Analysts offer economic policy reforms to new Nigerian govt.

Some key economic and development analysts are prescribing monetary, trade and investment reforms policy directions which are critical, urgent, and should be implemented immediately by the incoming administration in Nigeria, in order to move the country’s economy from its current drift to stability, and to growth.

According to Babajide Fowowe, a professor, and Mohammed Shuaibu, PhD, who both teach Economics at the University of Ibadan and University of Abuja respectively, in order to enhance the coordination of fiscal and monetary policy to reduce frictions and counteractive policy goals, the new government should strengthen the Fiscal-Monetary Coordination Committee (FMCC) to ensure that the monetary authority (CBN) and the fiscal authority (Federal Ministry of Finance, Budget and National Planning) optimally coordinate policies to ensure the gains from fiscal and monetary reforms are maximised.

In practical terms, the two economists and policy analysts advise that the new administration must “restore monetary policy focus back to its price stability mandate, tame inflationary pressure and strengthen the monetary transmission”.

They further advise the Central Bank of Nigeria (CBN) to focus on its core mandate of maintaining price stability. “The CBN should set clear and realistic targets for inflation, and a timeline for achieving these targets. Addressing supply-side bottlenecks such as trade restrictions on critical intermediates that increase the cost of doing business. The CBN will have to restore the credibility of the MPR such that bond yields and lending rates are reflective of the monetary policy rate (MPR)”.

The new government is also recommended to remove the current multiple exchange rate windows being operated by the CBN. “This,” Fowowe and Shuaibu said, “would make the exchange rate market-determined and mitigate speculative pressures that fuel arbitrage conditions in the market. This would further inspire confidence from domestic and foreign investors.

Nigeria has a problematic exchange window which has thrown up macroeconomic instability thereby opening the country’s economy to external shocks. In its April 2023 Macro Poverty Outlook for the country, the World Bank advised the federal government to quickly unify the nation’s multiple exchange rate window, and carry out a number of other reforms to strengthen the economy and restore macroeconomic stability. The Washington-based global lender also advised Nigeria to implement reforms in the non-oil revenue space to reduce fiscal and debt pressures alongside the government’s planned removal of fuel subsidy.

Additionally, the economic analysts called for putting an end to ways and means financing of federal government (FGN) expenditure. “This would curtail the growth of the money supply and thus curtail inflationary pressure. Part of this will involve the CBN helping the FG to properly forecast its revenue as well as helping the FG, on a technical level, identify potential sources of revenue. A strategy will also need to be developed to manage the current stock of FG’s debt at the CBN.”

For trade and investment reforms, Fowowe and Shuaibu, writing in Agora Policy Report April 2023, want a replacement of import bans with import duties. “The use of tariffs rather than the existing import bans would spur the domestic productivity of firms, especially those that rely on the import of intermediates that are affected by the import prohibition. This has to be done in a coordinated manner between the Ministry of Industry, Trade and Investment, Ministry of Finance, Budget and National Planning, and the Nigeria Customs Service,” they said.

PPP for industrial hubs, transport infrastructure

They are also calling for development of regional industrial hubs and transport infrastructure through PPP arrangements. “FGN should prioritise the development of industrial hubs and export processing zones as well as the delivery [of] critical infrastructure which support international trade, such as ports, roads, and telecommunications networks. In view of obvious budgetary constraints and current revenue shortfalls, the government should seek partnership with the private sector. This could help enhance efficient service delivery and reduce trade costs, thereby making it easy for domestic firms to integrate in domestic and regional value chains”.

Reopening all closed borders 

The economic policy analysts equally want the post-Buhari administration to undertake reopening all closed borders and removing all food trade restrictions. These have hurt prices and have not led to the expected increase in domestic productivity. The government needs to prioritise the development of a goods and services export strategy in collaboration with the subnational governments. Such a strategy should focus on labour intensive sectors, and should clearly identify priority sectors and potential markets by leveraging Nigeria’s global network of diaspora and consulates.

The new government must create a conducive environment for attracting foreign investment; as a rise in foreign investment outflows needs to be addressed by sending positive signals to foreign investors. The exchange rate needs to be market-determined. Also, security, banditry, kidnapping and insurgency need to be adequately tackled to send positive signals, they advised.

Additionally, the new government has to provide incentives for export-oriented firms especially in the non-oil sectors. “In order to leverage on the enormous market opportunities created by the African Continental Free Trade Area (AfCFTA) agreement, there should be a gradual reduction of import tariffs on intermediate products used by domestic firms that export or plan to do so. At the same time, the discretionary import duty waiver allocation system needs to be replaced with a clearly defined industry-wide incentive system that supports export-oriented firms,” the economic policy analysts advised.