Nigeria can’t postpone structural reforms for long

Last year was a difficult one for Nigeria as a country. The economic recession, coupled with low oil prices and the inability of most states of the federation to meet their basic financial obligation i.e. payment of workers’ salaries, posed great problems for the Nigerian federation. Despite positive predictions for this year, we will not get to our desired destination with the policies of the government. They are at best surface scratching of the problems.  It appears to us the government is just doing the minimum it can while waiting for the price of oil to rebound.

And, let us face the facts; governments at all levels have been responsible for plunging the country into the current situation. From suspending market forces, trying to meddle and fix prices of goods and services and control the foreign exchange market or even in the quantum of debt owed by various government ministries, departments and agencies (MDAs) to critical sectors of the economy, government has become perhaps, one of the greatest obstacles to economic growth and sustenance.

One of the most damaging of government actions is the series of questionable foreign exchange actions it has caused the Central Bank to adopt over the last 18 months.  Following the rapid decline in dollar revenues from oil and the depletion of the country’s external reserves, the CBN first maintained an artificial exchange rate and refused to devalue the naira until June this year when it was impossible to further hold on. This was in addition to the political decision to ban access to the foreign exchange market for importers of a range of items, from cement to toothpicks.

Despite the decision of the CBN to float the Naira in June, in reality, it has continued to control the market, and most bizarrely, ordered the department of state security (DSS) to arrest operators of bureau de change (BDC) who sell the dollar above the CBN sanctioned N400 naira.

These policies, according to a former deputy governor of the Central Bank, “appear to have been motivated by a perceived imperative to maintain an “affordable” exchange rate because devaluation would hurt the poor.”

However, this short-term, populist approach to economic thinking is not only exacerbating poverty, which the president vowed to tackle, but it is fuelling corruption by the arbitrage opportunities it provides.

It is also scarring away foreign investors, dampening production and hurting the economy.

The government needs to, as a matter of urgency, consider its monetary policy again and allow the naira to trade freely and find its level in the market. Only then can investors acquire the confidence to venture back into the market. Also, that policy will inevitably increase the supply of foreign exchange in the market and will help to reduce the pressure on the naira.

But that is not all. One structural problem the government has continued to ignore is the restructuring of the current state structure of the federation. It is a known fact that the majority of Nigeria’s 36 states are unviable, unproductive and depend largely on fast depleting federal allocation to function as governments. One consequence of the ‘distributive’ character of the Nigerian state is the proliferation of states and agitations for more states by groups in Nigeria since it appears states are mainly instruments of extraction of resources/rents from the Nigerian state.

Like we have argued before, the issue of bankruptcies of state governments goes beyond just transparency and judicious use of resources. It has everything to do with the dysfunctional and unproductive nature of our federal system, which ensures that despites states having constitutionally guaranteed avenues of raising revenues, virtually all of them, except one, still hopelessly depend on allocations from oil receipts to function.

A concrete solution will necessarily involve the collapsing of the current state structure into more manageable, productive and economically viable units that will be governments not only in name, but also in functions and capacities. Of course, this can only be achieved by way of a constitutional amendment. Until this is done, the country will sadly, continue to exist only to share rents and our fortunes will continue to raise and fall with the prices of crude oil in the international market.