The impact of sound macroeconomic policies on improved economic activities, increase in job creation, increase in foreign & domestic capital investments, and poverty reduction in Nigeria cannot be over-emphasized. The state can establish the enabling conditions for growth and economic development as well as shape them through macroeconomic policies. Macroeconomic policy lessons from the successes of East Asia provide convincing evidence for this conclusion. Currently, Nigeria is facing a difficult economic situation just as it did when the outgoing Nigerian president, Muhammadu Buhari, won the 2015 presidential election. These difficulties are not limited to its rising inflation, sluggish economic growth, rising poverty levels, soaring unemployment, and an unsustainable public debt profile. Nigeria is in dire need of pragmatic macroeconomic policy propositions to engineer the positive outcomes already highlighted. As electioneering toward the presidential elections in February 2023 ramps up, there are some macroeconomic policy priorities that whoever emerges as president must start addressing from Day One.
Conventionally, the fundamental aim of sound macroeconomic management is maintaining monetary & price stability, achieving high & sustainable economic growth, achieving full employment, a balance of payments equilibrium, and fair distribution of income.
Nigeria is currently facing several macroeconomic challenges that have the potential to mar its existence as a country if left unaddressed. These challenges include a high inflation rate, sluggish economic growth, rising poverty levels, a widening budget deficit plus unsustainable debt, and of course, soaring unemployment.
Nigeria has experienced bouts of high and rising inflation in the recent past, with the country’s inflation rate exceeding 20% on multiple occasions in the past decade. The most recent cost price index (CPI) report (November 2022) for Nigeria released by the National Bureau of Statistics (NBS) puts the headline inflation rate at 21.47% - the highest in 17 years. This high inflation rate is caused by a number of factors, including rising food and energy prices, as well as an increase in the cost of imported goods due to the depreciation of the naira.
Nigeria has been experiencing sluggish economic growth for some time now. To put it into perspective, Nigeria’s GDP growth reversed its trend of outpacing population growth from 2015 to 2020. Furthermore, in 2021, Nigeria’s economy grew by 3.6%, which is below the global average of 5.9%, and the years prior to the 2021 pandemic saw Nigeria record GDP growth rates lower than 3% including a negative growth rate in the recession year of 2016. This sluggish economic growth was mainly due to a decline in the manufacturing, agriculture, and services sectors.
Rising poverty levels are currently a serious concern in Nigeria. According to the Multidimensional Poverty Index in 2022, at least 63% of Nigerians, or 133 million Nigerians are multi-dimensionally poor. Also, according to the survey results covering 56,000 households on a nationally representative sample, high levels of deprivation are apparent in the poor quality of cooking fuel i.e sawdust, cow dung, firewood, charcoal and etc, and water for drinking and cooking - Furthermore, we see high levels of deprivation in housing, food insecurity, sanitation, and access to healthcare nationally.
Nigeria's budget deficit is a major macroeconomic problem for the country. The widening gap between government spending and revenue has contributed to an overall increase in its public debt. This rapid rise in public debt is pushing the country to a fiscal cliff as the debt increasingly reaches unsustainable levels. The country's debt-to-GDP ratio has risen from 9.6% in 2010 to 20.6% in March 2022. This is an all-time high - since the Heavily Indebted Poor Countries (HIPC) initiative of the World Bank and IMF was launched in 1996. The debt story is set to get worse in 2023. Nigeria is to spend N21.8 trillion in its 2023 budget, which will be a record-breaking budget spending. With a budget deficit of N11.78 trillion, or more than half of the budget, and obvious contempt for the 2007 Fiscal Responsibility Act, borrowing will be used to fund this in the majority. This increase in public debt has put a strain on the country's fiscal resources, making it difficult for the government to finance its development projects. In addition, the high level of public debt has resulted in higher interest payments, which have further reduced the amount of funds available for public spending. This has led to decreased spending on vital services such as health, education, and infrastructure, which will have a negative impact on the overall macroeconomic environment of the country.
The soaring unemployment in Nigeria is a cause for concern. The most recent data from the National Bureau of Statistics puts Nigeria’s unemployment rate at 33.3% and the youth unemployment rate at 42.5%. The increase in unemployment has had a significant impact on the macroeconomic environment in Nigeria as it has resulted in an increase in poverty levels and an overall decrease in the country's economic growth, as aforementioned already in this feature article.
Given the aforementioned macroeconomic challenges that Nigeria is currently facing, the next President that Nigerians vote in at the 2023 presidential election in February 2023 will face herculean tasks - at least in the first 18 months of his/her election, there are a number of macroeconomic policy priorities to work towards attaining. These macroeconomic policy priorities include reduced inflation & price stability, high & sustainable economic growth, full employment, fair income distribution, and effective debt management. As remedies, the next president will need to undertake a number of policy decisions and push for supply-side panaceas to the glaring supply-side problems leading to the aforementioned macroeconomic challenges faced. These supply-side panaceas and policy remedies include phasing out energy subsidies, encouraging and imploring the central bank governor to make the foreign exchange window a single market-based window, completely opening all land borders for trade & exchange, removing non-tariff measures (NTMs) and non-tariff barriers (NTBs) on key food imports to enable a flurry of food imports to curtail the food prices’ influenced inflationary environment.
Nigeria’s inflation problem is primarily a supply-side issue. Thus, Nigeria’s next president should think about implementing all-encompassing policy changes to lower inflation by sorting out the supply-side problems. First, the next president needs to find adequate and legal avenues to influence the CBN governor toward enabling a single foreign exchange (FX) market window and floating the exchange rate in order to facilitate a surge in the availability of foreign exchange, if possible, much like Egypt did in 2016 - it is important to note that the Egyptian pound has appreciated by 20% in the last five years since they undertook this policy decision. It is also important to highlight that the position of both the central bank of Nigeria and the governor of the central bank of Nigeria is that of full autonomy as stipulated in the CBN Act of 2007, hence the need for the next president of Nigeria to deploy diplomatic means to implore the CBN governor toward a single FX market window and a slow float. This will make the macroeconomic situation more stable and predictable. Second, the president needs to lower tariffs on important food imports and eliminate all non-tariff measures (NTMs) and non-tariff barriers (NTBs) on food imports like sugar, dairy products, corn, wheat and etc. As a result, resources will be used more effectively, and Nigerians will have easier and cheaper access to food due to a rapid increase in food supply to meet Nigeria’s sky-high food demand. From a long-term outlook, in order to address Nigeria’s persistent age-long inflation problem holistically, if the highlighted policy remedy is carried out in tandem with the single FX market window decision, FX complications and their countering effects on price stability will be controlled, thus, contributing to Nigeria’s single-digit headline inflation goal.
The next president of Nigeria must take decisive action to catalyze the private sector and increase foreign direct investment (FDI) in order to bring about much-needed economic growth. To this end, the president should incentivize bank lending to small and medium enterprises (SMEs). This will help to reduce the current low lending-to-deposit ratio (LDR) and increase credit availability to SMEs - currently, according to Stears Data (paywalled), Nigeria has a really low Lending-To-Deposit Ratio (LDR) at 59% when compared with its African peers like Kenya at 76% and South Africa at 91%, and only 2% of Nigerians have had an outstanding loan from a financial institution even with 45% of Nigerians having bank accounts. Additionally, the president should work to create a business-enabling environment by improving ease of doing business measures. Doing this will entail streamlining the processes for registering and obtaining business licenses, reducing the company income tax from 30% to at least 25%, fully automating processes at the country’s seaports, adopting a supply-side approach towards curtailing the cost of utilities, reducing corruption, upgrading infrastructure, and expanding access to technical and skilled labor. These multi-pronged actions taken concurrently will contribute to the development of a favorable business environment, which will ultimately boost the Nigerian economy. This will make Nigeria more attractive to potential investors and encourage FDI.
The president will need to prioritize government spending on public infrastructure and human capital development. This means ending all energy subsidies and using the resources saved to fund these new priorities. Furthermore, the government should decongest the Apapa and Tincan Island ports by transferring traffic to other seaports and reducing border and port clearance delays by automating procedures.
In sum, the president should focus on incentivizing bank lending to SMEs, creating a business-enabling environment, and increasing government spending on public infrastructure and human capital development. These measures are essential to unlock the potential of the Nigerian economy and attract foreign direct investment. Only then will Nigeria be able to experience the economic growth it so desperately needs.
Increasing cash transfers to the poor as a temporary palliative for the poor to endure the outcomes of a gradual energy subsidy phase-out is a necessary but temporary remedy as the next president looks at cutting unnecessary government spending while managing the potential social anxiety that might arise from the abrupt end to energy subsidies in the country. This can be done through the harmonization of BVN data with demographic data culled from the NIN database so as to repopulate Nigeria’s 30 million-full national social register - this would guarantee that the cash-starved populace can receive periodic digital transfers of flat-rate temporary non-conditional cash transfers with little to no logistical headaches. However, it is important to note that addressing Nigeria’s rising poverty and soaring unemployment will need more than cash infusions, and catalyzing the private sector is a very important step to take in that direction. The step should consist of establishing a business-friendly environment by making it easier to conduct business, increasing public investment in infrastructure and human capital, and targeted support to priority industries, sectors and businesses - earmarking how labor-absorptive these sectors/industries/businesses are and their scaling potential may be elements to take into account when choosing the priority industries or businesses for government expansionary fiscal support. This will spur the private sector to increase its output, create more jobs, and increase income transfers to Nigerian citizens.
“Proper debt management should ensure that a government’s financing needs and payment obligations are met at the lowest possible cost over the medium to long term” - IMF
Nigeria's unsustainable debt and budget deficit should be addressed as soon as possible by the country's next president. The elimination of oil in-kind payments and the transfer of all oil income to the Federation account for verification are necessary measures to increase government revenue. Strong kinetic and non-kinetic actions must also be implemented to combat oil theft, and oil output must be increased to meet OPEC's 1.7 MBpd production quota, at the very least. By kinetic I mean strong military actions and the deployment of calculated force, and by non-kinetic, I mean actions that are not limited to deradicalization, economic empowerment, scaling up retributive & restorative justice, indulging truth & reconciliation efforts et al. Furthermore, in order to diversify Nigeria's economy and lessen its reliance on oil earnings, the president should also concentrate on boosting non-oil exports. The future president of Nigeria can put the nation on a sound fiscal trajectory and guarantee that it can sustainably pay its debts by acting proactively in this way.
The macroeconomic issues facing Nigeria can be resolved by the country's future president. However, as is noted in the Nigerian policy space, it is never that easy. The next president is implored to shrewdly push for the establishment of a single foreign exchange window, gradually phase out energy subsidies, fully open the land borders to trade & exchange, and eventually get rid of non-tariff restrictions on important food imports in order to safeguard the future prosperity of the country. These actions will promote economic growth by lowering inflation, stabilizing the currency, and luring in foreign capital. Egypt's macroeconomic reform experiences post-2015 as stated in this IMF country focus article provide an illustration of how these strategies can be effective. To conclude, the next president of Nigeria can steer the nation toward a better future with the appropriate macroeconomic policies in place.
¹ Stears Premium Article: https://www.stears.co/premium/article/why-moving-nigerias-economy-forward-isnt-just-about-gdp/