Nigeria’s economy is at a crossroads

While I was in Abuja last week, I attended the launch of the World Bank’s Country Economic Memorandum, a report it produces every few years that assesses Nigeria’s long-term economic growth.

The good news is that the launch was well attended, with high-level professionals, diplomats and politicians of all stripes. The bigger news is that political leaders from all the major political parties were united in agreeing to the World Bank punchline: that the very economic survival of Nigeria was at risk, and not taking action would see, possibly, the economic collapse of Nigeria.

One does not want the World Bank to show the obvious. Nigeria’s economy has been in the red for a while, and things have gotten worse over the past decade. On the macroeconomic side, more than 90 percent of revenues come from the oil sector, despite (half-hearted) efforts to expand beyond the current excessive dependence on petroleum in foreign countries. The cost of debt repayment, petroleum subsidies and the double exchange rate are now so great that the only way Nigeria can continue on this current path is to borrow more, at more interest.

Simply put, Nigeria is broke, we are spending other people’s money that we have no way of getting back, other than borrowing from Peter to pay Paul, as the saying goes. Nigeria’s growth over the past decade has not kept pace with population growth, and real income per capita in 2021 was at the same level as in 1992.

And, in fact, the news was not very good on the economic side, even if the World Bank chose not to draw much attention to it (the World Bank focuses on the big picture). Unemployment has skyrocketed during the pandemic, and the productivity of Nigerian workers in almost all sectors has stagnated, and is falling. The private sector – whether foreign or domestic owned – lacks the confidence in the economy to make significant investments that create jobs.

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The big firms are all in a holding pattern, due to the uncertainty of the election outcome, and the possible reforms that may take place (CEOs of big firms have the resources to seek expert forecasts, and rarely make risky decisions. There’s a reason why big companies are powerful!). Nigeria is full of entrepreneurs and small firms, but no group can really run the economy, because they often lack the resources – financial, technical, or human – needed to operate effectively, and the government structure does nothing to help. improve them.

Most entrepreneurs and small firms cannot survive, due to the cost of basic inputs. Most of their power is easily exercised by going around the labyrinthine barriers imposed by the quasi-formal, federal and state agencies, directly and indirectly (many of these players are in the informal economy, which means they are not supported by the government, but they are not supported by the government. prevent government agencies since they gave them a hard time).

The room, full of the great and the good, also gave their testimony to confirm the continuation of the message of the World Bank, and all agreed that the next government, regardless of the political party, could not do anything except ‘things fall apart’. ‘ (The World Bank Country Representative is clearly an educated man).

When the patient and the doctor agree on the diagnosis, and are fully able to treat, the future looks bright. However, to take the first analogy further, when the patient is not well for a long time, the doctor almost always insists that medicine and surgery are not enough: Lifestyle changes are also needed. You must stop the unhealthy habits that put your life in danger in the first place.

And this is where the World Bank is unrealistically optimistic. Past experience shows that Nigerian leaders are very likely to take medicine, but they do not have the discipline to prevent the excesses that got the country into trouble in the first place, and indeed the willingness to accept the costs associated with making Nigeria a healthy and independent economy. Without this investment, the country will be putting off another trip to the World Bank for help.

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This fear of making major economic reforms is not unreasonable. Memories of the Structural Adjustment programs of the mid-1980s still linger in the minds of our decision-makers and the general public. In order to be fair to the IMF and the World Bank, the pain medicine prescribed at that time was necessary, but for various reasons, the intended result of a healthy and diversified economy was not achieved.

Combined with mismanagement by successive military governments at the time, the common man realized that structural adjustment programs made their conditions worse, with rising prices, lower real wages and fewer jobs. The economy did not see an increase in production and investment by local entrepreneurs, or growth in agricultural production or domestic production.

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This time, the fear of repeating the incident continues: Will the bitter medicine turn the situation from bad to worse? Is it better to maintain the status quo (which may be bad, but we all know where we stand) or take the risk of trying to change, and find that – like in 1980 – things are not improving, but worse? Does the devil you know better than the devil you don’t know?

Burying your head in the sand and holding on to the hope that the current situation will resolve itself without taking drastic measures is unfortunately a dream, and it is time for politicians to take the time to accept this, and have the courage to tell the public about this. economic facts. The immediate effect of the macroeconomic adjustment will certainly cause a shock to the economic system, and the sudden increase in the cost of removing the petroleum subsidy and linking the exchange rates will cause great pain, and the increase in prices will affect the majority of Nigerians. citizens, 90 percent of whom are already in dangerous and informal jobs.

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Nigeria’s economy is highly dependent on exports, and even the smallest economy in the world (except Angola) is not clear whether Nigeria will successfully filter its revenue streams to overcome these shocks. Of course, it will require the government to be involved, as well as immorality in terms of spending (not a strong point of Nigerian leaders).

There is no question that these macroeconomic adjustments need to be made, and simply delaying the pain until after the election is irresponsible. Action is needed, and drastic action on this matter. The only question that is unpleasant, that the political and economic elite of Nigeria do not want to hear, much less the answer: How long will the pain last, and does the country have plans and resources to help reduce the pain?

Do not criticize the messenger, as no doubt, others will do in the coming months: the World Bank is not a bogeyman, it has not mismanaged the economy.

There is no doubt that Nigeria is a country of unlimited potential. Despite all that has happened, there are many reasons to believe that things can be turned around, but the longer the delay in implementing the necessary changes, the harder it will be to recover. The clearest way forward is true partnership: Leaders must see people as their partners in achieving change, and the seemingly impossible will become, and indeed, possible.

Nigeria is indeed at a crossroads, and we can only hope that the incoming political leaders will take the higher road, the lower road than the previous leaders.

Professor Rajneesh Narula is the John Dunning Chair of International Business Management at Henley Business School, University of Reading, UK, and Director of the Dunning Africa Center in South Africa.

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