In his inaugural address on May 29, President Bola Ahmed Tinubu clearly stated his plans to revive Nigeria’s ailing economy. His priority areas include: six per cent growth in Gross Domestic Product (GDP), a bank reform that will make both old and new naira notes to remain legal tender, more accessible and affordable electricity.
The new administration also plans to remove all inhibitions to inflow of foreign investment, unify the exchange rate regime and remove petrol subsidy and use the savings to develop critical areas such as education, health, and creation of jobs. It will equally close the infrastructure gap, provide a vibrant credit culture and address the national debt crisis. The new government will create one million jobs in digital economy.
If the stated plans are seamlessly implemented, no doubt, they will ramp up growth in key sectors of the economy and ensure sustainable development. To achieve his laudable economic plans, Tinubu should hit the ground running. There is no time to waste. The President’s plan to unify the multiple exchange rates is a welcome development. Having a stable and predictable Foreign Exchange (FX) market will restore investors’ confidence in the economy.
Until now, the gap between the official rate and the parallel market rate is over 60 per cent. As a result, legitimate businesses are forced to rely on the ‘black market’ to source for dollar. According to the National Bureau of Statistics (NBS), Nigeria’s foreign trade has declined by N2.6trillion over FX scarcity. The report also shows that Nigeria’s total imports declined by 25.83 per cent in the first quarter (Q1) 2023, from N7.5trillion recorded in Q1, 2022. This is due to cash scarcity triggered by the Naira redesign policy of the Central Bank of Nigeria (CBN).
This can possibly explain the low investors’ confidence in the economy. In 2022, the country attracted $5.3billion foreign investment, the lowest in three years. Rebuilding investors’ confidence will require assurance by the present administration of the safety of their investments, especially at this time that many foreign firms have divested a lot of their investments in Nigeria. The President’s ambition to target an annual GDP growth of six per cent will ensure sustainable growth and development.
Currently, the Cumulative Average Growth Rate (CAGR) of the economy is very low for a developing country and a frontier market like Nigeria. In real terms, Nigeria’s economy has not grown beyond 2.5 per cent over time due to structural challenges. With the present two per cent GDP growth, Nigeria’s average economic growth is lower than that of South Africa, Kenya, Ethiopia, Ghana and Cote d’Ivoire. While the promise to create one million jobs in digital economy is good, attention should be geared towards creating more jobs in every sector of the economy. Unfortunately, the current unemployment rate is over 33 per cent, while youth unemployment is at over 45 per cent. Nigeria is home to world’s highest number of out-of-school children put at 20 million, and 133 million Nigerians are multi-dimensionally poor. This represents 63 per cent of the country’s population. By far, the current unemployment rate is the highest the country has recorded in over three decades, just as the poverty rate is one of the highest on the continent.
Without mincing words, the biggest economic challenge of the Tinubu presidency is the national debt, currently put at N46.4 trillion by the Debt Management Office (DMO). This excludes the N22.7trillion Ways and Means Advances from the CBN. It is clear that Nigeria’s debt position will continue to deteriorate because the government is spending more than it is getting in revenue.
The profligacy of those in government has not helped matters. To get out the debt crisis, the Tinubu administration should efficiently raise its revenue profile. According to data from the Budget Office, Nigeria has limited borrowing space, and could run into serious trouble due to its poor debt-to-revenue ratio, which is too small to sustain the size of our debt. Nigeria’s debt service will soon exceed the 30 per cent threshold. In 2021, Nigeria’s debt service was 83.2 per cent, and 96.3 per cent in 2023. Reversing this trend should be a priority of this administration in revamping the economy.
While Tinubu’s economic plans look ambitious, they are also achievable. The new administration requires pragmatic approach in implementing them. Nigeria needs a robust economic road map with focus on agriculture and manufacturing. The nation’s tax system needs urgent reform so that many companies will be brought into the tax net. Let the government and the private sector work in concert to create more jobs.