“The worse decisions a fragile economy like Nigeria with no concrete evidence of why it grows other than its population size can make is price fixing and market control” Rebecca Enobong Roberts, 2016🙂
In September, African Development Bank (AfDB) president Akinwummi Adesina at a Nigerian businesses forum in Abuja said Nigeria was too big to fail. Noting that similar oil exporters such as Angola and Equatorial Guinea faced similar challenges.
The AfDB President said it was important for the private sector to take advantage of the incentives that should accompany the devaluation of the local currency, the naira, to boost production, especially in the agri-industrial sector. In theory, the right direction for Nigeria will be what the AfDB president suggested, but in practice, taking these advantages require incentives only the government can create.
From FX stringent policies, data price increase, passport taxes to price fixing, everything the Buhari administration is doing is going in a direction opposite of where an economy in crisis should be. If the government had allowed the inevitable; the Naira free fall since last year September, the Naira would have been on its way to recovery by now.
It is no rocket science, FX of a consuming economy is solely dependent on demand and supply. If oil income is low, businesses are struggling to cope and foreign investment is the decrease, restricting the flow of FX of a country that produces nothing but reliant on imports is an unintelligent and dangerous decision.
The first rule of managing an economy in crisis is creating incentives for free markets. Presently, every step this government is taking at this critical moment is self-destructive and rent seeking. Which leads me to ask; Is Nigeria curse or is the Buhari administration just incapable of backtracking from the economic mess it is creating and making better choices?
Africa and the world cannot afford for Nigeria to fail. Howbeit, that is exactly the direction Nigeria is headed; failure and it is Nigeria’s fault. The economy is at a 1.7 % shrinkage, unemployment has more than doubled the rate of the last two years, inflation is the highest its been in the last 11 years.
Empirical Problems and Implications
It is obvious that although the Naira was eventually devalued in June 2016, the president is still obsessed with defending a factor (Naira) he has no control over and allowing factors (policies) he has control over to be shaped by the directions a chaotic economy. Further exposing Nigeria to extreme economic vulnerabilities.
The president through the CBN is manipulating the exchange rates, restricting banks access to free flow of FX. As a result, discouraging foreign investment, FX shortage, killing businesses that depend on importation and feeding the FX black market.
As things get out of hand, instead of creating an FX open market, the government through the Department of State Services (DSS) is forcefully clamping down on the same black market monsters it has created. More stringent control at play.
Relinquishing control of Nigeria’s foreign exchange will doubtless cause at least a short-term rise in inflation , yet from a holistic perspective, it is exactly what needs to happen urgently. Doing so will not only draw foreign investments back into the country but it will also make the economy more productive and competitive, but also cut off a conduit for corruption.
Further, the Nigerian Communications Commission’s (NCC) announcement that the cost of data will triple from December 1st makes no sense for a country that people are already struggling to survive with pay cuts and increasing unemployment rate; sending more middle-class back to the poor demographic. The danger of creating pro-poverty policies is that on the one hand, it falls on a desperate need to reduce poverty now and on the other hand, making the challenge even harder to overcome.
What the government should do instead is shield the middle-class and cushion the blows for the countries’s poorest and most vulnerable by seeking other means to raise funds internally; curtailing the cost of running the government, cut senator’s bogus allowances and making better usage of returned loots until the economy kicks off again.
In this hard times, it should be a priority to keep more businesses afloat and create shocks to hold things together from getting worse, as recovery becomes harder if the situation keeps deteriorating.
It is better for more businesses and individuals to pay taxes than for more businesses to shut down and for government out of desperation seek to increase taxes. This same framework could also shield the poor from the regressive impact of an increase in Nigeria’s value-added tax — which is relatively low and should remain low until governances and services delivery improves, but a potentially valuable source of additional government revenue.
The saddest part about NCC increase in data tariffs and taxation increase proposal is that such revenues will be used to pay the salaries and allowances of incompetent civil servants and their bogus and unnecessary special advisers. It is callous and abusive for the Nigerian government to seek to increase tax rates and data tariffs for a struggling population who benefit nothing from the government.
Evidently, former president Goodluck Jonathan’s style of managing the economy meant that things were inevitably bound to get worse. Yes, Buhari inherited a Nigeria that although was prospering, oil price declines, looting and corruption meant that a recession was a matter of not “if”, but “when”. However, his controlling and rigid method of handling the economy has made the economic crisis harder to manage and solve.
In conclusion, things are already at a climaxing bad state, the only way 2017 will be a better year economically for Nigeria is if Buhari sees the need to relinquish control, create better policies that allow the market a free flow and back-tracks on trying to sacrifice the poor so that government can generate revenue.