Nigerian economy: Stability 1: Reforms 0, By Uddin Ifeanyi

Domestic productivity levels are a joke.

…Nigeria needs reforms that radically alter the structure of its economy – private sector-led (market-driven); within a strong regulatory and law and order environment; buoyed by a slimmed-down public sector that allows government to invest in human capital (health/education). In the end, we cannot continue doing the same things in the expectation of different outcomes without calling our sanity into question.

The Tinubu government has, almost certainly, made changes to the Nigerian economy. Depending on where you are looking at these changes from, they have been audacious, as in the decision to stop draining the treasury to provide petrol subsidies that repeatedly did not reach the programme’s target population segment. The decision to free prices in the foreign exchange markets was equally bold. Some would even argue that these changes had a loftier redistribution goal. As with the changes to the tax code, they returned the advantage in the financing of the economy to the poor and vulnerable. This latter pattern is evident in the government’s putting in place of a students loan scheme.

Both the tax changes and the students loan scheme will drive new behaviour patterns, but it will take more than two election cycles to gauge whether their modifications to the domestic structure of incentives are beneficial, neutral, or downright harmful. Is this a useful test of the notion of reforms as opposed to changes? In other words, ought we to describe as reforms, only those changes in the organisation of an economy that lead to long-term positive outcomes? There are changes to how an economy functions, including responses across the world by governments to the recent hike in the prices of fossil fuels that is one outcome of the Third Gulf War, which do not qualify as reforms.

These seek to ameliorate the near-term effect on an economy of temporary shocks. They should, therefore, by definition be time-bound – expiring just before, or almost immediately after their causes are no longer valid decision-making inputs. Invariably, though, these interventions acquire a raison d’etre of their own and continue to distort an economy’s allocative efficiency long after anyone can remember why the programmes were adopted in the first place. In this reading of the difficulties with managing economies, Nigeria provides one of the strongest illustrations of Milton Friedman’s observation that “Nothing is so permanent as a temporary government programme.”

The treasury no longer bears the burden of the leakages from the petrol subsidies. As does the nation’s external reserves, which no longer has to shell out scarce foreign exchange to keep the naira’s exchange rate at levels that support the affluent part of our society’s cravings for imported goods and services.

An audit of government bureaucracy would throw up the walking-dead of these programmes – non-productive zombies, many in their umptieth iteration. No one is quite sure any longer what they once did. Everyone is agreed that all they do, today, is provide paid sinecures. No one knows exactly how (or wants) to put them out of their misery. And they all act like damages to a pipeline – feeding off the nation’s collective grey matter. A part of the planting field for the proliferation of such schemes in this country is the short horizons of partisan politics. More consequential, though, is the tunnel-visioned perspectives of our politicians.

It takes cojones aplenty to shut down such programmes, true. And it would be churlish not to give the Tinubu administration its due in this regard. But what the administration has been up to thus far are not reforms in the sense that this economy needs. They are hygiene actions, akin to Hercules’ cleansing of the Augean stables. The need to make our own stables efficient and less prone to the accumulation of detritus in the first place, is a sine qua non of whatever development path we choose. But we will need more than the stability this provides to make a success of managing the economy in its current state.

The treasury no longer bears the burden of the leakages from the petrol subsidies. As does the nation’s external reserves, which no longer has to shell out scarce foreign exchange to keep the naira’s exchange rate at levels that support the affluent part of our society’s cravings for imported goods and services.

…domestic productivity levels are a joke. If we employ GDP per capita as a practical way to observe domestic productivity trends, we find that despite the partial recovery in 2021-2024, this measure remains below 2014 levels in real terms. Optimists of a Nigerian vintage could argue that this reflects the significant decline in the 2016–2020 period. But the overall picture is that, today, Nigeria produces only slightly more per person than it did a decade ago — and in some real measures, still less.

Still, in real terms, our federation’s revenue is falling, investment levels are abysmal (the World Bank estimates net FDI inflows into the country at around 0.4 per cent of GDP in 2024). Inflation remains a problem. Employment in the formal sector is half what it was 10 years ago (as of 2023, only about 7.8 per cent of employed Nigerians were in the formal sector — meaning over 92 per cent of workers were in informal work, i.e.  either self-employed or in wage work in the untaxed parts of the economy). The power supply situation is even more risible. As for public security, the less said the better.

Because of all this, domestic productivity levels are a joke. If we employ GDP per capita as a practical way to observe domestic productivity trends, we find that despite the partial recovery in 2021-2024, this measure remains below 2014 levels in real terms. Optimists of a Nigerian vintage could argue that this reflects the significant decline in the 2016–2020 period. But the overall picture is that, today, Nigeria produces only slightly more per person than it did a decade ago — and in some real measures, still less. Nonetheless, stagnant long-term productivity growth is not a new feature of our economy.

The upshot of this is that Nigeria needs reforms that radically alter the structure of its economy – private sector-led (market-driven); within a strong regulatory and law and order environment; buoyed by a slimmed-down public sector that allows government to invest in human capital (health/education). In the end, we cannot continue doing the same things in the expectation of different outcomes without calling our sanity into question.

Uddin Ifeanyi, a journalist manqué and retired civil servant, can be reached @IfeanyiUddin.