Part of the dilemma confronting managers of the domestic economy is that over the near-term, anti-inflation policies will reduce purchasing power and restrain demand, ruining an already deprived people. With the general election due two years from now, it will become increasingly difficult for government to stay the course. The likelihood of the economy reverting to trend – bouts of double-digit inflation driven by food price shocks, currency depreciation, and fiscal/monetary imbalances – will heighten.
The purpose of the “airplane-driven trade policymaking” that the Federal Government embarked upon last week was to underscore Nigeria’s growing allure as an investment destination. From Tokyo to Brasilia, the Tinubu government simply said, “We are not just a place to do serious business with, we are also seriously open for business.” On what evidence? Since coming to office, two years ago, the incumbent federal government has given supply-side reforms a boost in the arm. Its attempts at adjustments to the domestic energy markets (still incomplete, truth to tell), removal of the fuel subsidy regime, and import restrictions, have looked to bring down major cost elements of doing business in the country.
Further down the road, monetary policy, wrestled from the dead-hand of the Buhari administration’s heterodoxy, has tamped down the naira’s exchange rate volatility by unifying the exchange rate across the innumerable windows that existed before the administration took office. Still, the Central Bank of Nigeria (CBN) has not quite succeeded in keeping domestic liquidity at levels consistent with its price stability remit. Headline inflation may have slowed but it is still too high even for an economy whose cost mixes condemn it to monthly double-digit levels of price rises.
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You do not have to be a fan of Milton Friedman, though, to see how the Tinubu government has not done enough to improve the productivity of the Nigerian state. You could phrase the limitations of the Federal Government’s current reform efforts in terms of standards of efficiency. In which case, as presently constituted, the ratio of output of goods and services produced by the Nigerian state to the input used to produce them is extremely low. Two reform paths, not necessarily divergent, are possible from this interpretation. Domestic policymakers could improve the organisation of the state and its use of technology to boost productivity. Or the Federal Government could liberate the dead capital currently trapped in the state in the form of redundant labour. Until then, public sector spending will continue to add to the fiscal imbalances that drive domestic price increases and make nonsense of central banking.
…the obstacle to be overcome is less from the constraints presented by how we have chosen to run the state. The quality of civil service cadres matters more. And here, the national preference for allegiance as a substitute for aptitude is a big hindrance to our development goals.
From this, two observations follow. The first is that we ought not to ignore how the slapdash management of the country’s official representation at the 9th Tokyo International Conference on African Development (TICAD 9), which took place in Yokohama from 20 to 22 August was both an allegory for the state of the Nigerian public sector as a service provider, and a signpost of the quality and extent of the reforms that are needed to make the state relevant to the modern needs of its citizenry. On this score, the obstacle to be overcome is less from the constraints presented by how we have chosen to run the state. The quality of civil service cadres matters more. And here, the national preference for allegiance as a substitute for aptitude is a big hindrance to our development goals.
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No current plans for fixing Nigeria can ignore the meaning and consequences for the economy of the 10 years of Mr Godwin Ifeanyichukwu Emefiele’s leadership of the Central Bank of Nigeria (CBN), and eight years of the Buhari administration. Although now in our recent past, this second observation underscores how both these episodes in our national life represent deep disservice to attempts at reforming the economy. The subpar accomplishments of both tenures, set the bar so low that any effort in the right direction was always going to earn a hundred per cent score on any ranking of the achievements of successor governors’/presidents’.
Part of the dilemma confronting managers of the domestic economy is that over the near-term, anti-inflation policies will reduce purchasing power and restrain demand, ruining an already deprived people. With the general election due two years from now, it will become increasingly difficult for government to stay the course. The likelihood of the economy reverting to trend – bouts of double-digit inflation driven by food price shocks, currency depreciation, and fiscal/monetary imbalances – will heighten.
We could continue to argue that growing domestic demand (from a 200+ million population) makes Nigeria attractive for market-seeking investors in telecoms, banking, retail, and services. But without policies that reassure investors of the economy’s long-term health and prospects, the economy will continue to stutter.
Ultimately, policy credibility and consistency will matter the most. More by far than the photo opportunities with which the media regaled the country all of last week. By anchoring inflation expectations and strengthening real purchasing power, the Tinubu government’s current policy trajectory makes Nigeria’s domestic market more attractive to foreign investors. Sustained over a 10-year period, successful inflation control can restore confidence, improve real incomes, and strengthen domestic final demand (consumption + private investment + government spending + net exports).
The visits by President Tinubu to Japan and Brazil notwithstanding, Nigeria will evidently need to do more if the economy is to be more welcoming to foreign direct investment (FDI). FDI reacts to both market potential and macroeconomic stability. The latter requires that domestic prices are stable. Stable internal prices (headline inflation) reduce cost unpredictability and enhance long-term planning. Stable external prices (the naira’s exchange rate) reassure investors about profit repatriation. We could continue to argue that growing domestic demand (from a 200+ million population) makes Nigeria attractive for market-seeking investors in telecoms, banking, retail, and services. But without policies that reassure investors of the economy’s long-term health and prospects, the economy will continue to stutter. Consistent reforms matter more than both the short-term figures that the federal government’s most recent diplomacy tried to use and the president’s travels.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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