An Abuja-based policy think tank, Agora Policy, has called on the Nigerian government to end petrol subsidy, checkmate oil theft, and introduce audacious reforms to stop the rapid decline of the economy and the resultant negative impact on Nigerian citizens.
The think tank also advised the government to ensure greater compliance in remittances by revenue-generation agencies, diversify revenue sources for the government, increase tax base and improve efficiency of tax collection, raise tax rates on luxury/’sin’ items and VAT, and sell or concession some government assets.
A maiden report by the policy think tank released on Sunday said Nigeria needs to undertake bold reforms to engender growth and development.
Entitled “Options for Revamping Nigeria’s Economy,” the report maintains that despite posting positive GDP growth in six consecutive quarters and having the biggest GDP in Africa, Nigeria’s economy is not in sound health.
“Many of the macro-economic fundamentals have worsened and the level of inclusive development is low,” says the report which analysed Nigeria’s economic datasets from 2011 to 2021.
“Nigeria needs to undertake swift, bold and far-reaching reforms to halt the precipitous decline and the attendant negative impacts on citizens’ welfare. These reforms must be undergirded by inclusion, transparency and accountability.”
According to the report, Nigeria’s economy is in desperate need of quick and bold actions to get out of the rut of low and fragile growth, lean and narrow revenue and export base, soaring debts and deficits, limited trade and investment, suboptimal government spending, and growing inflation, unemployment and poverty.
Nigeria, the report states, needs “to deepen and diversify sources of revenue, re-calibrate expenditure to spend smartly, and invest efficiently. To achieve this, a re-thinking of drivers of the economy is needed”
Background
According to Waziri Adio, the founder/executive director of Agora Policy, the decision to focus on the economy was driven by the need to expand policy and programmatic options for the current and next administrations.
“Everything revolves around the economy and there is no better time than the electioneering period to do a health check on the economy and come up with ideas and prescriptions for better economic outcomes,” Mr Adio said.
“We commissioned this report to elevate the discussions during this important campaign season and to facilitate the search for solutions in an area that is central to national growth and human development.”
Data points from the report show that Nigeria has not only underperformed its peers but also regressed on most socio-economic indicators between 2011 and 2021, the report said.
Finances of the Federal Government (FG), the report states, have been defined in the last decade by a stark mismatch between expenditure and revenue on one hand and by an explosion of debts and deficits on the other. For example, while FG’s expenditure rose by 179% from N4.48 trillion in 2011 to N12.51 trillion in 2021, FG’s actual revenue increased by only 81% from N2.57 trillion in 2011 to N4.63 trillion in 2021.
The growing gap between expenditure and revenue has been bridged with growing debts, translating to a 436% rise in FG’s debt from N6.17trillion in 2011 to N33.11 trillion in 2021.
Significantly, domestic debt rose by 242% from N5.17 trillion in 2011 to N19.2 trillion in 2021 while external debt increased by 2,435% from N546 billion in 2011 to N13.86 trillion in 2021.
However, the increase in expenditure and debts has not translated to improvement in human welfare. For example, the rate of unemployment rose from 5.9% in 2011 to 33.3% in 2020 while youth unemployment soared from 8.04% in 2011 to 42.49% in 2020. The number of Nigerians living below the poverty line is projected to increase from 82.9 million in 2019 to 95 million by the end of 2022 and inflation as at August 2022 was at 20.52%.
Other highlights
The report said that domestic debt is understated as Ways and Means grew by over 7000% and is granted in contravention of the CBN Act. The advances by the CBN to the Federal Government is not captured in the official figures for domestic debt, and this understates FG’s domestic debt by about half.
According to the report, FG’s domestic debt as at December 2021 was N19.2 trillion. But FG’s domestic debt would have been N36.6 trillion if the N17.4 trillion for Ways and Means at that time had been included, meaning the domestic debt as at December 2021 was understated by 47.5%.
Despite official statements about the sustainability of Nigeria’s growing debts, the report shows that the public debt is not only understated but has also become a major drag on public finance. According to the report, the proportion of expenditure going to debt service is consistently expanding, and debt service has grown to become the highest component of expenditure, thus crowding out other expenditures critical to economic growth and human development.
The report added that the level of human development is low, despite Nigeria having the highest GDP in Africa. According to the report, this stems from the size and structure of the population as well as limited inclusion. While there are more male (56.72%) than female (43.28%) in the labour force, unemployment is higher among women at 35.19% compared to unemployment among men at 31.82%.
The most critical policy issue for the Federal Government, the report states, is inadequate revenue. The report shows that FG’s tax revenue-to-GDP shrank from 8.2% in 2011 to 4.4% in 2019. The tax figure
for the FG is the lowest for central governments in Africa and among Nigeria’s peers. The revenue problem is compounded by leakages such as increase in oil theft, it added.
Recommendation
In its recommendations, Agora Policy called on the government to prioritise and finetune job creation strategies, with special focus on SMEs; scale-up investment in education, especially technical and vocational skills training; expand investment in critical infrastructure, including through public private partnerships; and increase coordination across tiers of government on poverty alleviation programmes.
It also advised the government to diversify export base, especially agro-processing and light manufacturing; conduct a comprehensive review of Nigeria’s trade policy framework; replace distortionary and inefficient non-tariff measures with import duties; phase-out restrictive trade practices like border closure and import bans; address cumbersome customs processes and tackle corruption and leakages at the ports.
