By Chinwendu Obienyi
The reforms introduced in the past one year under President Bola Tinubu have left majority of Nigerians in deeper economic austerity. Inflation is currently over 30 per cent and there are possibilities of it soaring higher. Naira value has plummeted after the float, just as Nigeria is facing the exodus of multinationals, thus worsening the unemployment nightmare.
These highlight severe financial strain on the average Nigerian whose purchasing power suffers value erosion on a daily basis.
However, regardless of these economic hiccups, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, offers hope, insisting there is light at the end of the tunnel.
In a television interview monitored by Daily Sun, he provided a comprehensive overview of the country’s economic challenges and the government’s strategies to address them.
He noted that the FG is focused on agricultural productivity, infrastructure investment, fiscal responsibility, and attracting Foreign Direct Investments (FDIs) which were critical components of the administration’s strategy to revive the economy and save it from financial bankruptcy.
Assessing Tinubu’s government economic agenda
I would say Mr President has achieved relative stability in his first year in office. He has put the economy on a track of growth and has put together a package of intervention measures especially in Agriculture which needs to be re-doubled, re-emphasized and further extended in order to have the full effect. On one hand, the macro-economic measures which everybody knows to save the economy and bring it back from financial bankruptcy, save the FX market from chaos and basically a market that was stalled and was illiquid leaving businesses frustrated. Clearly, the initial measures taken by Mr President to stabilize the economy has led to an inflationary spike in terms of cost of fuel and secondly in terms of the exchange rate and also in terms of interest rates, the CBN defined its core mandate was to fight inflation and the number one tool to fight that was push up interest rates. In a nutshell, those were actions that were necessary but led to the spike in the cost of living for the ordinary Nigerian as well as increased cost for businesses. However, those measures are beginning to bear fruit. At a time when interest rates are high which normally means that when businesses find it hard to borrow and invest, the economy is growing. People are finding a source of funds, equity including government putting in its own share of private public sector funding for infrastructure in particular and that is helping to create jobs and grow the economy presently. But on the other hand, inflation is high at 33.69 per cent, food inflation at over 40 per cent is worrisome but the fact is that inflation is coming down on a month-on-month basis (2 per cent). So, it is slow and it is expected to reduce. As we continue the dry season harvest and go into the wet season harvest, a lot of emphasis is placed on getting more agricultural input to get prices down and that will be a big factor in bringing down inflation. Recall that there have been intervention programmes to ameliorate the pains of Nigerians which include direct payments of N75,000 to 15 million households, which is expected to yield dividends in terms of pushing help to Nigerians.
Negative status of major economic indicators
This is not surprising at all. A typical fall-out from the reforms that has to be taken include the high interest rate to tackle inflation and attract FX which was successful. In terms of inflation, as I said earlier, it is coming down and is expected to come down over the next few months and as for the other indices, the important thing is that the economy is actually growing. It is very rare to have a situation where the authorities set a target fighting inflation, bringing down inflation and prices generally and at the same time, to have the economy growing. We do have that compared to last quarter in 2023, growth was up to virtually 3 per cent per annum above population growth compared to about 2.0 per cent this time last year, so you do have the economy growing and going in the right direction. As I said earlier, we just need to steer that cause and in steering that cause, ameroriation, help must be given and is being given across board. Help is going to be given to farmers, consumers, SMEs, MSMEs and there is on Mr President’s table an economic stabilization plan that deals with the factors affecting big industries, businesses so that they too can begin to invest, grow the economy and create jobs to reduce poverty.
It is hard to convince Nigerians that the present administration is indeed doing the right thing considering that their lives are becoming difficult by the day, what would you say to an average Nigerian who has seen a dramatic decline in his or her purchasing power?
Decline in consumer’s purchasing power
I will say that what we can look forward to in weeks and even months to come is an improvement in the situation. We can expect that food prices will come down, food availability will increase, that is the commitment and focus of this present administration. We have not only put in place a robust and transparent system to pay people directly, we are also now sitting together and looking at food availability.
Food inflation
The food security problem is a worldwide phenomenon. 30 per cent of the world’s population to a greater or lesser extent is food insecure. We have our own situation in Nigeria which we are focusing on and I think that the issue here is that these areas critical to Nigerians, provision of food and cheaper transport and creation of jobs are being focused on. As I said, special funding and intervention for Agriculture and in terms of growth, when you look at investments in infrastructures, the jump-starting of massive infrastructure program, that is the way to creation of jobs and multiplier effects of the government to get the economy going again and that is what is happening. The support that is coming is not just Nigerian businesses that are investing, it is also international support coming too. There is an agreement that Nigeria is on the right track and if we stay in this course, we will tackle inflation and get the economy going more, create jobs and people will find their lives easier.
Removal of fuel subsidy and its implications
The fuel subsidy removal which was the first major policy announcement of Mr President was necessary and overdue as it had placed Nigeria in a physically unmanageable situation. Although this is not what the average Nigerian sees, the revenue of the government when you look at my role as the government treasurer, we have totally revamped and renewed government revenue. The procedures that we use now mean that we are collecting virtually all that should be coming to the government from various agencies, revenue earning departments and parastatals and that is increasing and includes major earnings in FX. Nigeria is no longer living on borrowed money, no longer living on drawing ways and means. Where we have international debts, obligations to international companies or banks like for instance the shareholding in African Development Bank (AfDB), the shareholding in the Islamic Development Bank (ISDB), 100’s of millions of dollars debt, we have made them on time. We have kept the reputation of the country intact and that is ongoing. We have paid down N7.3 trillion of outstanding overdue ways and means obligations, that is the overdraft at the CBN and so the government has really put in place a robust mechanism, not just on revenue but expenditure to ensure that Nigeria’s money is spent visibly, transparently and accountably. These measures are not ones that are easy to implement as change management is always difficult but with the President’s political will and backing, we are pushing through these reforms.
Nigeria not swayed by IMF, World Bank
Generally, the view of Nigeria as well as developing countries in general is that the multilateral development banks, the so-called Bretton Wood Institutions, are not giving the support that these developing countries deserve. They are not given the sufficient funding to develop their countries well enough. Having said that, these institutions form a veritable source of relatively cheap financing and the money is virtually free for about 40 years at 1 per cent or thereabout. What Nigeria has done is encourage the support and commitment of those who are able to fund cheap loans. In two weeks, the Board of the World Bank will consider a $2.25 billion package for Nigeria of virtually grant funding which is not being given under conditionalities, but a large part of it is in recognition of what has been done to stabilize the Nigerian economy and get it on the path to growth and one part of funding will come immediately after the board meeting which we are confident of achieving. This shows that we know how to use the multilateral development banks to our advantage even though we do not agree with everything they say. They agree with our homegrown policies which is aimed at getting Nigeria moving again but in addition, we have learnt that especially when interest rates around the world were high, that we need to rely on our own resources, without increasing taxes. Infact we are planning to reduce some taxes such as with-holding taxes which are lopsided burdening some companies and despite that we are looking to increase the amount of taxation that belongs to the government that is to be collected. In addition, Nigerians have the capability, not just to fund in Naira, have the capability to fund in FX as we have a large and successful diaspora. We just announced recently that we are looking for a domestically issued US dollar bond where mainly Nigerians living abroad, working and Nigerians who live in Nigeria but who have savings abroad, have money in international banks, we are putting before them the opportunity to come and support the efforts of reviving and rebuilding the Nigerian economy through a historic bond issuance and is causing a lot of interest and excitement within various fora. These are the examples of immediate funding in FX that will assist in stabilizing the exchange rate, bring down inflation and help Nigeria to get back on the path to growth. I must emphasize that having rolled off so many things that are being done which are very substantial and fundamental in correcting and making sure that government has enough revenue and is efficient about its spending, the emphasis is on ramping up food production, dealing with food nutrition and security and likewise the emphasis is on helping small scale businesses through grant funding which is done in a world class standard.
Nigeria’s growth outlook
One of the most objective of how an economy has grown is the rating agencies. Moody’s improved Nigeria’s credit rating to a positive outlook. Last month, Fitch moved Nigeria’s rating to positive outlook and these are third party observers of what is going on. It does take time to have a positive effect come through. Like I have said inflation is falling and expected to fall further and emphasis has been placed on what can bring it down which ramps up food production amongst others. Likewise, the government is investing in infrastructure and has the support of private sector investors. Also the very sophisticated financial markets are coming to the table, the institutional investors are putting heads together to see how within the guidelines, rules and regulations we have, they can use a portion of long term savings to provide affordable mortgages which reignite construction in the housing sector. If you have a housing boom, you have an employment boom, these are the strategies and areas in which the government is looking to rekindle growth of the economy.
Businesses leaving Nigeria
When we look at the economic climate as we said, particularly for the larger scale businesses, multinationals, foreign direct investments (FDIs), one of the major drawbacks or impediments was that we did not have a FX liquid market. Now, we have a willing buyer, willing seller market which is now elevated, maybe not at the level we like it to be but it is when you get inflation down, that you can get a stable FX rate, similarly with the interest rate and so that fight is on and what we have now is an improved environment for these big investors. When you look at the oil and gas sector, as a result of reforms on the fiscal side, especially on the Executive Order signed by Mr President, the investment climate has significantly improved for gas which we have in abundance and which most people see as a transition fuel which can be invested in a cleaner and non-fossil fuels. But at the same time, the investment climate for deep offshore where huge investment amounts are needed and where the technology is particularly sophisticated, the environment for them has been improved with the range of incentives and it is estimated that in the nearest future, those measures will unlock $7 billion of FDIs in the oil and gas sector.
Hence, the fact remains that companies will always come and go, it is simple economics of free entry and free exit.
Our aim is to not only keep businesses from exiting but we are sure that with the environment that we have put in place, investors will come and as for the average manufacturing firm, there is a fiscal policy and tax reform committee that has worked hard to put in place a range of measures, some of which are included in the economic stabilization package that will be considered by Mr President and therefore are measures to help businesses which are imminent as far as the timing of the introduction of the package. We are in a difficult place but we are striving to improve the economy.
FDIs
I have just said that there are $7 billion estimated to come in from the oil sector. Another major improvement in the economic environment is the national single window project which really is an e-community and trade facilitation platform that will revolutionise what goes on at the ports which will make them more cost-effective and make us more competitive in terms of port operations, that too is expected to rake in billions of dollars in economic benefits. Mr President has been on the platforms around the world, most recently speaking at World Economic Forum in Riyadh, these are all about marketing Nigeria to investors and the prospects are good. We are expecting trade missions, groups of businessmen interested in investing. One of the things we need to do is have a double taxation treaty, this is what we are tying up from our own end in terms of agreement as far as private investments are concerned and so the ball is in our court to some certain extent.
