Nigerian economy: the tasks before Wale Edun

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By Collins Olayinka and Joseph Chibueze

With Nigeria’s fiscal stability at a breaking point and the 2023 budget dismissed as non-implementable, Collins Olayinka and Joseph Chibueze write that the new Minister of Finance, Wale Edun, has his job in the next one year clearly cut out.

For Nigerians and stakeholders in the financial space, the main task challenging Wale Edun as Minister of Finance and Coordinator of the Economy is obviously to achieve a balance between the fiscal and monetary policies, in order to attain a stable foreign exchange market.

Edun is a finance expert renowned for his contributions to the financial sector. He has held various positions in both the public and private sectors, including serving as Nigeria’s Minister of State for Finance and later as the Chairman of the Board of Trustees of the Financial Reporting Council of Nigeria. Edun has extensive experience in finance and has been involved in policy-making and regulatory matters in Nigeria’s financial landscape.

With a debt overhang of over dozens of trillion, an unemployment rate of over 33 per cent, an inflation rate of 24.08 per cent and an unstable and weak naira, Edun has enormous tasks before him. As coordinating minister of the economy, he is expected to ensure that policy decisions between the finance ministry and other ministries align with the economic vision of the federal government.

Uche Uwaleke, a renowned Professor of Finance and Capital Market at Nasarawa State University and former Imo State Commissioner of Finance says that Edun must ensure fiscal balance, spending efficiency and debt sustainability. He is expected to place a high premium on increasing revenue to GDP ratio, foster close collaboration with the monetary authorities to drive export base diversification and champion the implementation of the Capital Market Master Plan.

The Senior Special Adviser to the President of the African Development Bank (AfDB) on Industrialization, Professor Banji Oyelaran-Oyeyinka says the new minister must focus on the structural challenges that have led the country to what he described as an ‘unmitigated poverty trap’. He said the minister should engineer a structural transformation of the nation’s agrarian economy through urgent and deliberate industrialization of agribusiness.

“To break the cycle of poverty, we must first escape from the trap of underdevelopment. We must have a stable equilibrium level of per capita income at, or close to, subsistence level requirements. We must break that circle of a situation where only a small percentage, if any, of the economy’s income is directed toward net investment. The transformation I should propose is to shift Nigeria’s current agrarian standard to a modern industrialized agriculture-manufacturing sector, defined by higher wage rates, higher productivity and a demand for more industrial workers. In addition, it should employ a capital-intensive production process. A key tool is sustainable intensification, meaning that we should be in a position to get higher yields on the same acre of land. Few countries ever achieved an industrial revolution without modernizing their agricultural and food system.”

Professor Uche Uwaleke

According to Professor Oyelaran-Oyeyinka, the agro-industrial agenda should move the economy up through modern mechanized and industrialized agriculture committed to increasing overall high productivity that raises living standards through income expansion. “Beyond food security, we must process our raw materials and export them to earn foreign exchange. All we need is the infrastructure to develop the right ecosystem for companies to thrive in,” he stressed.

On his part, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf emphasized that the Nigerian economy is in a fragile state and in dire need of a new direction. He said: “The minister should establish quality economic governance consistent with tested economic principles and empirical evidence, contextualized within the country’s socio-economic peculiarities. This is critical from the onset of the administration, for it to be able to signal and build investors’ confidence.” He explained that a good economic governance framework would entail having a technically sound economic team to give guidance and direction to general economic policies, the conceptualization of policies and urgent reforms. The team should also encourage an economy where there is a level-playing field for all players. In addition, there must be a transparent economic policy formulation process and a competitive economic environment, with minimal monopoly or dominance by the state. Yusuf said the framework should also expand the role of markets for value delivery and boosting of private enterprise in the economy, noting that state institutions do not normally manage enterprises efficiently.  He advocated for robust and regular stakeholder engagement by key government agencies to ensure proper alignment of policies with investors’ commitments, while government institutions that play technical roles should be headed by tested and trusted technocrats.

On macroeconomic issues, Yusuf said the minister should prioritize macroeconomic stability with an emphasis on moderating inflationary pressures, stabilizing the exchange rate and boosting economic growth. He said the government should reform the tax regime to ensure efficiency in tax administration, reduce tax evasion and eliminate multiple taxation. He should also unlock more income from revenue-generating agencies through enhanced efficiency of their operations. “The new minister should initiate budget reforms to ensure fiscal discipline, curb budget padding, curb duplication of projects and review the service-wide votes to ensure transparency; ensure value for money in government procurement and expenditure and commit to a reduction in the cost of governance,” Yusuf said.

Professor Banji Oyelaran-Oyeyinka

On foreign exchange policy reforms, Yusuf suggested a foreign exchange policy reform that would unlock inflows of capital into the economy, reduce arbitrage in the forex market and improve transparency in the forex allocation; ensure a market reflective exchange rate, as far as practicable, to eliminate distortions in the forex ecosystem; ensure level playing field in forex transactions and remove impediments to market mechanism in allocation of forex. These steps, he said, will boost inflows from Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), export proceeds and Diaspora remittances.

Yusuf also suggests the new minister should pursue a trade and tariff regime that adequately protects local industries. He said: “Import duty on intermediate products and critical industrial inputs should be reviewed to reduce production costs. Tariff review processes should be more inclusive and transparent. A credible dispute resolution system should be in place to mediate between the customs and the business community. “The administration should prioritize trade facilitation and removal of all non-tariff barriers to trade and removal of all customs checkpoints within the country. The practice by operatives of the Nigeria Customs Service of intercepting cargoes that have been duly cleared at any of our ports should be discontinued. The practice has been proven to be largely extortionist. There should be a balance between the revenue objectives and trade facilitation objectives of the Nigeria customs service. There is currently a disproportionate focus on revenue generation to the detriment of investment growth in the economy.” The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, said the new minister must develop a new fiscal strategy plan in the medium-term expenditure framework that will reduce the deficit ratio in the budget from the current 43.8% to below 15%. “He must develop a fiscal framework that will guide monetary policy especially as it relates to forward guidance for inflation and exchange rate. Edun must coordinate the transition to integrating the revenue collection functions of 62 MDAs into the federal Inland Revenue Service, as a tool to reduce the cost of collection while increasing collection rates. The minister must work assiduously to increase the revenue to GDP ratio from the current 7.9% to 18.5% to implement a plan that can draw down Nigeria’s debt load, and reduce debt servicing,” he said.

Dr Muda Yusuf

Emmanuel said Edun must also lead and coordinate the process of taking NNPCL to the capital markets as a tool to build corporate governance and raise the capital needed for investments while maximizing shareholder returns. According to him, managing the process through which the Federal Government can increase the number of LNG trains as a tool to increase the dollar revenues from gas is critical to stabilizing the foreign exchange market. He stressed that managing the process through which export pipelines like NMGP and TSGP are developed to increase revenues from piped methane gas that goes to Europe is very critical at this time.

According to him, the Minister must equally coordinate the process of fiscal federalism as a tool for changing the principles of derivation, amending the exclusive legislative list, and devolving more economic powers to the sub-national entities. “The finance minister must work collaboratively with the ministers of petroleum and gas resources to amend the sections of the Petroleum Industry Act that will provide clarity for NLNG and deep offshore gas assets for both associated gas and condensates. The Nigerian economy fell off and went on a borrowing spree that saw the total debt (both internal and external) rise by 611% when the immediate past government went on an expansionary monetary policy drive, and widened the budget deficits, instead of focusing on fiscals of raising revenues from oil and gas as well as non-oil and gas sectors. This finance minister has a responsibility to correct that,” he explained.

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