Stopping free fall of the economy

Nigeria’s economy is in free fall and all the macroeconomic indicators are headed south. There is no solution in sight and the managers of the economy have proferred none. The citizens are apparently at the mercy of the authorities and are looking up for help. The managers of the economy seem to be lost and not in the know of the next steps that would put a wedge in this free fall. This discourse reviews the trajectory of this free fall and proffers a few practical solutions that would at least put a wedge, a first aid to stop the massive bleeding so that the steps for a revamp, equivalent in medical terms to a cure and healing, can begin.

The first arm of this trajectory is the “subsidy is gone” announcement which President Bola Tinubu gleefully made from the swearing-in at Eagle Square. Subsidy had eaten deep into resources meant for development and considering that we were paying fuel subsidy from borrowed funds, subsidy had to go, to stop the undue bleeding of the public treasury. The market was invoked as the crucible to determine the price of petrol. The idea was to cut off two sets of persons, part of the mafia undermining the economy. The first set comprised persons reporting scandalous millions of litres as the quantity consumed every day in the country.  It was also to cut off the second set of persons vis, smugglers who move subsidised petrol from Nigeria to neighbouring countries where petrol was more costly.

The floating of the naira was the second trajectory of the economic reform. Nigerians will recall that in late May 2023, before the swearing-in of Tinubu as the president of Nigeria, the dollar traded officially at about N464 to $1. At the parallel market, it traded for about N760 to $1. In a couple of days, the naira was floated and the announcement was that the value of the naira would be market-determined. Again, the almighty market was invoked as a panacea for the inherent challenge in the management of the foreign exchange regime.  Many Nigerians applauded the step in the belief that it would stop the round-tripping and rent-seeking of a few who were gaining at the expense of the majority. There was also the understanding that the exchange rate gain would be released to the three tiers of government for public investments.

For the two reforms to succeed there are minimum core steps that should be taken by the government to ensure the accrual of the expected benefits that would have enured to Nigerians and the economy. Policies are not enacted in a vacuum but on the back of critical pre and post-actions and steps. Functional markets are backed by the rule of law and reasonable law enforcement. Human beings are the ones who inflated the figures of consumed petrol and smuggled petroleum products across the border. They ought to have been brought to book and the monies recovered. That is a real market in operation. The reforms in fuel subsidy and floating of the naira for now are like Siamese twins and they affect and reinforce one another. Since we are importing refined products, any gain or loss in the exchange rate will influence the pump price of petrol and other imported products. And Nigeria is an import-dependent economy.

The fallback on the idea of a market meant an understanding of a place, process or system where goods and services are exchanged for their fair value based on the forces of demand and supply that are not manipulated. For the new foreign exchange regime, the presumption is that Nigeria had goods and services beyond what was already on offer to take to the world so as to begin to earn more foreign exchange to shore up the value of the naira. Liberalising the foreign exchange regime is not meant for the fun of it.  But it is a process that allows productive forces to be unleashed so that there will be more goods and services to be traded to earn foreign currency and exports will increase. If imports had to increase, they would be for goods and services that facilitate greater productivity at home and thereby further boost exports.

The natural expectation was that the Federal Government would go for the low-hanging fruit in the oil sector as a starting point for new foreign currency earnings, to increase the number of barrels produced in a day from less than 1.2mbpd to at least 2mbpd, which was the position before the Goodluck Jonathan administration left office in 2015. That was not possible in a month or two, to lay out a public road map for the expeditious steps of the journey. Luckily for the new administration, crude oil has been selling at a record high and currently not less than $90 per barrel. Producing 2mbpd would virtually double our take from oil which is our highest foreign exchange source. Also, the administration could have taken critical steps to stop crude oil theft which would have been instrumental to increasing oil production for export. It is a matter of political will to give the marching orders and for the president to sack any agency lead or operative who sabotages the implementation of presidential directives.

Furthermore, the leadership of the Nigerian National Petroleum Company before the Tinubu administration, presided over the greatest looting of public resources under the fuel subsidy regime. The reports of various official agencies, including the Nigeria Extractive Industries Transparency Initiative, Revenue Mobilisation Allocation and Fiscal Commission, all indicted the leadership of the NNPC. The expectation is that President Tinubu would have disengaged the present leadership of the NNPC and thereafter set up a probe to recover the missing trillions and to punish those responsible for the grand theft.  Keeping the old guards in their place when there is a general dissatisfaction with their performance is an official endorsement of the rot. You cannot reform a system with the same old leadership that was responsible for the mischief in the first place.

A country in dire need of foreign exchange would not deploy the little available in frivolities – importing SUVs for top government officials when there are locally produced SUVs and other vehicles. A country with this level of economic challenge would have put its first eleven forward in ministerial appointments rather than resort to cheap political patronage. Again, the leadership of the country would have built popular consensus around the idea of reform and benefitted from wide support through consultations and confidence building.

For now, the fuel subsidy that was announced to have gone is now back in full force with a venom that will reverse whatever gains that may have been made. Media report indicates that the Federal Government may spend about N1.68tn as subsidy on petrol, from September to December this year while marketers forecast a price of N900 per litre of petrol as oil price hits $95 per barrel. If Nigerians supported the liberalisation of the exchange rate regime, it was not to make $1 to become the equivalent of N1000; neither was it to make foreign currency more scarce. Nigerians did not anticipate that they would pay N620 per litre of petrol and still be informed that the government is adding not less than N200 in subsidy per litre.

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