Nigeria is undergoing a transition as the incumbent President, Major General Muhammadu Buhari (retd.) is handing over to another democratically elected President after serving two four-year terms. There is no denying that the country has continued to face a slew of issues. Nigerians have waited in vain for remedies as most of these issues remain unresolved. Poor infrastructure, unemployment, poverty, insecurity, a mounting debt burden, fuel scarcity, an economic downturn, inflation, and tribal and religious divisions are amongst the country’s lingering problems.
Bola Ahmed Tinubu, the newly elected President will face significant economic challenges. The former Lagos governor will take over an economy beset by slow growth, rising inflation, and the effects of a chronic cash shortage and rising debt burden. The incoming government, which takes office on May 29, 2023, will face the difficult task of tackling these difficulties and putting the country on a course of sustained economic progress. To accomplish this, the government will need to take a multifaceted approach that addresses some of the underlying reasons for the country’s economic problems.
One key area the government will need to focus on is the economy. The new president needs to create a system that can ensure his administration can deliver on critical public issues such as jobs, personal safety, infrastructure, and criminal justice. Data from the National Bureau of Statistics (NBS) showed Nigeria recorded annual Gross Domestic Product growth of 3.1 percent in 2022, down from 3.4 percent in 2021.A closer look at NBS’s data showed President Muhammadu Buhari holds the worst record out of the four presidents who have led Nigeria since it returned to democracy in 1999.While President Olusegun Obasanjo can boast of an average growth rate of 6.9 percent during his eight-year tenure, his immediate successor, Umaru Yar’Adua (now late), did even better in a few years as president with an average growth rate of 7.1 percent. Goodluck Jonathan delivered 6.07 percent growth in his four-year term as president.
Under Buhari’s watch, however, the economy grew by an average growth of 1.40 percent. Another issue the new president has to watch out for is Nigeria’s increasing debt service. Data from the Budget Office of the Federation show that every year since 2015, the federal government has spent more money servicing debt, and the trend is set to stretch for the ninth straight year. According to the 2023 budget. The government has budgeted to spend N6.31 trillion on debt servicing this year, 75 percent higher than the amount in the 2022 budget and 50 percent more than the actual amount spent in 2021.Experts have also added their voices to calls for urgent economic reforms. Eben Joels, General Partner at Stransact, a foremost accounting firm in Nigeria, advises that the incoming administration should do whatever it takes to wean our society from rent seeking.
“This means setting values driven policies that consider only what is benefit for the greatest number of people for the longest time. A good start will be to revisit our electricity generation and distribution systems and processes. Overhauling this sector in a transparent, rent-free manner is the catalyst we need to revamp our small businesses,” said Joels.
Furthermore, for many years, Africa’s most populous nation has struggled to meet its revenue target in its budget, and the variance keeps getting wider ever since the 2014 global collapse in oil prices that sent the oil-dependent nation to its first recession in a quarter of a century. Prior to 2014, the federal government’s revenue shortfall – that is the variance between actual and budgeted retained revenues – was in the billion-naira range but with the collapse in oil prices, the difference has stayed within the trillion-naira range. The country plans to spend N21.8 trillion as against revenue of N10.5 trillion, according to the budget signed on Jan. 3 by Buhari, who will leave office in May.
Diversifying the economy away from oil and towards other sectors, such as agriculture, manufacturing, and services should also be top on the incoming president’s agenda. This will require investments in infrastructure, such as roads, rail, and ports, to improve transportation and reduce the cost of doing business. The government will also need to address the high levels of corruption and bureaucracy that have stifled investment in the country.
Another area the incoming government will need to address is the high level of unemployment in the country, particularly among young people. This will require a concerted effort to create jobs through investments in infrastructure and the private sector. The government will also need to invest in education and skills development to ensure that young people have the skills they need to succeed in the modern economy.
Whilst the budget deficit of N11.3 trillion can be plugged largely by borrowing, it should be done strategically. The government said N7.04 trillion will be sourced from the domestic market and some N1.76 trillion will be borrowed from foreign sources while an additional N1.7 trillion will come from existing bilateral and multilateral facilities. In the 2023 budget, the fiscal deficit to GDP amounts to 4.78 percent, and according to Section 12 (1) of the Fiscal Responsibility Act (2007), the fiscal deficit should not exceed 3 percent of the estimated GDP, except there is a clear and present threat to the national security and sovereignty of Nigeria.
Another major challenge that Nigeria’s incoming president faces is the decision of a cash-strapped federal government to spend N6 trillion on petrol subsidies in 2023.Buhari, who came to power claiming there was nothing like subsidy, has presided over the biggest jump in the nation’s subsidy expenditure. The 2022 Macroeconomic Outlook report by the Nigerian Economic Summit Group showed Buhari’s payment for petrol subsidy grew from N307 billion in 2015 to N1.77 trillion in 2021. This represented a 477 percent increase within seven years. Experts say the President has done nothing to arrest the collapse of Nigeria’s fiscal buffers on account of the relentless surge in subsidy expenditure, and now he is bidding time, hoping to pass on the burden to his successor.
Despite declining oil production, the Nigerian National Petroleum Company Limited (NNPC) has entered into ‘cash for crude’ deals worth about $5.6 billion with some of its business partners. For instance, the Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC, has a capital commitment contract of $1.04 trillion (N432 billion) with Eagle Export Financing Limited for the forward sale agreement for the delivery of crude oil.“Under the contract, Eagle Export Funding Limited will make an upfront payment to NPDC for crude in a Forward Sale Agreement. The payment received is required to be settled with the delivery of crude oil volumes,” NNPC’s records showed.
Analysts say the NNPC could be on the hook for penalties if it fails to deliver – a development that is possible, considering Nigeria’s oil production is fraught with uncertainties. In a season where other major oil producers like Saudi Arabia and small producers like Guyana and Bahrain are laughing all the way to the banks due to higher oil price, Nigeria has struggled to benefit from surging crude prices due to pipeline vandalism and years of underinvestment that have limited oil exports.
The Nigerian government’s response has complicated matters. On Buhari’s watch, fuel subsidies and big-ticket projects have sapped state coffers including the Excess Crude Account (ECA) in recent weeks. The ECA was created by the administration of former President Obasanjo in 2004 for the purpose of saving oil revenue in excess of the budgeted benchmark and had a balance of $20 billion as at January 2009.But the country’s rainy-day fund nose-dived from $2.1 billion to $376,655 as at June 2022 during this administration.
On account of Nigeria’s growing insecurity, the country has been unable to attract the foreign investment it needs to boost its economic activities, and many farmers have been unable to go to their farmlands to produce exportable crops.
Mr Joels of Stransact further reiterates on the National Development Plan which is the Nigeria’s blue print for economic transformation. Among its 7 components are Economic growth and Development, Infrastructure as well as Plan Implementation, Communication, Financing, Monitoring, and Evaluation. He charged the government to run a more inclusive “A good government should start from being honest with the governed on its intentions. It will be good to have a government that will work directly with Nigerians to address the most fundamental issues that creates the environment for economic transformation. For example, the powers of a State or village over its policing, or safety should not be exclusive to a distant federal government. You do not need blueprints to get the fundamentals right. We need a government with genuine intentions.”
Finally, the government will need to address the high levels of inequality in the country. This will require investments in social safety nets to protect the most vulnerable members of society, as well as policies that promote inclusive growth and reduce the gap between the rich and poor. Overall, the incoming government in Nigeria faces significant economic challenges, but with the right policies and investments, there is the prospect of sustained economic growth and development in the country.
Peter is a research and technical specialist and diplomatic historian with over 5 years of experience in International Economic Relations and Taxation.
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