Nigeria’s economy is undergoing a fundamental transformation. To believe that a few minor amendments to economic policy would restore the country to growth is an optimistic but flawed view.
The period between 2005 and 2015 saw some of the highest oil earnings in our history, but during that same period, debt levels rose and our reserves declined. While we had a few years of impressive GDP growth, this was largely a function of the high oil prices. Nigeria’s economic model was basically the export of crude to earn foreign exchange that was used to import most of our needs, including the most basic needs.
The fact that as one the world’s largest oil producers, we still import refined petroleum is the starkest evidence of our economic underdevelopment. To correct this and to lay the foundation for Nigeria’s future, we must address the historic under-investment in infrastructure that has limited our growth to a few sectors.
Our reforms are firmly aimed at resetting the economy. If the lack of infrastructure, which has handicapped growth, is addressed, Nigerian businesses can be competitive and create jobs and wealth. To do so, this government has committed to fighting corruption and controlling recurrent expenditure to create headroom for investment in capital projects. It is this investment, coupled with work on the ease of doing business, that will catalyse complementary investment from private capital providers and make the myriad of commercial opportunities in Nigeria viable.
Our vision is for permanent transformation. It will be a long journey, but it is achievable. The painful experience of the past two years must be the motivation for Nigerians to collectively declare that “never again”.
This government has started the difficult process of amending our economic model from one that is consumption-driven to one that is investment-driven. To invest in our infrastructure, we have two options: wait for oil prices to recover, an unlikely prospect; or source funds to undertake critical infrastructure provision and repay from the additional taxes and revenues that will arise from the growth it creates. We have chosen the latter.
As part of the 2016 budget and while meeting our salary and other recurrent obligations, we have budgeted N1.6tn ($5.1bn) for a range of major capital projects and there is significantly more to come in 2017, both from the federal government and its parastatals, as well as the private sector in various forms. We are making progress towards achieving those ambitions. But the old structures that dominated the past are fighting back.
Let me be clear. There are no quick fixes. If the price of oil were to return to $100 tomorrow, it would not solve our problems. They are bigger than that. We must reset our compass for a destination far in the future. Only then will we make the decisions today that deliver change. That is why Muhammadu Buhari, Nigeria’s president, and my fellow ministers have been so focused on fighting corruption and cutting back government spending in our first full year.
The system must be ready to efficiently utilise the people’s resources. Our government’s balance sheet must be restructured to make it robust enough to deliver the investment our economy needs. The government’s debt strategy is an essential part of this process. Today, our debt profile is unbalanced. We borrow heavily domestically, with too short a tenure, and at a high cost.
The impact of this is that we spend too much on interest and we crowd out the private sector from borrowing to fund their investment plans. This debt structure does not support our long-term growth ambitions, and so it must be amended. We need longer-term and cheaper finance to support infrastructure investments. Those fundamentals remain some of the most attractive among emerging economies.
There is a reason that Nigeria has been included in almost every list of emerging economies over the past decade — from the Next 11 to the Mints. Despite the challenges that we are addressing strategically, we are the largest economy in Africa, with a large and growing population, a wide range of opportunities in agriculture, solid minerals and light manufacturing supported by a mature and resilient banking sector, and an oil and gas industry that, when optimally structured, can deliver massive returns.
The challenge we face is not just to navigate our way out of recession, but to ensure our economy is never again as exposed to the volatility of global commodity prices. What we face today is an opportunity, and it is not one we intend to miss.
• Culled from the Financial Times