Getting economy out of woods: The tasks before Wale Edun
With Nigeria’s fiscal stability at a breaking point and the 2023 budget dismissed as unimplementable, COLLINS OLAYINKA and JOSEPH CHIBUEZE write that the new Minister of Finance, Wale Edun, has his job in the next one year clearly cut out.
For Nigerians and stakeholders in the financial space, the main task before Wale Edun as Minister of Finance and Coordinator of the Economy is achieving a balance between the fiscal and monetary policies to attain a stable foreign exchange market.
Edun is a finance expert known for his contributions to the financial sector. He held various positions in both the public and private sectors, including serving as Nigeria’s Minister of State for Finance and later as the Chairman of the Board of Trustees of the Financial Reporting Council of Nigeria. Edun has extensive experience in finance and has been involved in policy-making and regulatory matters in Nigeria’s financial landscape.
With a debt overhang of over dozens of trillion, an unemployment rate of over 33 per cent, an inflation rate of 24.08 per cent and an unstable and weak naira, Edun has enormous tasks before him.
As a coordinating minister of the economy, he is expected to ensure that policy decisions between the finance ministry and other ministries align with the economic direction.
Prof Uche Uwaleke of Nasarawa State University thinks that Edun must ensure fiscal balance, spending efficiency and debt sustainability. He is expected to place a high premium on increasing revenue to GDP ratio and fostering close collaboration with the monetary authority to drive export base diversification and champion the implementation of the Capital Market Master Plan.
As for the Senior Special Adviser to the President of the African Development Bank (AfDB) on Industrialisation, Prof Banji Oyelaran-Oyeyinka, the new minister must focus on the structural challenges that have led the country to what he described as an ‘unmitigated poverty trap’.
He said the minister should engineer a structural transformation from the nation’s agrarian economy through urgent and deliberate industrialisation through agribusiness.
“To break the cycle of poverty, we must break the malady of underdevelopment: which we have diagnosed as a stable equilibrium level of per capita income at or close to subsistence requirements. It is a situation where only a small percentage, if any, of the economy’s income is directed toward net investment.
“The transformation I propose is to shift Nigeria’s current agrarian condition to a modern industrialized agriculture-manufacturing sector which is defined by higher wage rates, higher marginal productivity, and a demand for more industrial workers. In addition, it will employ a capital-intensive production process. A key tool is sustainable intensification (SI) meaning getting higher yields on the same acre of land. Few countries ever achieved an industrial revolution without modernizing their agricultural and food system,” he said.
He added that the industrial agenda will move the economy into modern mechanized industrialized agriculture with increasing overall high productivity that raises living standards through income expansion.
“Beyond food security, we must process our raw materials and export to earn foreign exchange. All we need is the infrastructure to develop the right ecosystem for companies to thrive in,” he stressed.
On his part, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the Nigerian economy is in a fragile state and in dire need of a new direction.
He said: “The Minister should establish quality economic governance consistent with tested economic principles and empirical evidence and contextualized within socio-economic peculiarities. This is critical from the onset of the administration for signalling and building investors’ confidence.”
He explained that a good economic governance framework would entail having a technically sound economic team to give guidance and direction on general economic policy direction, policy conceptualization and urgent reforms and also an economy where there is a level-playing field for all players with a transparent economic policy formulation process and a competitive economic environment with minimum monopoly dominance where state capture must not be in existence.
Yusuf said the framework will also expand the role of markets for value delivery and boosting of private enterprise in the economy, noting that state institutions cannot manage enterprises.
He also advocated robust and regular stakeholder engagement by key government agencies to ensure proper alignment of policies with investors’ sentiments, while government institutions that play technical roles should be headed by tested technocrats.
On the macroeconomic issues, Yusuf said the minister should prioritize macroeconomic stability with an emphasis on moderating inflationary pressures, stabilizing the exchange rate and boosting economic growth.
He said the government should reform the tax regime to ensure efficiency in tax administration, reduce tax evasion and tax avoidance and eliminate multiple taxation. Unlock more income from revenue-generating agencies through enhanced efficiency of their operations.
“He should initiate budget reforms to ensure fiscal discipline, curb budget padding, curb duplication of projects and review the service-wide votes to ensure transparency; ensure value for money in government expenditure and procurement and commit to a reduction in the cost of governance,” Yusuf said.
On foreign exchange policy reforms, Yusuf suggests a foreign exchange policy reform that will unlock inflows of capital into the economy, reduce arbitrage in the forex market and improve transparency in the forex allocation; ensure a market reflective exchange rate [as far as practicable] to eliminate distortions in the forex ecosystem; ensure level playing field in forex transactions and remove impediments to market mechanism in allocation of forex.
These steps, he said, will boost inflows from Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), export proceeds and diaspora remittances.
Yusuf also suggests the new minister should pursue a trade and tariff regime that adequately protects local industries. He said: “Import duty on intermediate products and critical industrial inputs should be reviewed to reduce production costs. Tariff review processes should be more inclusive and transparent. A credible dispute resolution system should be in place to mediate between the customs and the business community.
“The administration should prioritize trade facilitation and removal of all non-tariff barriers to trade and removal of all customs checkpoints within the country. The practice by operatives of the Nigeria Customs Service of intercepting cargoes that have been duly cleared at any of our ports should be discontinued. The practice has been proven to be largely extortionist. There should be a balance between the revenue objectives and trade facilitation objectives of the Nigeria customs service. There is currently a disproportionate focus on revenue generation to the detriment of investment growth in the economy.”
The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, said the new Minister must develop a new fiscal strategy plan in the medium-term expenditure framework that will reduce the deficit ratio in the budget from the current 43.8 per cent to under 15 per cent.
“He must develop a fiscal framework that will guide monetary policy especially as it regards forward guidance for inflation and exchange rate. Edun must coordinate the transition to integrating the revenue collection functions of 62 MDAs into the federal inland revenue service, as a tool to reduce the cost of collection while increasing collection rates. The Minister must work assiduously to increase the revenue to GDP ratio from the current 7.9 per cent to 18.5 per cent to implement a plan that can draw down Nigeria’s debt load, and reduce debt servicing,” he said.
Emmanuel said Edun must also lead and coordinate the process of taking NNPCL to the capital markets as a tool to build corporate governance and raise the capital needed for investments while maximizing shareholder returns.
According to him, managing the process through which the Federal Government can increase the number of LNG trains as a tool to increase the dollar revenues from gas is critical to stabilizing the foreign exchange market.
He stressed that managing the process through which export pipelines like NMGP and TSGP are developed to increase revenues from piped methane gas that goes to Europe is very critical at this time.
According to him, the Minister must equally coordinate the process of fiscal federalism as a tool for changing the principles of derivation, amending the exclusive legislative list, and devolving more economic powers to the sub-national entities
“The finance minister must work collaboratively with the ministers of petroleum and gas resources to amend the sections of the Petroleum Industry Act that will provide clarity for NLNG and deep offshore gas assets for both associated gas and condensates. The Nigerian economy fell off and went on a borrowing spree that saw the total debt (both internal and external) rise by 611 per cent when the immediate past government went on an expansionary monetary policy drive, and widened the budget deficits, instead of focusing on fiscals of raising revenues from oil and gas as well as non-oil and gas sectors. This finance minister has a responsibility to correct that,” he explained.
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