One major question resonating at every point of the ongoing campaign by the presidential candidates of the leading political parties ahead of the 2023 general election is how they intend to fix Nigeria’s ailing economy. Festus Akanbi examines some of the blueprints to bring the economy back to track as encapsulated in Agora Policy Report published last week
Last week, the National Bureau of Statistics (NBS) put the inflation rate for September at 20.77%, up from 20.52% recorded in the previous month. The new Consumer Price Index (CPI) report showed that Nigeria’s CPI rose by 20.77% year-on-year in September 2022. On a month-on-month basis, the index rose by 1.36% compared to the 1.77% increase recorded in the previous month.
The latest rise in the inflation figure is said to be symptomatic of an ailing economy where revenue shortfall occasioned by sabotage and lack of policy direction are making nonsense of the unique position of Nigeria as the largest economy in Africa. This is because apart from the size of the economy, other indices contained in a special report by Agora Policy, in conjunction with MacArthur Foundation, on the Nigerian economy, showed that the economy needs an urgent revival.
Agora Policy is a Nigerian think-tank and non-profit committed to finding practical solutions to urgent national challenges.
According to the report, Agora Policy’s Informed, Inclusive and Accountable Public Policies (IIAPP) project, that produced this report is designed to achieve three things: one, to maximise the opportunity provided by the electioneering and transition periods and beyond to sustain attention on and further mainstream transparency, accountability, gender equity and social inclusion into policy and governance discourse in Nigeria.
It also seeks to generate original and credible evidence before, during and after the 2023 elections to focus the attention of the country on key policy areas and, ultimately, the adoption of sensible, inclusive and effective policies on key national challenges; and three, to deepen the capacity of state and non-state actors to undertake evidence-driven policy analysis, design, implementation and advocacy.
Unfortunately for the economy, as demand for better life increases, so is the compelling pressure on the federal government to increase expenditure. However, the orgy of revenue losses largely caused by oil theft and vandalism has continued to put the economy in such a precarious situation, with the government focusing on borrowings to make ends meet.
Debt Burden
According to the report, “The revenue of the FGN is too low to support expenditure, leading to high debt stock and high debt service payments. FGN’s budgeted aggregate expenditure increased by 179% from N4.484 trillion in 2011 to N12.512 trillion in 2021. Despite this increase, government expenditure in Nigeria is lower than in comparable countries.
“Between 2011 and 2021, budgeted FGN aggregate revenue increased by 102%, from N3.348 trillion to N6.772 trillion. However, actual revenue increased by 81%, from N2.566 trillion to N4.643 trillion. Thus, with revenue unable to keep pace with expenditure, the government has resorted to more borrowing.
“The total debt stock of FGN has increased by 436% from N6.17 trillion in December 2011 to N33.11 trillion in December 2021,” the report stated.
Further breakdown of the data provided by the report showed that domestic debt increased by 242%, from N5.6 trillion to N19.2 trillion; while foreign debt increased by 2,435% from N546 billion to N13.86 trillion.
It added that the “official debt stock statistics do not include FGN’s borrowing from the Central Bank of Nigeria (CBN) through Ways and Means which increased by over 7,000% from N265.7 billion in January 2014 to N18.89 trillion in March 2022. Thus, if the debt from Ways and Means as of December 2021 (N17.4 trillion) is added to the official debt, the domestic debt stock as of December 2021 rises to N36.6 trillion,” noting that from January to April 2022, debt service was the largest component of expenditure; debt service exceeded revenue by N308 billion, meaning that government borrowed to pay back debt.
Boosting Revenue Earnings
Having identified revenue inadequacy in the face of the rising expenditure, the report said the first immediate step capable of tackling the problem is to shore up the nation’s revenue through various policy initiatives.
One of these initiatives, the report said, is the sustenance of the current Value Added Tax automation being undertaken by the Federal Inland Revenue Service (FIRS), where the service carries out onsite visits and installs software to automatically collect VAT.
The report wants the VAT automation drive to be ramped up in all states and cities and extended to all economic sectors. It also seeks an increase in the VAT rate as well as an increase in the nation’s excise duties on luxury goods, tobacco and alcohol.
Noting that Excise taxes and VAT in Nigeria are amongst the lowest in Sub-Saharan Africa, the report suggested that Excise taxes on alcohol and tobacco can be increased to the ECOWAS average of 50% and that VAT can be increased to 10%, and subsequently to the ECOWAS average of 15%.
Disposing Unproductive Assets
For a nation that has displayed a serious lack of capacity to manage assets, there have been calls for the disposal of some of the assets, especially those not yielding revenues. Examples of these moribund assets litter the country. The report, therefore, listed as one of its recommendations, the need to do away with such assets.
It said, “There are many government assets that are either not generating revenue at all or are generating revenue that is grossly below their potential. Some of the assets can be sold outrightly to provide immediate/short-term funds for the government. In addition, some other assets can be offered to private operators who pay a lump-sum fee upfront, and then make payments at agreed regular intervals.”
Developing Critical Infrastructure
Saying active efforts need to be put in place to develop critical infrastructure to facilitate economic activities, the report lamented the bad state of most of the nation’s infrastructure from power to roads.
For instance, it noted that many businesses have to generate power individually and the high running costs of doing this have led to many SMEs shutting down and multinational companies exiting the country for other domains. It also supports the urgent need to increase investment in digital technology in rural areas to create more jobs and economic opportunities.
For instance, it calls for restructuring of the fiscal profile of MDAs that provide infrastructure (such as ministries of works, power, housing, water resources, etc.) and allied services by ensuring that recurrent expenditures are drastically reduced to boost capital expenditure.
Diversifying Economy from Oil
The report also joined the position of some economic analysts in calling for the diversification from oil to other sectors of the economy.
Accordingly, it said that such diversification can be promoted through active promotion and encouragement of SMEs which create 70% of jobs. It explained that more initiatives by the government such as the tax concessions provided in the Finance Acts of 2019 and 2020 are needed to encourage SMEs. For the SMEs to fully maximise their potential, the report said insecurity needs to be tackled in rural areas; access to finance needs to be provided; and corruption, bureaucracy and red tape in administrative processes by government officials need to be addressed.
To tackle the problem of rising unemployment, the report said the critical skills shortage among the youths should be addressed, saying there is the need for an upgrade of employable skills which it said can be done through investments in high-quality technical and vocational learning centres.
Tinkering with Social Investment Policy
It believes the existing social investment programmes need to be scaled up to help address extreme poverty. In specific terms, the report stated that the conditional cash transfer programme needs to be improved by increasing the amount from N5,000 to N10,000, explaining that improving livelihoods, especially in rural communities, could be attained by developing a robust targeting mechanism that minimises the risk of moral hazard and adverse selection.
Reforming Trade Policy Framework
The report also makes case for the development of a comprehensive long-term trade policy framework and plans that can sustainably guide trade reforms, pointing out that this would include robust monitoring and evaluation systems to gauge the implementation of regional and multilateral trade initiatives as well as impacts. In this case, the report explained that addressing the tariff regime and services restrictions would be critical.
“This would entail simplification of import duties and gradual liberalisation of the service sector given its pivotal role in job creation and transfer of knowledge required for the non-oil sector.”
Phasing Out Distortionary Non-Tariff Measures
Also on the agenda was the call for the review or phase out of distortionary non-tariff measures. It listed the measures to include the foreign exchange restrictions on 42 products by the CBN; a review of the import prohibition and absolute import prohibition lists and perhaps replacing these trade policy tools with tariff duties or import quotas.
Reducing Oil Sector Dominance
It also called for the development of an overarching policy measure to improve manufacturing, and support export diversification and higher value-added export, saying there is an urgent need to reduce oil sector dominance, counter-productive waivers and informal leakages that reduce public and private investment in export-oriented sectors. This, the report said, would also entail addressing supply-side constraints that can unlock diversification from oil to high-value-added agriculture and manufactured products.
On the monetary issue, the report said the CBN should redefine its explicit exchange rate objective. The report maintained that the new objective should position Nigeria as a competitive economy of the present and potential non-oil exports.
There is no doubt that the timeliness of the report cannot be overemphasised as analysts believe the blueprints offered by the Agora reports would be useful in setting a workable agenda for Nigerians who are earnestly yearning for good governance
