The cost to the economy was very high because of the impact on the cost of production. The social cost was also extremely very high because of the impact on the lives of the people. And the political cost was also very high because the government became very unpopular – Muda Yusuf

President Bola Ahmed Tinubu’s midterm economy scorecard has been described as devastating especially in its social outcomes.

This forms the kernel of the submissions by Dr. Muda Yusuf, an eminent economist and Founder/CEO of the Centre for the Promotion of Private Enterprise (CPPE) at the Vanguard Conference Hall session on Tinubu’s mid-term.

Yusuf who is the immediate past Director General of the Lagos Chamber of Commerce and Industry, also said the economic reforms embarked upon by the Tinubu regime from first day in office have birthed a challenging operating environment for businesses.

His words: ‘‘First, let me say that the last two years have been very very turbulent for practically all stakeholders in the economy. It has been very challenging for those who are managing the economy; it has been very challenging for those who are investors in the economy, it has been very challenging for those who are the citizens of the country. A lot of pain, especially arising from the cost of living, cost of production, instability, uncertainty, and more.

‘‘But it is important to contextualize this. I must say that the administration, at inception, was grappling or had to grapple with a number of legacy macroeconomic issues because the economy was practically on the brink as at the time the administration came on board. So that led to the imperative of the need to urgently stabilize the economy.

‘‘Of course, this also has its toll on the general populace; the stabilization of the economy necessitated a couple of reforms. We had the foreign exchange policy reform, which was about the convergence of the exchange rates. We had the fuel subsidy removal, which led to escalation of prices.

‘‘The cost to the economy was very high because of the impact on the cost of production. The social cost was also extremely very high because of the impact on the lives of the people. And the political cost was also very high because the government became very unpopular.

‘‘But I must say that these reforms were inevitable to bring the economy back from the brink’’.

What Tinubu inherited

The imperatives of the reforms embarked upon by the Tinubu administration, according to Yusuf, could be contextualized in the form of bad economic situation the previous government handed over.

Yusuf stated: ‘‘The external position was extremely very bad. In the private sector, we had a situation where if an investor demanded $100,000 to import raw materials or machineries, the best you could get at that time was maybe 10 percent or 20 percent maximum at that time. Imagine what that did to many investors.

‘‘We got to a situation where our letters of credit were no longer being honoured by our correspondent banks abroad. It was that bad, that is if you wanted to do any transaction, the trading partners abroad were asking for cash and carry, which is completely an aberration in international trade.

‘‘That showed how bad things were. The reserves almost completely collapsed. The net reserve was possibly less than $5 billion and that led to a situation where we had some desperate moves on the part of the administration at that time to salvage the situation. There was the securitisation of our foreign reserves, the securitisation of our crude oil sales, just to be able to fill the gap so that the system can continue to run.

‘‘Then we had very serious issues around the printing of money. At that time, at the end of that administration, we had money printing over N22 trillion, most of which were not even reflected in the budget and that was a major transparency issue. It was later that the National Assembly had to walk back in a very unusual way to now be approving that humongous amount, just to try to regularize and normalize those things. But of course, there was very little salvage they could do.”

The Tinubu reforms

“So these were some of the key challenges, but over the last two years, we seem to be gradually turning the corner. And let me also admit at this point that the reforms that took place, many of us who were economists had canvassed for it because we all saw the massive corruption around the foreign exchange market. We saw the massive corruption around the subsidy regime.

‘‘But what we did not anticipate was the enormity of the social cost on the citizens. You know, this is economics. Economics is not physical science. So most times you cannot predict accurately the outcomes of policy. So one of the outcomes we saw was that the social cost was disproportionately higher than what we expected.

‘‘Because most of us who were economists at that time were saying that the petrol subsidy was being enjoyed only by the rich, people who are riding SUVs and so on. But when the subsidy was removed, we now realized that it was not only the rich that were benefiting from the subsidy because we saw the impact.

‘‘The same thing with foreign exchange. When we had the previous regime, the exchange rate was N450. That was also a subsidy environment, and we felt that the major beneficiaries at that time were those who were enjoying the arbitrary opportunities. But when the exchange rate was liberalized, and we unified the rates, we now realized that even the citizens were also benefiting in some ways from the subsidy in the foreign exchange market, because we saw the impact of that on the general price level. So I think it’s important to say this.

‘‘But let me also say that over the last two years, because of the steps that have been taken, we have seen evidence of some improvement in the stabilization of the economy. We have seen, at least in the last eight months, an improvement in the stability of the currency.

‘‘The volatility that we witnessed in 2023 up to maybe the first half of 2024, has reduced significantly. The fuel situation has also improved; the price increase was very huge. The shock was enormous, but in terms of availability, in terms of confidence of investors, in terms of the incentive for people to now have the confidence to invest in the downstream sector, we have seen an improvement. We have seen the Dangote refinery come on stream and it’s doing fairly well. As we speak, we are in a position not to even import petroleum products at all.

‘‘That policy regime has also helped the sustainability of that investment’’.

Reform benefits not democratized yet

Yusuf also painted the picture of a skewed benefit of the Tinubu reforms against the poor and the vulnerable.

He stated: ‘‘But I must also admit that, yes, we have seen some benefits of those reforms. We have seen an improvement in the fiscal environment. What I mean by that is the revenue to the government at all levels.

‘‘But what we have not seen is the democratization of the benefits of those reforms. In other words, the benefits have not sufficiently trickled down to the citizens. We probably have more billionaires today than we had three, four, five years ago.

‘‘Conversely we have more poor people today than we used to have because of the fact that the redistribution objective of the reform has not been properly achieved.

‘‘When we were removing the subsidy, the whole idea was to take the subsidy away from those who are benefiting from it and restore it to the citizens in a way that it will be a lot more inclusive, that I think we have not achieved much of that.

‘‘There is also the issue of productivity because part of the key objectives of governments, ideally should be to stabilize the economy then also to ensure that we have an economy that is productive.

‘‘That productivity challenge we haven’t made much progress in terms of the cost of production. When I was coming into this premises I heard one big generator working there, that is diesel and that is a lot of money. We haven’t made much progress in terms of productivity particularly from electricity.

‘‘In terms of infrastructure, we have seen some evidence of improvement driving from Oshodi to Mile 2; it wasn’t as smooth before, now we can move within 5 to10 minutes from Oshodi to Mile 2. Of course, it was not started by this administration but it was completed during the life of this administration. And we have seen pockets of that, and some other issues like that.

‘‘On macroeconomic stability, we have seen some progress. Productivity-wise, we are not there yet. The social outcomes of the reform have been very devastating. We are still struggling with the appropriate model to allow the benefits of the reform to trickle down to the ordinary citizen, so that we can make the reform a lot more inclusive.

On security

Like most Nigerians Yusuf also scored Tinubu very low on security.

He stated: ‘‘We talk about security now, even Mike Okiro, and I have even seen serving officers complain about extremely poor funding, extremely poor.

Not to talk of the issue of transparency in spending. You need to ask some of these DPOs whether they even have any budgets. And it’s the same across all these services.

‘‘If somebody is not well-prepared, not well-kept, and you push him to the front line, it’s like asking him to go and commit suicide. I listened to a commissioner of police last week. He was receiving the AIG in charge of the zone in the north, I think it is Borno or Kebbi or somewhere around there, and the man was lamenting publicly on camera how his men do not have this bulletproof jacket. They do not have this, they do not have that. And yet we expect them to police such a volatile area. How would that happen? They are also children of people, they are fathers of people, they are husbands, they are wives. I mean, people also care about their own people.

‘‘Apart from the fundamental issue of funding, there is also the issue of the quality of the spending. We have a big budget. Every year, the defense has the biggest budget. Are we getting value for money? We need to interrogate all of this.

‘‘I also think we need to talk more about technology. I mean, people are using technology, because it’s even cheaper for you to use technology to deal with some of these things. So I don’t know how much effort we are making. What does it cost? Is it not cheaper to use drones to go and attack than to be mobilizing people in Hilux who can be ambushed and killed?

Going forward

When Yusuf was asked to look into the future of the economy under this regime in the second half of the first term, he stated: ‘‘Well, first let me say that when we discuss the economy, we should not limit conversation only to the federal government. Because there’s always that tendency that everything is about the federal government.

‘‘Between the state and local government, they account for about 50% of the resources. And just as I said at the beginning, this reform has elevated their revenues.

‘‘Therefore, they have more to account for at all levels, both federal, states, and the local governments.

‘‘So alongside our interrogation of what is happening at the federal level, we should also be mindful of the need to interrogate what is happening at the states. Budgets will come; we look at how much the Federal Government is using to buy cutleries, to buy this and that, all sorts of things. At least, we must give credit to them for that, that they put that in public space. Every detail, granular details of what they spend in each of the ministries. But how many States provide that?

‘‘So, that engagement at the sub-nationals is extremely, very, very important. The sub-nationals also have a big role to play in education, because part of the reason we have all these insecurity problems is because most of those areas where we have security problems did not pay attention to education over the years. We are just reaping the negligence of 15, 20 years.

‘‘I would like to say that going forward, this may go slightly beyond the next two years – it is for us to ensure that we have a vision in terms of a national plan that every administration will key into.

‘‘We do not want a situation where every four years somebody will come with a manifesto, and the manifesto will now be taking the place of our national economic plan. Let us have a consensus around our economic vision as a country. This is the way it is done in many other countries, so that even if you are crafting your manifesto, let it align with that vision, and so we don’t have people pushing us around every four years.

‘‘We should have a vision to which our short-term, medium-term manifesto, whatever it is, will be aligned to, that all of us are on the same page and possibly we can even legislate that kind of vision, maybe our vision 2050 or whatever it is, that this is where we want to go as a country.

“My second position is about our fiscal policy. We need to worry about the level of our debts which is getting to levels that are not sustainable. If we look at the ratio of our debt service to revenue now, it is getting close to maybe 80% or more. If you compare our debt service to our capital budget, it is higher than what we are spending on capital. And to do that, we need to worry about, first, the amount of debt we take. Second, we should take less foreign debt, because they are more difficult to service because of foreign exchange.

“Third, we should worry about the cost of the debt. We now have a situation whereby the domestic debt government is taking, Federal government bonds, sometimes come at around 20, 22 percent. Treasury bills are over 20 percent. These things are very costly, and they have implications for the debt service budget. So we need to tone that down. And if you are taking debt, for God’s sake, let us commit the debt to building domestic capacity to be more productive, not just spending money on some things that you can hardly put your fingers on, and say you are doing empowerment; you are doing poverty reduction and so forth. Let us invest our debt in building capacity, to build the economy, that is extremely important.

‘‘Then our monetary policy, yes, the central bank has talked about orthodox monetary policy. That is fine but we have to define the limits of the orthodoxy. Because orthodox monetary policy is about allowing the markets to dictate the direction of policy, that is what has brought our interest rates to the level to which it is today. Our Cash Reserve Ratio (CRR)is 50%. It is the highest in the whole world. Our monetary policy rate is 27.5%, it is one of the highest in the whole world. And you can see how much people are paying now to take out a loan from the bank, 30%, 35%. What kind of investment can anybody do with that kind of interest rate?

‘‘So we should define the limits of this orthodox monetary policy, and we should also create a window of concessionary financing for the real sector of the economy.

‘‘You cannot undertake agriculture, construction, property investment, manufacturing with an interest rate of 30%. It cannot work.

‘‘We need the private sector to be part of this journey. They cannot be part of this journey if their source of financing is this costly. So we need to look at our monetary policy.

‘‘Generally, in terms of economic philosophy, we should define the limits of the market economy. Yes it is good to allow the market to guide our policies, but we should define the limits. There is what you call market failure. When the market fails, that means the market cannot deliver the outcomes that you want. So that means that you have to ensure government intervention to fill the gaps that the market cannot fill going forward.

‘‘Trade policy, we need to worry about, emphasising revenue target for the Customs, because the more you put pressure on them to go and generate revenue, the more they transfer the pressure to the private sector. And at the end of the day, we make investment extremely very difficult because the Customs is trying to meet his revenue target. We should have a balance. We have to be conscious of the fact that if we make it easier for people to invest, by reducing the pressure on them, either in terms of import duty rates reductions or eliminate all these levies at the bottom of the value chain. It is better for the economy. If they are able to invest more, the economy will grow, and ultimately the revenue to the government will grow.

‘‘In terms of our trade policy as well, we should look at critical sectors of the economy and reduce their import duty for their raw materials.

‘‘One of the panelists talked about zero tariff on pharmaceuticals, raw materials in particular, and equipment. We can do something similar to those who are in food processing, for instance, to reduce their costs, because we are talking about access to food.

‘‘Let us see what we can do to use fiscal policy to reduce the cost for those who are in the food processing industry, so that the cost of noodles, the cost of bread, all these things can come down, even cooking gas and others.

‘‘So we need to craft or calibrate our trade policy in order to be sensitive to cost of living.

‘‘Generally, the government should do a lot more across all levels, not just the federal now, on education, on health, because not every citizen can put their children in private schools.

Private schools are becoming prohibitive, and investment in education is investment in the future of the country.

So if we are able to make it easier for people to have access to education, you do not say because your parents cannot afford to pay school fees, then you cannot go to school. It should be regarded as a right.

‘‘So we need to see more investment in education, in health, so that families will spend less of their income trying to pay school fees, trying to pay hospital bills, trying to pay for transport, because these things are exerting a lot of pressure on family budgets. And once you have that kind of pressure, you don’t have discretionary income. And if you do not have discretionary income, how will you be able to buy clothes, buy bread, and buy things that other people are producing? These are things that make the economy go around, so we need to do a lot more in this area.

‘‘We have discussed security at length and it is a very big subject but let me just stop at that. These are some of the things I think we should be focusing on at least in the next two years because all these issues about the social sector are about making economic management more inclusive. We do not want an economy that is leaving too many people behind, that is why I think the government should do a lot more in the area of education, healthcare, food systems and public transportation.

‘‘We need to see a lot more government budget going into these areas.’’