I wager that more than half of Nigeria’s economic problems have been solved by President Bola Ahmed Tinubu. Walk with me.
Now, it is important to understand Nigeria’s economic problems, especially from a historical perspective. Anyone who’s not interested in the history of how we got here is not interested in finding solutions. I don’t desire to engage with chancers who are interested in grabbing power for the sake of power rather than how to genuinely proffer actions that can take our people forward.
Nigeria is a very important nation in Africa and the world being the largest black nation by population and also managing perhaps what could be seen as one of the most complex diversities on earth. Like most countries, Nigeria did not create herself but was mashed together by stronger forces – in this case colonialism. Like for most countries, there is nothing wrong in trying to make the best of our current circumstances. I like to see Nigeria as a great challenge, a great puzzle which we are saddled to make sense out of. Giving up is not an option because we haven’t yet tried enough. Dismembering Nigeria will be pointless and fruitless because we will create more problems than solve them during the messy, costly fantasy if it ever happens and as has been made plain in a previous attempt.
Nigerians became saddled with the task of self-governance in October 1960, just 66 years ago. In this task, rules have been made, amended, and remade. Yes, we got some help from our British colonisers but have gradually taken more and more control of our economy since then. It should be pointed out that in the whole of Africa – the youngest continent – Nigerians are more in charge of their own economy than any other country. Many African nations are still being actively run by colonial powers. Many have still surrendered their symbols of sovereignty to those masters. But not Nigeria. I say often that Nigeria is one African nation that has been largely left to her own devices by the otherwise meddlesome global powers. Not that they still don’t find subtle ways to try and achieve control. But Nigerians remain the boldest, most assertive and arguably, the country where some of the smartest and brightest have been able to stamp their imprimatur, in leadership, business, tech and other sectors. When one goes around Africa this becomes plain and is made manifest sometimes through the simplest gestures. For instance, it looks like most African nations have been forced to be apologetic about their cultures; their food; their fashion, music and humour. But never Nigeria. There is a good reason why a large number of wealthy and famous black people are from here.
They say history not only tells a people from whence they are coming but why they are where they are today, and most importantly, where they must now head. When considered properly, in the understanding of history also lies knowledge about the route to take into that desired future and at what speed to calibrate. Ultimately, history also informs the subject about which stakeholders to journey with, and whom to avoid where necessary. Charting the path forward and overcoming our economic challenge is a function of our understanding of history, context, culture, and how the global economy works.
The State of Affairs Pre-Tinubu
Many pundits like to point to the Muhammadu Buhari administration as one of the worst in Nigeria, but it is often easier to accuse dead people. Whereas the Buhari administration was bedeviled by a certain lethargy and inability to take serious decisions that could have altered the economic realities of Nigeria, and was indeed unlucky to have had to handle the COVID-19 pandemic, the fact is that Nigeria’s financial fortunes were already damaged before Buhari took over. I cannot remember any government that held in Nigeria about whom Nigerians did not complain bitterly of mismanagement, embezzlement and related offences. These include even the military government, which civilians fought to a standstill with help from western nations. Perhaps the way to look at this is that there will always be winners and losers in every administration and indeed every society. There aren’t any perfect societies yet, where everyone is rich and nobody suffers. The fact that people make the wrong life and money choices at the best of times, and some are naturally disadvantaged, keeps the stream of poor people flowing even if all else is perfectly done. That is why in the most developed nations, and the ones where per capita income is in excess of $50,000 per person, hordes of people sleep in the streets and live off charity.
Nigeria’s finance broke a long time ago. The question was who will try and start fixing it. I recall in the Obasanjo era, I was a banker and also owned a small business which my wife handled for us. I recall that every six months, President Obasanjo will increase fuel prices and Labour Unions under Adams Oshiomhole will go into a fit, shutting down the economy. It usually took at least two months for the business to recover itself, as customers felt lethargic and negative about the economy. And just when they start to build confidence and return, another fuel price increase will send us back to the red. It was tortuous but we managed to survive. The Jonathan era was not much better. A search on AI concludes about the Jonathan government that “The typical Nigerian small business under Jonathan faced a “high-cost, low-productivity trap”: expensive and unreliable power, expensive credit, weak infrastructure, multiple regulatory and tax burdens, insecurity, informal competition and limited managerial capacity made it difficult to survive, formalise, scale and become internationally competitive”. I don’t blame Nigerians. Humans forget the past easily.
This short foray into history is important to remind ourselves of our reality. As human beings, we are wont to forget the past and focus on the future. We are also very susceptible to believing that yesterday is always better than today, when indeed we should consider the gains made in the immediate term.
And so, in the Buhari era, the revenue profile of the government was already broken. Twenty-seven states owed salaries, up from 20 under the Jonathan government. Pensioners often demonstrated or queued to be answered on our streets, and frequent scarcity of petroleum as a result of an unworkable fuel importation system saw thousands of kids selling petrol by highways – as happened under the Obasanjo and Jonathan administrations. The response of the Buhari government to this incredible and permanent squeeze was to lean on the Central Bank of Nigeria through what is known as Ways and Means. By the end of that administration, the balance in the W&M account at the CBN had ballooned to over ₦30 trillion when it shouldn’t have been more than say ₦300 billion (5 per cent of previous year’s Federal Government share of the revenue). It is also notable that the limit was not breached under the Buhari administration only. About ₦590 billion was left in that account by the end of year 2014, before Buhari came into government.
Figure 1: Tracking Ways and Means spending since 2012
Tracing the Rise in Demands on FG Resources
Whereas on the surface like the Federal Government gets 52 per cent of all funds in the general pot as shared from the Federal Accounts Allocation Committee (FAAC), systemically the responsibilities of and the demands on the Federal Government have since outstripped that formula. The Coordinating Minister for the Economy, Mr. Taiwo Oyedele has been pointing out this fact for some time – that the Nigerian Federal Government is perhaps the only such government in the world without a dedicated source of financing apart from what it gets from the general pot. And in truth, most of the spendings at the federal level are designed to further capacitate the states. This is why the Federal Government currently carries the vast majority of Nigeria’s total debts (97 per cent), while the states carry a mere 3 per cent.
Figure 2: Share of FG and SGs in Nigeria’s total debt
Figure 3: Examples of projects into which Nigeria’s debts have been deployed
At a ratio of 97:3, the states have a lot of leeway to dream big and come up with transformational projects that sets them apart. The double-digit growth that Nigeria is looking for will come from the states. However, very few states are willing to borrow presently because of high interest rate levels, inability to access global markets directly, and their desire to play safe with their publics, who hardly understand the need for borrowings of any kind in the first place. Nigerians talk about a large rail project that connects the entire country. Such an initiative will be taken by the Federal Government, further expanding its share of total debt. The system is also broken at this level.
The Crucial Reforms
Two urgent discussions need to be had around Nigeria’s finances then. The first is around the sharing formula of 52:28:20 between the Federal, States and Local Governments. It has become unfit for purpose given the exploded responsibilities of the Federal Government. The second is a discussion around the debt skew – which is where the next growth spurt lies for the Nigerian economy if the states could somehow find desirable sources of finance for their projects. I believe the states should work closely with the Federal to be able to access global funds of different kinds – including Islamic Financing, Green Bonds, and Blue Bonds, among others. The Nigerian Capital Market has also complained bitterly of being ignored by the states. Dr Emomotimi Agama – the director general of the Securities and Exchange Commission recently disclosed that the Capital Market was ready and willing, with several innovative instruments, to finance the infrastructure needs of the states many of whom I understand are waiting for bond yields to drop in Nigeria. But development is a function of time and should not wait for too long.
Back to the kernel of this writeup, the hard reset that Mr. President has embarked upon with his critical reforms has also been instrumental to the states being in a good position – in fact the best position they’ve ever been in the history of Nigeria. Ditto the local governments. Canceling fuel subsidies which gulped $10 billion yearly in the minimum, unifying the exchange rate of the Naira (and the Naira depreciation), boosting Revenue Collection in general and taking tax to GDP ratio from a mere 7 per cent a few years ago to 13 per cent today, and empowering local governments to at least start to get more autonomy over their now very large naira allocations, has solved more than half of Nigeria’s problems. Compared with the Buhari era, when 27 states owed salaries or the Jonathan era when 20 states were in the lurch, this is a radical departure.
The Buhari government focused on trying to solve the Federal Government’s financing issues by using the W&M facility of the CBN. The Tinubu Government instead, solidly solved the problems of states and Local Governments, even ‘pampering’ them with unprecedented liquidity – while carrying most of the debt – and expenditure – burden. The debt burden, however, masks a drawback on GDP growth going forward. The states must necessarily leverage their funds. Even the local governments, if possible. We must try and put in place safeguards though that will ensure we don’t fall into the debt trap of the Second Republic. What is suboptimal is for states to use mostly federal allocations which are short term in nature, to build long term infrastructure. On one hand, that is a mismatch. And on the other they cannot do a lot compared to if they found ways of using ₦1.00 to achieve ₦3.00. Some Nigerians argue that the Naira that states are getting is much weaker than before. They deliberately ignore the Purchasing Power Parity advantage. Nigeria does not spend dollars. The velocity of our currency has increased because we spend our own currency to power our own economy. The naira policy has also enhanced local businesses by encouraging Nigerians to buy local substitutes.
The Manifesting Results
Some have argued that it is no big deal for states to be able to pay civil servants. They are only being mischievous. The civil service constitutes the core of most of our states. Even though, of all the states, only Lagos employs more than 100,000 people but the salaries paid to civil servants constitute a ‘floor’ beneath which a state economy will not fall. Once paid, civil servants go to markets, pay their rents, pay school fees, spend on transportation, buy a few blocks to continue their housing projects, send money to their wards in schools everywhere, and this makes the economy continue to revolve. I worked in the private sector all the way from 1992 to 2005, I was never owed a month’s salary. So, I can’t even imagine being owed six months or 18 months salaries as many states did in the past. Some states also owed pensions for up to 20 years – monies that most of them have now cleared or are in the process of clearing. I also like to proudly declare that as an entrepreneur, I have never owed my staff for even a month, since I launched out in 2006 – 20 years ago! Many of the complaining Nigerians who are entrepreneurs are in the habit of owing staff, paying peanuts and treating staff worse than rubbish. We need to do better.
Some also argue about the value of the naira. To that I say it is infinitely better to get paid fully and consistently with a weak currency than be owed for months on a strong currency. There is no value in zero! It’s a wonder how people survive being owed that long – or like it happened in Osun and some other states for years – being paid half salary or 30 per cent for years! Thankfully, we have put that behind us and hope it stays that way. This again is due to the reforms which released a deluge of funds to states and LGs where Nigerians actually live.
It is also imperative to look at the responsibilities of the Federal Government on a monthly basis, to explain why that level of government is under strain. If only Lagos State employs more than 100,000 people, the Federal Government pays at least two million people every month, bringing its wage bill to over ₦1 trillion, with little left for other developmental purposes. This is a huge problem. Below is the estimate of personnel on the Federal Government payroll monthly:
Figure 4: List one of Federally-paid personnel
Figure 5: List two of Federally-paid personnel
Figure 6: List three of Federally-paid personnel
Figure 7: List four of Federally-paid personnel
The Future
Nigeria has certainly turned the corner, in spite of temporary setbacks in fuel prices as a result of the US-Iran war and closure of the Straits of Hormuz. There are dozens of programmes that have been designed to make life a little easier for people, but many are domiciled in different ministries and agencies and thus difficult to bring together. They include the CNG programme which is designed to reduce the cost of transportation but is rather used to make super profits by beneficiary drivers. We have a smorgasbord of training and capacity development programmes ongoing, designed to teach our people how to fish. They include the iDICE programme, the 3MTT, the SUPA, and many more. See the matrixes combining all of them below. Nigerians should take advantage of any and every of these programmes and not get deceived by those who are not ready to make something of themselves, but who seek to destroy the nation.
President Tinubu has achieved something very significant in this nation. His policies have sorted out the subnationals. Like Governor Dapo Abiodun said a few days back, the onus to show where the subsidy went to rests with governors, not the president. As against organising ‘bailouts’ with borrowed funds or Ways and Means in the past, the past three years have been great for our subnationals. A state like Akwa Ibom has spent over ₦4 trillion in the last three years. A local government like Amuwo Odoffin in Lagos gets between ₦1 billion and ₦1.8 billion monthly. Bigger local governments get over ₦2 billion. These are the folks we should ask where the monies are being spent. As for the broken finances which have now been more than half-repaired, deep thinking, honest bargains and legislation will be required. Compliance on tax and other government revenue is required from Nigerians. Luckily, another unprecedented action has helped – the Executive Order 09 which Mr President signed off on 13 February. This singular order has been able to help claw back substantial amounts of which the subnationals are benefitting too. If all Nigerians live in states and local governments, and in three years the liquidity of subnationals have been fixed in such salutary manner, I believe Mr. President deserves kudos. In another couple of years, even the Federal level will be turned around from his financial and economic prowess.
Figure 8: List 1 of ongoing youth-focused empowerment programmes
Figure 9: List 2 of ongoing youth-focused empowerment programmes
Figure 10: List 3 of ongoing youth-focused empowerment programmes
Figure 11: List 4 of ongoing youth-focused empowerment programmes
‘Tope Fasua is the special adviser to the President on Economic Matters.
