The World Bank, one of the Bretton Woods institutions, in its latest ‘Nigeria’s Development Update’ (NDU) publication, said “important reform decisions have been taken for Nigeria to avoid a fiscal cliff.” Titled, ‘Turning the Corner: From Reform and Renewed Hopes, to Results’, the NDU report recalled that “in May and June 2023, the [then] incoming (President Tinubu) administration undertook two critical policy decisions, which have resulted in price and exchange rate adjustments in the second half of the year.” The biannual World Bank report (December 2023 edition), said in Nigeria, “targeted cash transfers are helping to cushion the adjustment to higher gasoline prices,” adding that, “regarding FX policy, progress has been made on implementing the policy for a unified, transparent, and flexible exchange rate.”
Obviously, the global financial institution is euphemistically referring to the two cardinal policies of the President Tinubu administration (so far) that have failed to stimulate the economy, but rather compelled ‘makeshift’ palliatives to assuage the pains inflicted on the citizenry by the ‘reforms’. In truth, rather than the “targeted cash transfers” helping to cushion the pains from fuel subsidy removal, more Nigerians have been edged into poverty and deeper misery. Sudden spike in cost of operation for businesses has also led to capacity cut-back, temporary shutdowns and outright business closures.
And seven months since those policies or reforms were put in place, it is taking only ‘foreign bodies’ like the World Bank, rather than the Nigerian people, to project the ‘real’ and ‘imaginary’ gains of the reform initiatives of the government. So, to the suffering Nigerians, the question arises: is the World Bank (NDU) report cheering or jeering Nigeria?
This question is made most apposite by the NDU report itself, when it noted that even with ‘premature’ kudos to the government for the progress of the reforms, “inflation remains at record high levels for Nigeria.” The report then sums up that “the reforms are yet to be completed to fully realise the economic benefits,” insisting that “the near-term priority is to enhance the reform effort with a closely coordinated mix of fiscal, monetary, and FX policies to reduce inflation and achieve macroeconomic stabilisation.”
Here, the World Bank fails to point the specific ways forward regarding the “mix of fiscal, monetary and FX policies” to effectively deal with the spiralling inflation and “achieve macroeconomic stabilisation.” For monetary policy, for instance, the Central Bank of Nigeria (CBN) has very limited options as to what to do next to stabilise the Naira exchange rate, since it floated the currency mid-June 2023. The sorry fate that befell the local currency due to the floatation is largely attributable to the paucity of dollars in the Nigerian system. Dollar and other hard currencies are in very short supply relative to the huge and yet burgeoning demand for FX.
To the World Bank, “The FX market has been volatile. The lack of clear communication by the CBN on the strategy to clear the FX backlog has fueled speculation around low net reserves (JPMorgan 2023), which in turn has caused volatility in both the official and parallel markets. The volume of FX trades in the official window remains consistently low, and the exchange rate premium between the official window and the parallel market has re-emerged and is fluctuating between a 10 to 40 percent range.
“The parallel rate depreciated by 45.4 percent between June and October (monthly averages), while the official rate has not adjusted proportionately ([with] monthly averages depreciating by 27.3 percent in the same period). The latest figures show a premium of about 40 percent, on average, as the naira remains at around N800/US$1 in the official market. Without stabilisation of the official FX market at market-reflective rates, the risks to expected net FDI and net FPI remain high.”
Still, has the NDU suggested how Nigeria can effectively overcome acute shortage of FX, given that inflow from oil export is almost the sole source? Yet, the World Bank says: “The economic outlook for Nigeria in the short to medium term hinges on the continuation and effectiveness of its macroeconomic stabilisation agenda. Successful implementation of the initiated reforms will be the first step toward improving Nigeria’s growth prospects. With implementation of these first macroeconomic stabilisation reforms, the economy is expected to grow at an average annual rate of 3.5 percent during 2023–2026.”
Again, has Nigeria’s set of economic reforms in the past seven months shown any light at the end of the tunnel? Or, as is being projected by the World Bank, will the “continuation” or “consolidation” of these policies take the Nigerian economy out of the woods? The answer is No. This is because the so-called reforms are largely within broadly faulty fundamentals: largely import-dependent and mono-product economy; harsh, uncompetitive business environment — riddled with corruption and obstructive official red-tape, etc.
It is therefore ill-advised to fully float the currency in a country that exports almost nothing other than crude oil — the volume and price of which are only given from ‘outside.’ Till date, has the government effectively dealt with the worrisome threat to the ‘cash cow’— oil? Oil theft, pipeline vandalism and sabotage to oil installations are yet festering. Also, should Nigeria continue to depend almost entirely on imported Premium Motor Spirit (PMS) for its petrol needs? Or, is the licensing of more importers of PMS any solution to the fuel subsidy removal? For so long, Nigerians have been fed with outright falsehood, prevarications and tergiversations from officialdom regarding the state of four huge state-owned refineries that have been grounded for years. Empty promises will no longer do!
On another plank, the return of the 43 items hitherto denied access to the official FX (since 2015) by the CBN, is being applauded by the World Bank in its NDU (December 2023). The global bank says: “While the removal of import restrictions may present challenges to certain sectors, these can be mitigated for some of them with a comparative advantage,” adding that “reducing the overall cost of doing business is a crucial first step.” The bank says “this can involve facilitating custom processes, reducing domestic and international trade and transport costs, and removing institutional barriers to doing business.”
Continuing, the bank says: “Concurrently, a careful review of the tariff structure on certain banned import items, particularly those where Nigeria holds a comparative advantage, and to commit to a simple and enduring tariff structure with more discipline. This review should aim to provide a balanced approach where tariffs could be slightly adjusted to replace import restrictions and, therefore, to support domestic industries without counteracting the advantages of more open trade.
“In the medium term, the tariffs could be phased out to allow for better resource allocation in the economy. Through this dual approach of easing business operating conditions and fine-tuning tariff policies, the negative impacts on the disadvantaged sectors may be reduced, while still capitalising on the broader economic benefits of the lifted FX restrictions.”
Unfortunately, these prescriptions by the World Bank are easier made (on paper) than implemented in the Nigerian environment. Tariff policy fine-tuning and Custom processes facilitation (for instance) have remained part of the ever festering challenges in Nigeria’s business milieu. The hiccups and clogs constituted by Customs inefficiency in Nigeria’s maritime trade are known to have compelled many Nigerian importers and exporters to resort to using the maritime facilities of our neighbouring countries.
The fact of the matter is that had “reducing the overall cost of doing business” as recommended by the World Bank been an easy task, Nigeria would have become an investment heaven by now. On the contrary, the very high and ever rising cost of doing business in Nigeria has choked not a few businesses out of the country. Whether in terms of poor, dilapidated or absence of critical infrastructure or corruption-ridden officialdom; or in terms of life threatening insecurity in the land, cost of doing business in Nigeria is asphyxiating. The World Bank must factor all these into its analyses, so that it does not unwittingly end up giving false hope to Nigerians regarding the outlook of their recumbent economy.
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