By Bassey Udo
To halt the rapid decline in the country’s economy and the resultant negative impact on its citizens, Nigeria needs to undertake swift and audacious reforms, Agora Policy, an Abuja-based policy think tank, has advised in its maiden report.
In the report titled “Options for Revamping Nigeria’s Economy,” the think tank maintained that despite posting positive gross domestic product (GDP) growth performance in six consecutive quarters, and having the biggest GDP in Africa, Nigeria’s economy was not in sound health.
“Many of the macro-economic fundamentals have worsened and the level of inclusive development is low,” says the report which analysed Nigeria’s economic datasets from 2011 to 2021.
“Nigeria needs to undertake swift, bold and far-reaching reforms to halt the precipitous decline and the attendant negative impacts on citizens’ welfare. These reforms must be undergirded by inclusion, transparency and accountability.”
The Founder/Executive Director of Agora Policy is immediate past Executive Secretary of the Nigerian Extractive Industry Transparency Initiative (NEITI), Waziri Adio.
Agora Policy, which is a Nigerian think tank and non-profit initiative committed to finding practical solutions to urgent national challenges, conducts policy research, facilitates frank and purposeful dialogues, and builds capacity for governance, policy and advocacy.
Adio noted that Nigeria’s economy was in “desperate need of quick and bold actions to get out of the rut of low and fragile growth, lean and narrow revenue and export base, soaring debts and deficits, limited trade and investment, suboptimal government spending, and growing inflation, unemployment and poverty.”
Nigeria, the report said, needed “to deepen and diversify sources of revenue, re-calibrate expenditure to spend smartly, and invest efficiently. To achieve this, a re-thinking of drivers of the economy is needed”
He said some of the prescribed actions require not just deft economic management, but also strong political will, effective communication and trust building, include removing the progressively ruinous petrol subsidies, increasing tax revenue, curbing the growing and suffocating appetite for debts, ending restrictive trade practices, and adopting a more realistic and more transparent exchange rate regime.
The report identified the domestic and external drivers of the key challenges confronting Nigeria’s economy and provided options for reforms, especially in terms of government’s revenue, debt, trade and investment, inflation, interest and exchange rates, and unemployment and poverty.
The decision to focus on the economy, the report said, was driven by the need to expand policy and programmatic options for the current and next administrations.
“Everything revolves around the economy and there is no better time than the electioneering period (in the run up to the 2023 elections) to do a health check on the economy and come up with ideas and prescriptions for better economic outcomes,” Adio said.
He said the think tank commissioned the report to elevate the discussions during this important political campaign season to facilitate the search for solutions in an area central to national growth and human development.
Key data points from the report showed that Nigeria has not only underperformed its peers, but also regressed on most socio-economic indicators between 2011 and 2021.
For instance, the report revealed that finances of the Federal Government have been defined in the last decade by a stark mismatch between expenditure and revenue, on one hand, and by an explosion of debts and deficits, on the other.
While Federal Government’s expenditure rose by 179 percent from N4.48 trillion in 2011 to N12.51 trillion in 2021, actual revenue increased by only 81 percent, from N2.57 trillion in 2011 to N4.63 trillion in 2021, the report said.
The growing gap between expenditure and revenue, it added, has been bridged with growing debts, translating to a 436 percent rise in Federal Government’s debt from N6.17 trillion in 2011 to N33.11 trillion in 2021.
Significantly, the Agora report said domestic debt rose by 242 percent, from N5.17 trillion in 2011 to N19.2 trillion in 2021, while external debt increased by 2,435 percent, from N546 billion in 2011 to N13.86 trillion in 2021.
However, the report lamented that the increase in expenditure and debts has not translated to improvement in human welfare, citing as example the rate of unemployment, which it said rose from 5.9 percent in 2011 to 33.3 percent in 2020, while youth unemployment soared from 8.04 percent in 2011 to 42.49 percent in 2020.
The report said the number of Nigerians living below the poverty line was projected to increase from 82.9 million in 2019 to 95 million by the end of 2022, with inflation rate as at August 2022 at 20.52 percent.
Other key highlights and recommendations of the report include the under-statement of the country’s domestic debt by about half of the total figure, with advances through Ways and Means granted to the Federal Government growing by over 7000 percent over the period under review.
Most of these advances, the report said, were not captured in the official figures for domestic debt, in contravention of the Central Bank of Nigeria (CBN) Act.
Also, the report noted that the Federal Government’s domestic debt, and the which stood at about N19.2 trillion as at December 2021, would have been N36.6 trillion if the N17.4 trillion for Ways and Means at that time had been included in the computation of the debt figures.
This, the report said, meant the domestic debt as at December 2021 was understated by 47.5 percent.
The report also revealed that in eight years, Ways and Means ballooned by more than 7000 percent from N265.70 billion in January 2014 to N18.89 trillion in March 2022. Additionally, the report maintains that the CBN grants Ways and Means to the FG in contravention of the CBN Act 2007.
“From the CBN Act, there are strict stipulations of the maximum amount that can be borrowed by the FGN, including the repayment period. These stipulations have not been adhered to,”the reports stated.
Section 38 of CBN Act, says Ways and Means granted cannot exceed 5 percent of Federal Government’s actual revenue for the previous year, and must be repaid in full within the financial year it was granted, while fresh advances cannot be granted until the previous one was paid off, and cannot be repaid through promissory notes or securitisation, contrary to the recent plan announced by the government.
On Nigeria’s major debt challenge, the report said despite official statements about the sustainability of Nigeria’s growing debts, the public debt was not only understated, but has also become a major drag on public finance.
The proportion of expenditure going to debt service, it pointed out, was consistently expanding, and debt service has grown to become the highest component of expenditure, thus crowding out other expenditures critical to economic growth and human development.
The report interrogated the suitability of using the Debt Sustainability Framework (DSF) for low-income countries for Nigeria.
“For a country like Nigeria where domestic debt is higher than external debt, negating domestic debt service in any analysis will not give a true picture,” the report argued.
“Already, using only external debt service as a ratio of revenue has the country just under the strongest threshold. If the analysis is conducted for total debt service (including interest on Ways and Means) as a ratio of revenue, the figure of 90.92 percent is obtained, indicating very high risk of debt distress,” it said.
On Gender and Spatial Disparity in Human Development, the report said generally, the level of human development was low, despite Nigeria having the highest GDP in Africa.
The report attributed this to the size and structure of the population as well as limited inclusion.
While there were more male (56.72 percent) than female (43.28 percent) in the labour force, the report said unemployment was higher among women at 35.19 percent compared to unemployment among men at 31.82 percent.
The report further noted the spatial dimension of poverty in the country, showing incidence of poverty in most northern states was above the national average of 40.1 percent.
Besides, it said poverty was more severe in rural areas at 52 percent than in urban areas at 18 percent, adding that there was also high incidence of poverty among those with low or no education, big family size and those engaged in farming.
To improve human welfare in the country, the report recommended special policy attention to the gender and spatial dimensions of poverty and unemployment and agricultural productivity, and increased investments in rural infrastructure, in education, family planning, vocational training, agro-processing and light manufacturing.
On options for tackling the revenue challenge in the economy, the report noted that the most critical policy issue for the Federal Government was inadequate revenue.
The report showed that FG’s tax revenue-to-GDP shrank from 8.2 percent in 2011 to 4.4 percent in 2019, with the tax figure for the FG the lowest for central governments in Africa and among Nigeria’s peers.
The revenue problem, the report said, was compounded by leakages, such as increase in oil theft and petrol subsidy, both of which significantly reduce the revenue from oil sales that used to account for the bulk of government revenue.
“Oil theft has reduced Nigeria’s oil production by almost half, while most of the revenue that should accrue from sale of federation oil is swallowed by petrol subsidy, which goes more to the rich than the poor”, the report said.
The report said the petrol subsidy alone gulped N1.59 trillion in the first half of 2022 (January to June), adding that the N1.59 trillion half-year expenditure on petrol subsidy dwarfed the full-year 2022 budget for social development and poverty reduction (N462 billion), health (N876 billion), education (N1.34 trillion) and infrastructure (N1.42 trillion).
The report contended that petrol subsidy was no longer sustainable and should be removed, arguing however that its removal should be accompanied with effective communication and targeted transfer to the vulnerable.
Some of the measures recommended to boost revenue include undertake petroleum sector reforms to end petrol subsidy and checkmate oil theft; ensure greater compliance in remittances by revenue-generation agencies; further diversify revenue sources for government; increase tax base and improve efficiency of tax collection; raise tax rates on luxury/’sin’ items and VAT as well as sell and concession some government assets.
Other observations and recommendations contained in the report included that Nigeria’s infrastructure stock, low level of inclusion, and restrictive and unpredictable policies were negatively impacting productivity, investment and human welfare.
Among other recommendations were the need to prioritise and finetune job creation strategies, with special focus on SMEs; scale-up investments in education, especially technical and vocational skills training; expand investments in critical infrastructure, including through public private partnerships; increase coordination across tiers of government on poverty alleviation programmes; diversify export base, especially agro-processing and light manufacturing; conduct a comprehensive review of Nigeria’s trade policy framework and replace distortionary and inefficient non-tariff measures with import duties.
Other recommendations include phasing-out restrictive trade practices like border closure and import bans; addressing cumbersome customs processes and tackle corruption and leakages at the ports; redefining exchange rate policy towards making Nigeria a more competitive economy with regards to present and potential non-oil exports, and CBN to prioritise inflation management and work with FG to end Ways and Means.
Produced with the support of the MacArthur Foundation, the report is the first of four policy papers commissioned by Agora Policy to contribute to national debate before, during and after the landmark 2023 elections in Nigeria.
Adio said the other three reports, to be released soon, would focus on security, gender and social inclusion, and transparency and accountability.