The Independent Media and Policy Initiative (IMPI) has said that contrary to suggestions in a section of the media, the economic reforms of the President Bola Tinubu administration are based on a clear plan to steer the country away from the tragic path of another oil-rich country, Venezuela.
This according to the policy think- tank in a statement by its Chairman Dr Omoniyi Akinsiju is because years of populist macro-economic policies have sunk the country to a level that the country had to change course or be doomed.
“We have observed with interest the criticisms that continue to trail the reforms implemented by President Bola Ahmed Tinubu’s administration. of particular interest are two opinions that gained some traction.
“One of the critics finds the reforms to be a: “wreckage of the past 15 months, from which the country is reeling.” The other viewpoint, an editorial, brands the “government as insensitive and strategy-deficient. It also sees the government as “incompetent to perform its primary duty of delivering welfare and security to the people.”
“These attacks on the ongoing reforms are natural if viewed from the relatively narrow and subjective context of the steep change in the country’s cost of living. Yet, the reality of the nation’s macroeconomic situation is that where we are on the economic curve is a consequence of where we came from. When the premise and predicates of the nation’s economic trajectory are reviewed and aggregated, the apparent conclusion will be that we are where we are because this affliction of economic malaise at this point is predetermined.
“Though the mainstream media and thought leaders unconsciously felt that the country’s economic management has always had a problematic stigma, they refused to give critical attention to the possible consequences of the national economic peregrination since we first struck oil in commercial quantity in the 1960s. Where we have found ourselves is a function of where we came from.
“Since 1972, the Nigerian economy has been characterised by an unpredictable circle of bust and boom. In layperson’s terms, it means that one moment, we are deemed rich and able to buy whatever catches our fancy, and everybody, including the media, is happy. The next, we are flat broke. We lament the difficulties encountered in sating our basic needs, whining and criticising the government in power as the source of our decimated existence.
“But truth be told, the situation report is that we have arrived at the junction of our economic comeuppance where we must pay for decades of abuse and wrongdoing. It’s that simple.
“Typically coming from an underdevelopment mindset, Nigeria heavily borrowed from the preferred economic practices of the then-emerging economies of South America. Among countries in this region, Nigeria shares many similarities with Venezuela, particularly in the nature and character of their adopted economic model, which economists describe as “macroeconomic populism,”it explained.
IMPI also cited similarities between the two oil-producing countries to drive home its position.
It said: “Like Venezuela, oil has taken Nigeria on an exhilarating but dangerous boom-and-bust ride. Again, like Nigeria, decades of poor governance have driven what was once one of Latin America’s most prosperous countries to economic and political ruin. In 2008, crude oil production in Venezuela was the tenth-highest in the world at 2,394,020 barrels per day, and the country was also the eighth-largest net oil exporter in the world.
“We also find a similarity in the leadership style prevailing in Nigeria between 1999 and 2015, as well as in Presidents Hugo Chavez (1999-2013) and Nicolas Maduro (2013- present) of Venezuela. The Venezuelan leaders implemented the wrong macroeconomic policy during the 2000s and early 2010s when Venezuela’s economy, like that of Nigeria, was booming due to the global commodity ‘supercycle’ – a prolonged period of high and rising grain, metal, oil and gas prices.
“Between 2000 and 2015, government spending in Nigeria, like Venezuela, was deeply pro-cyclical. Instead of saving at least some money for bad times during the good times—as Norway, Saudi Arabia, and virtually all other oil exporters have done—Nigeria established the Excess Crude Account (ECA) by fiat in 2004 without legislative backing.
“In May 2007, the ECA had up to $20 billion. Still, like the Venezuelan government, which ran double-digit fiscal deficits as the economy boomed, spending far outpaced income from taxes and other revenues. Both countries were on record for raising their external debts sixfold to finance these unnecessary shortfalls.
“While Venezuela saddled the state-owned oil company with over $100 billion in obligations, the Nigerian government depleted the ECA by more than 80 per cent, from $20 billion to $2.4 billion. It had ratcheted foreign debt by over 200 per cent to $10 billion in 2015. By 2015, the Nigerian economy was effectively underwater.
“Like Nigeria, whose petroleum price per litre was perhaps the cheapest in Sub-Saharan Africa, Venezuela’s petrol was not just the most affordable globally but often virtually free. This led to an estimated 100,000 barrels of petrol worth over $10 billion per year being smuggled across the border to Brazil and Colombia each day, where it could be resold at a profit, a close resemblance of what obtained on Nigeria’s borders with its West African neighbours.
“Like Nigeria, electricity subsidies were also vast, leading to losses and underinvestment. In total, subsidies are estimated to have cost over 10% of GDP in some years, accounting for over half of Venezuela’s fiscal deficits.
“Just as Nigeria had historically preferred capital control in addition to operating multiple foreign exchange windows in 2003, Venezuela also imposed capital controls and a byzantine system for foreign currency purchases.
“For the two countries, there were one or more official exchange rates where the governments subsidised dollar purchases and demand vastly outstripped supply, as well as a black market with its free-floating exchange rate determined by market forces.
“The system for the two countries needed to be more coherent. An entire industry of non-productive ghost companies cropped up to the lobby for subsidised dollars (to resell them on the black market for an immediate profit). At the same time, legitimate value-adding businesses needed more reliable access to the foreign currency required to operate. Many genuine businesses also specialised away from productive activities towards securing cheap dollars.
“According to the World Bank, like Venezuela, which lost $300 billion to corruption through its foreign currency system, Nigeria incurred a significant loss of N13.2 trillion in forgone revenue as a direct consequence of implementing its foreign exchange subsidy policy between 2021 and 2023 alone. This could have been saved for periods of lower oil prices.”
The policy group noted that it was against this backdrop that the Tinubu administration introduced reforms that were targeted at preventing the country from going the path of Venezuela.
“The Venezuelan economic crisis scenario remains a possible reality for Nigeria if the Tinubu administration had adopted the Maduro option in 2023. Our estimation of his decision to scrap the populism macroeconomic template is that the President has salvaged Nigeria’s national economy from a whirlwind of economic turbulence and total collapse.
“As expected, the trailing effects of the stoppage of fuel subsidy and harmonisation of the multiple foreign exchange windows, being the principal reforms orchestrated by the administration, are upending the ways of life and threatening the basis of the sustenance of Nigerians.
“However, as the World Bank notes, though fiscal reforms are painful, they are needed to save the country from imminent collapse. Given the comparative analysis we have conducted in this Policy Statement, we fully adopt the World Bank submission and subscribe to the fact that the Tinubu reforms have started yielding results.
“However, what we consider bewildering is the accusation against President Tinubu from critics, suggesting that he was not prepared for the regime of macroeconomic reforms he engendered right from the day he assumed office. With the plethora of referenceable evidence in the public space, this submission is curious and intentionally dismissive of the policy concepts and deployments as principal and auxiliary to reform undertakings of the Tinubu administration.
“Fact must be told, it does not serve good public conscience to accuse the president of being unprepared to reform the Nigerian economy. The concern should not be about the president’s preparedness but whether we are witnessing possible positive outlooks for the nation’s economic outturns as the reforms are underway. Again, we assert a yes to this. We are, indeed, seeing how the structure of the Nigerian economy is changing and conforming to targeted reforms, as the case may be.
“Even now, the federal government’s revenue from Value Added Tax (VAT) and Company Income Tax (CIT) is rising in leaps and bounds, notwithstanding the increased cost environment. Both CIT and VAT rose by 85 per cent year-on-year to N6.44 trillion in the first half of 2024 compared to N3.48 trillion in the same period of 2023. Coming on the back of this impressive performance, the Chartered Institute of Taxation of Nigeria in Abuja noted that tax revenue is currently the highest income source for the country; this signals a significant shift in the nation’s revenue generation template.
“Besides, there has also been a resurgence in foreign exchange inflows through International Money Transfer Operators (IMTOs). This grew by 47 per cent to $2.33 billion in the first six months of 2024 from $1.58 billion in 2023. We also observed that manufacturing companies are adapting to the high-interest environment by reducing their debt burden by N1.62 trillion between February and June 2024.
“This drop, representing a 14.85% decline in manufacturing loans, comes amid rising interest rates that have increased borrowing costs across the economy. It indicates resilience and the ability to adjust for growth operationally. This adjustment for growth is reflected in companies’ financial performances in the period under review.
“Transcorp Hotels, for instance, grew its profit before tax in the first nine months of 2024 by up to 191.1 per cent from N5.63 billion in the same period of 2023 to N16.43 billion in the current year. In addition, in a show of faith in the economy, Flour Mills of Nigeria Plc, the nation’s largest miller, has announced its plans to spend as much as $1 billion over the next four years to expand its facilities and restructure after its majority shareholder offered to take it private. This is an extention of the N427billion new investments manufacturing companies have committed to invest in the economy, a reflection of their confidence in the economy.
“Overall, the response of macroeconomic indices to the ongoing reforms indicates the propensity of an economy on an upward trajectory and the imminence of an expanding economy with the capacity to produce jobs and concomitant wealth creation”, IMPI added.
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