President Bola Ahmed Tinubu has a lot of promises to fulfill. He has pledged to build a Nigeria where millions of jobs with decent wages are created. Where productivity improvements increase economic output and boost exports thereby consequently strengthening the Naira. Where energy subsidies are no more. These are a few of the many promises that he has made in both his manifesto and his acceptance speech in his recently concluded presidential inauguration ceremony. 

It is important to note that his presidential campaign was anchored on his 80-pages-long manifesto titled: “A Renewed Hope: Action Plan for a Better Nigeria.”  We take a deep dive into the document to have a detailed look at his economic policy approach and the outcomes that Nigerians should expect if the manifesto plays out. 

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Economic Policies: A Deep Dive

“We must break the explicit link between Naira expenditure and dollar inflows into the economy.”

1.Expansionary Fiscal Policy 

According to Tinubu’s presidential campaign manifesto, he intends to deploy an expansionary fiscal policy where budgetary spending is no longer tied to the country’s yearly dollar-based oil revenues. An expansionary fiscal policy is a government policy that is designed to increase aggregate demand and economic growth. This can be done by increasing government spending, cutting taxes, or a combination of both. In this particular case, he wants to do so by increasing government spending. 

In the manifesto, Tinubu proposes to implement an expansionary fiscal policy by increasing government spending. Under the current budgetary system, ideally, the government is expected to spend what it earns. However, there is an allowance for external borrowings and short-term bridge loans from the Central Bank of Nigeria in the form of “Ways and Means” advances to bridge budget deficits that do not exceed the limits permitted in the fiscal responsibility act. The “Ways and Means” advances are pejoratively referred to as “Naira Printing”. However, this approach involves huge risks and particularly becomes problematic when the value of the naira depreciates. In such cases, the government must allocate more naira to acquire the same amount of dollars, which can result in inflation and a devaluation of the naira. Regardless, Tinubu’s presidency already has more freedom to spend more from extensive borrowings, at least from a Central Bank “Ways and Means” advances perspective: over the weekend, both the Senate and the Federal House of Representatives had earlier approved an amendment to the Central Bank of Nigeria Act, raising the ceiling of Ways and Means advances from the apex bank from 5% to 15%.

Tinubu's proposal entails a fundamental shift in Nigeria's budgetary framework. By eliminating the constraint of yearly dollar-based revenues, the government would gain the flexibility to spend more even in the event of a weakening naira. This new approach holds the potential to stimulate the economy especially if the expenditure is on capital projects. Nevertheless, it is crucial to acknowledge the inherent risks associated with this strategy. As we have seen in Muhammadu Buhari’s recently concluded eight years as president, excessive government spending without a corresponding level of revenue leads to inflation and further depreciation of the naira. 

Expected Outcomes

The realization of Tinubu's manifesto concerning an expansionary fiscal policy hinges on various factors, primarily the effective implementation of policies. Nevertheless, several potential outcomes could emerge should the manifesto play out, including

Accelerated Economic Growth: With prudent allocation, increased government spending has the potential to stimulate economic growth in Nigeria, fostering job creation and reducing unemployment rates.

• Enhanced Infrastructure Stock: Directing funds towards infrastructure development, such as roads, bridges, and schools, could create an environment conducive to business operations and elevate the quality of life for Nigerians.

However, it is essential to acknowledge the potential risks accompanying Tinubu's manifesto, including

Inflationary Pressures: Excessive government spending risks triggering inflation, and increasing the cost of goods and services for Nigerians.

• Escalation of National Debt and Debt Servicing Costs: Financing the augmented expenditure at our current revenue levels will require extensive borrowing, leading to a surge in the country’s public debt stock, as with the country’s debt servicing costs.

Here are some additional factors to consider:

• The government's ability to generate revenue: If the government is not able to generate enough revenue, it will need to borrow more money to finance its spending. This will increase the debt stock and servicing costs.
• The government's ability to manage its finances: If the government is not able to manage its finances effectively, it could lead to intractable debt servicing costs. This could happen if the government is not able to make timely payments on its debts or if it is not able to negotiate favorable terms on its loans.

There is ample global evidence that excessive government borrowing and ensuing spending levels can lead to more economic strife than economic growth, especially if the necessary volumes of dollar-based revenues do not match the volumes of debt-based government spending. This has been the case in countries like Lebanon, Ghana, Venezuela, Argentina, and Zimbabwe.

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2. Import Substitution Policy 

“We must curb our reliance on imported goods. Importation of non-essential products will be discouraged through policy measures including luxury taxes, higher tariffs, and higher processing fees”.

In the manifesto, Tinubu wants to deploy an Import Substitution Policy, marking a return to the 1970s and 1980s era economic policy approach of quite several African countries including Nigeria. The reason for this, he insists, is to curb Nigeria’s reliance on imported goods. 

Thus, the importation of non-essential products will be discouraged through policy measures including luxury taxes, higher tariffs, and higher processing fees. At the same time, international brands will be incentivized with tax credits, rebates, and other fiscal incentives to establish manufacturing plants in Nigeria both for export and to meet the needs of the large population of consumers in Nigeria and the wider ECOWAS region. Import substitution is a policy that aims to reduce a country's reliance on imported goods by encouraging the production of those goods domestically. This can be done through a variety of measures, such as tariffs, quotas, and subsidies. 

Nigeria is not alone in adopting an import substitution policy. Other African nations, including Ghana, Kenya, and South Africa, have also pursued this strategy, albeit with differing outcomes. South Africa stands as a notable success story, effectively reducing import reliance and bolstering domestic production. In contrast, Ghana's experience with import substitution has been less fruitful.

The degree of success in implementing import substitution hinges on several crucial factors, such as a country's economic structure, resource availability, and the government's efficacy in policy execution. Without the necessary conditions to support robust local production, pursuing import substitution can result in scarcities of vital commodities, heightened inflation, and other economic challenges.

Expected Outcomes

If Tinubu is to carry out his import substitution policy, especially in food production, without resolving stubborn issues, it will be will have severe effects on food costs and security. Nigeria has struggled to improve productivity and boost local food production to meet demand due to insecurity, high farming input costs & rapid rural-urban migration, poor farming techniques, and low hectare yields. 

Insecurity is a major challenge to food production in Nigeria. Farmers are often attacked by bandits and terrorists, and their crops are stolen or destroyed. This makes it difficult for farmers to make a living, and it discourages them from investing in their farms.

High farming input costs are another challenge to food production in Nigeria. The cost of fertilizer, pesticides, and other inputs has increased significantly in recent years. This makes it more expensive for farmers to produce food, and it reduces their profits.

Rural-urban migration is also a challenge to food production in Nigeria. Many young people are leaving rural areas to seek work in cities. This leaves fewer people to farm, and it reduces the amount of food that is produced.

Poor farming techniques and low hectare yields are also challenges to food production in Nigeria. Many farmers use outdated farming techniques, and they do not have access to modern technology. This results in low yields, which makes it difficult to meet domestic demand for food.

If Tinubu is to implement his import substitution policy, he will need to address these challenges. He will need to find ways to reduce insecurity, lower farming input costs, and encourage young people to stay in rural areas. He will also need to provide farmers with access to modern technology and equitable access to agricultural extension services. If he can address these challenges, then his import substitution policy could be successful. However, if he is not able to address these challenges, then his policy could lead to nationwide famine and higher inflation. The same goes for local manufacturing, especially if the core challenges of infrastructure, foreign exchange access, optimally functioning ports, and reliable energy supply persist.

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3. Anti-Inflationary Fiscal Policy

Earlier this year, at least two months before the 2023 general elections in Nigeria, we highlighted the core macroeconomic policy priorities for Nigeria’s next president. Key amongst them was to carry out an anti-inflationary fiscal policy drive that included sorting out Nigeria’s multi-decades-long supply-side issues including enabling a single foreign exchange (FX) market window and floating the exchange rate to facilitate a surge in the availability of foreign exchange. While it is not clear from Tinubu’s manifesto whether he will pursue the liberalization of Nigeria’s current foreign exchange controls, it is clear that his anti-inflationary fiscal policy will include frowning against the CBN’s hawkish MPR hikes that frustrate domestic producers from accessing domestic credit at affordable rates. While CBN’s independence in Nigeria is not in question, it will be naive of us to think that the new administration will not lobby for new policy directions favorable to its principal’s manifesto ambitions within the CBN leadership ranks. Moreover, Tinubu will have an opportunity to nominate a CBN governor that aligns with his policy ideas during his tenure.

Expected Outcomes 

It is important to note that while we understand that Tinubu wants the CBN MPR hikes to halt as part of his economic policy, it is not within the power of his office to carry out such monetary tightening approaches. This is solely the responsibility of the CBN. As earlier implored, nominating a CBN governor that aligns with his monetary expansion ambitions is a constitutionally appropriate approach. 

Regardless, from his inauguration speech yesterday, and his manifesto, we expect that his anti-inflationary fiscal policy drive entails more government spending that is tailored toward expanding Nigeria’s domestic productivity. A contradictory consequence of this approach will be a strong inflationary push caused by the fiscal expansion in the presence of key traditional supply-side constraints including high energy prices, and a weaker naira among others. Other expected outcomes of this anti-inflationary fiscal policy approach are as follows:

Staggered economic growth: While we expect an initial sprout in economic growth as the transmission of the extensive government spending policy occurs, the consequential inflationary pressure will make it likely that the economic growth eventually slows down. This is because inflation makes it more difficult for businesses to invest and expand.

Staggered unemployment: While we expect an initial sprout in employment as the transmission of the extensive government spending policy occurs, the consequential inflationary pressure and a slump in economic growth ensure that unemployment will increase again. This is because businesses are less likely to hire new workers when economic conditions are poor.

Increased poverty: If inflation and unemployment increase, it is likely that poverty will increase. This is because people will not only have less money to spend when jobs are scarce but will also buy less for the same amount because prices are high.

Conclusion

President Tinubu's manifesto is an 80-page document that outlined his plans for Nigeria and anchored his presidential campaign political messaging throughout the eventful electioneering season. However, studying the manifesto was a toil from an economic policy research perspective - it quite often was vague and lacked in detail. This made it difficult to tell exactly what Tinubu wanted to do on several economic policy items. For example, the manifesto states that Tinubu wants to collaborate with the Central Bank to thoroughly evaluate and enhance the exchange rate system, aligning it with his objectives of fostering optimal growth, job creation, and development in industries, agriculture, and infrastructure. However, it does not provide any specific details on how he plans to do this, and even a mention of it in his inauguration speech earlier today did little to provide detail. 

Regardless, if the economic policy approaches in President Tinubu’s manifesto fully play out, it could lead to several serious problems for the country in the medium to long term including higher inflation, further depreciation of the naira, and a larger debt burden with ensuing cumbersome debt-servicing costs.