Introduction to the new report ‘Back to Growth: Priority Agenda for the Economic Revival of Nigeria’ by its author Amit Jain, Director of the NTU-SBF Centre for African Studies (CAS) at the Nanyang Business School

THE ‘fuel subsidy is gone’ proclaimed President Bola Tinubu in his inaugural address as he formally took power in Nigeria in May. It was a bold and politically difficult decision, but long overdue. Nigeria is a leading oil producer and yet its citizens struggle to fill gas in their tanks. It exports crude but imports refined fuel. For years the government capped the price on gasoline and paid importers the difference between the landed cost of oil and the price of fuel at the pump.

This fuel subsidy cost the country US$600 million a month. But it did not benefit the everyday man on the street. The price distortion resulted in fuel shortage and created a smuggling racket that made a cabal of politicians and petrol traders very rich. But it was a financial burden that Nigeria could no longer afford to bear. So, when the subsidy was finally scrapped the market cheered. The NGX All Share Index jumped to levels last seen in 2008. The stock market has risen more than 20 percent since President Tinubu was inaugurated into office. But this is a small step on a long road ahead for Nigeria as it tries to climb out of the economic foxhole it finds itself in.

Africa’s largest economy is confronting a perfect storm of slow growth, population explosion, shrinking revenues, endemic corruption, and breakdown of security. More Nigerians are slipping into poverty than escaping it. Manufacturing has all but sputtered to a halt, and the kinds of jobs that do exist are not enough to provide meaningful employment to the millions entering the workforce every day. Gas prices have more than tripled and the pace of annual Nigerian food inflation is running above 25%. Business confidence has been hit badly. If that was not all, borrowing from the international market has become costlier.

Back to Growth: Priority Agenda for the Economic Revival of Nigeria comes at a time when a new administration has taken office in Abuja. It is arguably the most comprehensive policy recommendation report produced by a Singapore-based think tank for any African state. It identifies the most serious problems facing the Nigerian economy and presents a 10-year roadmap that could put it back on a path of sustained growth.

The Nigerian economy has been sputtering at an average growth of 2.1 percent since 2015. The biggest challenge confronting President Tinubu is excessive reliance on fossil fuel. Oil and gas accounts for just 5 percent of Nigeria’s GDP, but makes up more than 80 percent of government revenue. Dependence on crude oil exports has left the country vulnerable to cycles of booms and bust. It has also corroded governance by creating ample rent-seeking opportunities for those in power. Meanwhile, inflation is chipping away the income of the everyday Nigerian. This is driving up poverty at an alarming pace. Ninety-five million Nigerians are now considered ‘extremely poor’. It is a cruel irony that despite its remarkable natural wealth, Nigeria remains one of the poorest countries in the world. Unemployment is at a record high. It has multiplied four-folds since 2015 and now stands at 33 percent. The multiple exchange rate regime is hurting business and inadvertently created a thriving black market for foreign currency. The US Dollar trades at almost twice the official rate in the black market and the national currency – naira – has fallen almost 40 percent against the greenback since June. As reserves shrink access to hard currency has become difficult. Only one in ten local firms have access to finance. Poor infrastructure has rendered manufacturing uncompetitive. Street-side vendors in Lagos run diesel generators pretty much all day long. On a good day the grid provides power for no more than five hours. Erratic power supply costs Nigeria US$28 billion a year. Large parts of the countryside are inaccessible because there are few motorable roads and armed gangs have made kidnapping-for-ransom a cottage industry. That results in 40 percent of agricultural produce going waste. Productivity at the workplace is hit because workers are caught in traffic jams on gridlocked roads. Ships remain idle for days because ports are congested, ill-equipped and inefficient. Faith in public institutions has been eroded due to years of corruption and mismanagement. To put it bluntly, Nigeria is in a dire strait.

It was not always like this. In the early years of independence Nigeria invested heavily in health, education, and infrastructure. The founding fathers adopted an industrial policy that prioritised manufacturing and provided incentives for entrepreneurs to start new ventures and create jobs. Then came the discovery of oil and with that a rush of easy money. Petrodollars made importing finished goods cheap. Agriculture and manufacturing were neglected, and jobs disappeared. In 1960, the per capital GDP of Nigeria was almost as much as that of Malaysia. Today it is less than a fifth. The population of Nigeria in 1960 was 45 million. Today it is over 200 million. At 5.4 children per woman the fertility rate of Nigeria is among the highest in the world. But economic growth is simply not keeping pace with the rate of population expansion. If nothing is done to reverse this trend Nigeria faces an imminent catastrophe.

What we have presented in Back to Growth are a set of progressive reforms that if carried out sequentially could put Nigeria back on the path to sustained growth. Here is the summary. Over the next two years the Tinubu administration could achieve stability by ending fuel subsidy, migrating to a flexible unified exchange rate regime, and curb oil theft. That should stop the bad financial condition from getting worse. It has started out by taking the right steps but what matters is not to lose momentum. Once stabilisation is achieved, priority should shift towards structural transformation. The objective should be to revive growth. This means reducing dependence on oil and diversifying the economy by enhancing the competitiveness of agriculture, manufacturing, and service sectors. That would require dismantling the many barriers that hobbles private enterprise. Priority should be given to ending the power shortage. The fiscal space acquired in the first two years of reforms should provide adequate capital to crowd in private investments in fixing the power infrastructure. The annual budget of the government is approximately US$50 billion, but most of it is taken up by administrative expenses. Over the next five years, Nigeria should reign in wasteful public spending and re-prioritise expenditure on health, education, and social protection as more reforms kick in.

Once growth is revived policy priorities will need to shift towards ensuring that growth is sustained. If the recommendations made in this report are carried out, it is probable that the country could achieve an annual GDP growth rate of 7 percent or more. But sustaining such growth will be subject to three essential conditions. The first is the state of international trade and the financial markets. If these remain favourable to Nigeria, then it would be able to borrow at concessional rates. Next comes human capital. Demographic dividend will not flow unless the working age population has the right skills to exploit opportunities in a changing world. Third, and perhaps most important, is governance. Good governance is critical to ensuring durable economic growth. It would help improve the business climate and repair the social contract between citizens and state that has been damaged over the years. This report is our attempt to show the direction that Nigeria should take if it wants to become one of the top 20 economies in the world over the next decade.

The above appears by kind permission from the Nanyang Business School
www.ntu.edu.sg/business