“TPain” and the economics of reforms, By Uddin Ifeanyi

As monikers go, “TPain” is not a term of endearment. (I don’t know what, if anything, Faheem Rashad Najm would make of part of the domestic commentariat’s recent appropriation of his sobriquet.) However, given how generally crotchety the Tinubu administration (especially its media minders) is, it is understandable if its response is to take umbrage at this description of its principal. Yet, no one living in Nigeria, today, could fail to understand the provenance of this alias. To say that domestic price rises have been relentless is an understatement. Local shoppers wake up to daily price changes – all upwards and the percentages by which these change are humbling of all but the most financially endowed of our compatriots.

One outcome of hyperinflation is a fall off in purchasing power. Accordingly, businesses are seeing their balance sheets contract as customers buy fewer services and products and do so infrequently. To keep their costs down and protect profit margins, businesses’ strategy managers are counselling the downsizing of their businesses’ operations. Twenty-four-hour shifts have been pared to eight-hour ones. Multiple assembly lines have been halved – and further reduced in other cases. Operations with more than two factories across regions have seen now-redundant factories boarded and shuttered. In effect, customers struggling to maintain their living standards in the teeth of rising prices are also losing their jobs. The economy hurts even badly on account of this vicious cycle: diminished consumer demand forces reduced production in the economy’s supply side. Reduced production results in workers losing their jobs. And rising unemployment suppresses domestic demand all over again.

As if this were not enough cause for worry, there is another vicious cycle at play. The reform agenda put in place by the Tinubu administration since coming into power has centred on cost recovery in government-run businesses and market-determined prices across the rest of the economy. Nowhere has this dynamic been more consequential than in the oil and gas sector, where the pump-station price for petrol has risen inexorably as a result. With each naira increase in the price of petrol, the pass through to other sectors of the economy – transport costs especially, but through such associated effects as that on the small generators with which our small businesses run their operations – pushes up the general price level.

This hurts a lot. Include the fact that the Central Bank of Nigeria (CBN) is committed to tighter monetary conditions in order to rein inflation in, and the needle on the nation’s pain Geiger counter trashes the maximum limit. And so, with each new boost to domestic prices from rising fuel prices, the central bank raises the domestic cost of money. This hurts even more. In the end, higher returns on naira-denominated financial assets should ease the demand pressures that currently lend flight to domestic prices. I doubt, though, that these yields will attract enough short-term foreign investment inflows (we may have trumped political instability, but the recent volatility of the naira is a major let) to ease the pressure on the naira’s exchange rate. But, in the light of the context within which the CBN’s tightening of monetary conditions is taking place, rather than engineering a deceleration of the economy, a non-accommodative monetary policy position is but fagot to already combustible economic conditions – if nothing at all it raises businesses costs.

Ironically, the Tinubu government did not have much choice in the policy matter. Since 1960, under the spell of dirigisme and central planning, the response function of the Nigerian state has been lousy and progressively shitty. This process reached its apogee under the Buhari administration. The Tinubu administration’s favouring of market signals over government fiat was thus a welcome departure from the nanny state construct. But all is not as it seems. Nor is much of it well. That the government’s finances are not buoyant enough to continue dispensing largesse to its citizens is a necessary condition for reform in any economy. It is not a sufficient condition, however. A conviction, a belief in the correctness of the reform process and its direction is a non-negotiable requirement if market reforms are to succeed. The Tinubu government’s preferred communication mode (“bo’le ka ja” in the 1970’s Lagos Street argot) was the first sign of this problem – the government lacked a unifying story around its economic plans. Neither is it familiar with the relevant reform register.

In our current situation, a decent conviction around what it would take to resuscitate the economy would have found life in attempts by the government to bring down costs across the country. Not just as a countervailing influence on the price rises that go with market reforms. A lower-cost economy is also a competitive economy. Simple. Yet, as with the recent requirements for obtaining visa clearance issued by the National Drug Law Enforcement Agency (NDLEA), the incumbent federal government is sold on the ratcheting up of internally generated revenue as a goal. In our present circumstances, any boost to the fiscus is desirable, no doubt. Nonetheless, no agency of the state should raise the cost to economic agents of going about their legitimate businesses without adding value. One could rephrase this by arguing that a far better approach to our current fiscal dilemma is to raise government revenue by boosting domestic growth rather than raising taxes.

Indeed, recent such cost increases by ministries, departments, and agencies of the state simply invite us to understand what these institutions do and how well they go about it. The answer to this question, if the serial donnybrooks between the Dangote refinery and the NNPC Ltd, is indicative is “remarkably nothing”, and even that, “not very well”!

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