisation (especially telecoms) with pension reforms, banking consolidation, and a slew of public financial management and anti-graft measures. The President Bola Tinubu administration, in a quickfire approach, removed petrol subsidy, floated the Naira and adjusted electricity tariffs.

Difficult reforms are not vote-winners or people-pleasers. Most governments, including military administrations, just prefer to kick the can down the road to preserve public order and regime security. The Buhari/Idiagbon regime lasted only 18 months and its tough measures were part of the reasons cited for the well-received palace coup in August 1985. Under Babangida, the country was literally set on fire by the SAP riots of 1989. Though Obasanjo’s reforms were mostly institutional, the country convulsed for days over attempts at removing petrol subsidies. Reforms that inflict pains on a broad spectrum of the populace are never popular, and are thus delayed until the government has little or no room for manoeuvre. But there is also a cost to delayed adjustments.

By the time President Tinubu took over in May 2023, the cost of delayed adjustment was already compounding. Nigeria was just inches away from falling off the cliff, though this was not apparent to most citizens. The country was expending almost all its oil income on petrol subsidies alone, more than 90% of Federal Government’s revenue was going to debt service, and the hole in government finances was being masked by close to N30 trillion in overdraft from the central bank. Investment and forex inflows had dried up and net external reserves could barely cover one month of imports. What happened about forty years earlier was about repeating itself: citizens queuing up to buy basic items like soap and milk.

In a way, Tinubu had little or no choice. He had to confront the consequences of the bad policy choices taken over time by leaders of a country who mistake resource abundance for actual wealth and do not do enough to insulate their country from oil price volatility. While there can be (and indeed there exist) differences of opinion about Tinubu’s approach, there should not be any doubt that Nigeria needed to make difficult and painful adjustments by the time he took over. Of course, there is a problem: the enormity of the approaching crisis was not visible to all, and a disaster averted does not carry the same weight as a disaster experienced. The additional challenge for Tinubu is that his reforms, unlike the institutional reforms of the preceding two decades, went straight to the veins of most Nigerians. They came with direct and concentrated pains.

Within a short period, some gains are becoming visible, even if they are mostly at the macro level and even if they are still fragile. The fiscal headspace has expanded. Gross FAAC revenue has significantly increased, more than doubling within two years. Debt service as a portion of revenue is still high, but is much lower. Non-oil revenue is rising; same with non-oil export. Inflation rate is reducing. National productivity is growing slightly higher than population. The volatility of the exchange rate has reduced. Trade surplus, investment flows and external reserves are growing. Some stability has returned, and this is just some statistical sleight of hands. However, it is also true that most Nigerians are still going through it. Yes, some Nigerians and others are making a killing from stock and money markets. But that is not a luxury available to most Nigerians. It is important to take a rounded view of things and take regular stock of progress and challenges of reforms.

One of such reflections took place in Abuja last week, organised by Agora Policy in partnership with NESG, with the support of the Nigeria Economic Stability and Transformation (NEST) programme, an initiative of the UK government’s Foreign, Commonwealth and Development Office (FCDO). The event brought together senior officials of government, private sector, civil society, academia, media and development institutions to deliberate on how to sustain, deepen and improve the current economic reforms in Nigeria and lay a firm foundation for future ones.

The event was hinged on two poles. The first was the presentation of the highlight of a study on the impact of the current economic reforms in the country, produced by Agora Policy also with support from NEST.  The study deployed mix-methods (modelling and focus group discussions) to assess the impact of petrol subsidy removal and adjustment of electricity tariff.

The second pole was a panel session, which was the heart of the event. On the panel were: Dr. Muhammad Sani Abdullahi, Deputy Governor Economic Policy, CBN; Mrs. Sanyade Okoli, Special Adviser to the President on Finance and the Economy; Dr. Chinyere Almona, Director General of the Lagos Chamber of Commerce and Industry; Dr. Hussaini Abdu, Country Director of CARE International; and Dr. Samer Matta, Senior Economist at the World Bank. The discussion was frank, robust and illuminating. Contributions from the audience were equally engaging and insightful.  

Drawing from insights from the study and the dialogue as well as my other engagements with key stakeholders on the reforms and my reflections over time, I will suggest five ways of putting current and future reforms on a stronger footing.

My first suggestion is the need for adequate preparation before rolling out contentious reforms. To be sure, you can’t be fully prepared but that is not the reason to just jump in headlong with the blind faith that things would turn out just fine. They might not. The fact that the country survived the very difficult phase of these reforms does not guarantee anything. You never know where the spark will come from, and what will come become of the spark. Adequate preparation will include carrying out empirical studies about the likely negative impact and frontloading measures to address the downsides. This will also mean having a clear plan about what different tiers of government will do and for whom, and a framework for proper coordination within and across different tiers. This approach shows more thoughtfulness and more empathy than just the usual “we feel your pain” rhetoric.

The second suggestion is related: for something with far-reaching consequences and to which many citizens feel wedded like petrol subsidy, it may be necessary to provide a clear visibility on what will replace it or how the money will be repurposed. We have a precedent on this, especially with the case of the Petroleum Trust Fund (PTF) and to some extent SURE-P. A portion of the subsidy that government would have paid was put in funds dedicated to specific projects. Up till today, PTF projects can still be seen in some parts of the country. But PTF had its controversies, which might have informed the current approach of allowing each tier of government the latitude to decide what to do with the extra revenue.

My sense is that the Federal Government and some state governments are actually providing reliefs but Nigerians are not seeing such as the exchange for what they have given up or as mitigation for the unceasing pains they are enduring. I think the president should have invested his political capital in putting in place a national framework on reliefs and building commitment and consensus around such. Also, government should have devised a way of calculating what the Federation would have incurred on petrol subsidy on a monthly basis and how much of such would go to the FG, each state and each LGA monthly. This will not be in violation of the constitution and should not be difficult to calculate.  

Each unit of government can (in consultation with its people) decide what to spend the savings on within the national framework. This allows for local flexibility, for citizens to be part of decision-making and for accountability. This is not how it is now. All tiers of government are getting more money as a result of the reforms and they are also spending much more but most citizens struggle to see the benefits of improved government revenue. This is a challenge that traceability could have addressed.

The third is the value of regular and continuous consultation. Difficult reforms bring pains and call for adjustments. Either directly or through trusted brokers, government needs to have structured ways of engaging with critical stakeholders to explain the rationale and the end goal of the reforms and to receive vital feedback. John Dewey, the American political philosopher, memorably said: we need shoe makers to make shoes but we need the wearer to say where it pinches. Regular and structured consultations will help with generating evidence on how different constituencies are impacted, improving the design and implementation of reforms, and in building trust and understanding.

The fourth is that we need to pay special attention to the extra burden placed on the vulnerable. While it is true that the rich benefit more from petrol subsidy, the poor suffer more from petrol subsidy removal. Low-income earners bear a disproportionate burden of the resultant increase in costs of food, energy and transportation as they spend almost all their income on these items. Those in the middle- and upper-income brackets cope better. Most low-income earners have no business with foreign exchange and were not the ones benefiting from the arbitrage of multiple exchange rates. But they will be affected the most by floating the Naira and it is conceivable, without even a study, that more people will live below poverty line with dollar at N1400 than at N460. This is not a reason to put off the reforms but a case for competent and thoughtful implementation of cash transfer and other forms of social protection.

The last suggestion is the imperative of pacing difficult reforms. While shock therapy may be needed, inflicting multiple shocks may be reckless. The human and societal ability to tolerate pain is not infinitely elastic. So, while courage is desirable, wisdom is also profitable.