When Mr Indermit Gill , a World Bank Vice President, announced at the 30th Nigerian Economic Summit on the 14th October 2024 that Nigeria must bear the current economic hardship for another 10 to 15 years before the situation could begin to improve, he ignited general condemnation from the long suffering people of the country.
Real life experience has shown that the indignation of Nigerians was justified because all the three policies, which the Tinubu administration claimed would boost the economy and which the World Bank executive endorsed at the Economic Summit, have had the opposite impact on the economy.
*Removal of fuel subsidy* has led to a 500% increase in the cost of PMS: from #185 naira per liter before removal of subsidy to #1,100 naira per liter after removal. *Devaluation of the naira* has led to a weakening of the naira from #450 / $1 to #1,600/$1. Corporate percentage Tax increases and increases in the number and variety of taxes to include new VAT taxes and Electronic Transfer Tax have increased the cost of production; for which reason companies are folding up and leaving the country, while others are operating at reduced capacity.
The overall effect of these short sighted and wrong headed policies of the Tinubu administration have been calamitous for the Nigerian people. There has been an incredible increase in unemployment, an astronomical increase in the poverty rate, food shortages, and massive hunger. In economic terminology, the 35% inflation rate, the highest in Nigeria’s history and one of the worst in the world today, tells the story.
Here are some suggestions on how to resolve these economic challenges:
1.THE OIL SUBSIDY ISSUE.
The whole scale and abrupt removal of petrol subsidy was foolhardy. What should determine the price of oil or any commodity for that matter in a capitalist system should not be and cannot be government pronouncements, but market forces. The role of the government is to regulate, holding companies accountable to the best economic practices.
In order to reduce the cost of oil to the Nigerian consumer, the federal government must undertake a rigorous reform of the oil industry. Within the Nigerian National Petroleum Corporation (NNPC), output must increase to near capacity levels, the rate of crude oil theft must reduce, and there must be efficient monitoring to reduce waste. Outside of NNPC, privately owned refineries must be allowed to become fully operational as serious business ventures. The government’s role should be limited here.
If these changes are carried out, the quantity and quality of refined products will increase. This is when competition is likely to drive the pump price of oil down and the real market price of the product is enjoyed by the Nigerian public. This is when the government will understand what it is actually subsidizing.
2) NAIRA DEVALUATION!
The devaluation of the naira was a consequence of the weakness of the Nigerian economy. The Tinubu administration was compelled to devalue the naira because a strong naira would not reflect the true picture of the economy. The strength or weakness of a currency depends on the performance of that currency in the international financial market. The Nigerian naira became a weak and devalued currency because the naira was under performing since the country was not generating a great amount of revenue. 90% of the country’s foreign revenue generation comes from the export of crude oil. This dependence on one product has proved to be insufficient and inadequate. In order to increase revenue and strengthen the economy, the government must look for additional sources of revenue.
In order to increase its revenue, the government must bring more income generating products on stream. This can be done by a devolution of economic powers to the States. State governments should be empowered to explore, develop and market the mineral resources which exist within their domain.
If they can bypass the current Federal government guarantees and ‘ Exclusive Lists, ‘ states would be able to bring precious minerals such as lithium, phosphate, bauxite, uranium, gold and bitumen in addition to crude oil as income earners for the country.
Also many states in the Federation have the capacity to develop their agriculture sector and turn local produce into international sources of revenue.
3) TAX INCREASES!
The recent tax review by the Tinubu administration has not reduced taxes in any substantial way. It has improved on methods of tax collection, but personal income tax, Corporate Tax, property tax, electricity Tarrif and bank interest rates are all too high.
As an American senator puts it, ” Tax Hikes create an Endless Cycle of Debt” . This type of perpetual debt leads to perpetual borrowing. The existence of this vicious cycle is responsible for the gruesome economic hardship experienced in today’s Nigeria. Unfortunately, the higher the taxes, the more difficult it becomes to build capital without which Economic development becomes virtually impossible.
Rather than burden the private sector, especially with high taxes, the government should reduce taxes and provide incentives to producers. Investors and producers have to be given encouragement in order to stay. America attracts investors with its low interest rates for businesses. The United Kingdom attracts them by providing affordable social services. South Africa and Egypt make their economy attractive by providing inexpensive sources of energy.
Nigeria’s comparative advantage is the abundance of energy sources: crude oil, natural gas and sunshine in open spaces for solar power. If these sectors are developed and managed properly, the cost of production for companies, as well as the cost of consumption to the user will decrease significantly. This is how the number of companies folding up and leaving the country can be reduced. Increased productivity will trigger employment, and reduce poverty and hunger. The reduction in costs of production manifests itself in the market place in the form of reduced prices.
In conclusion, Nigeria can rescue itself from the current economic quagmire if it does two things: one, devolve economic powers to the Federating Units so that States can bring their minerals and agricultural produce to enhance the National Revenue. Secondly, the President and his administration must desist from extravagant and wasteful spending. Using borrowed funds to service borrowed funds is the height of economic stupidity. It is suicidal!
Dr Adetokunbo Pearse, PhD, Public Affairs Analyst, Convener Reset Lagos PDP, Member Board of Governors Peoples Democratic Institute (PDI).
