Nigeria must grow its foreign reserves. – Ogho Okiti

Hello and welcome to my commentary this week.  For some time now, the government and many Nigerians have been trying to forget the eight disastrous years of President Muhammadu Buhari. But that did not last very long. Last week, the International Monetary Fund (IMF) reminded us again after it projected that the Nigerian economy will be the fourth largest in Africa by the end of this year.  But that is not President Buhari’s headache, so let’s stick to 2023. At the end of 2023, Nigeria was the third largest economy in Africa after Egypt and South Africa. To contextualise the awful decline in Nigeria’s GDP since 2015, the size of the Nigerian economy then was 492 US billion dollars, while that of Algeria which is now projected to overtake Nigeria this year was 187 US billion dollars. Indeed, in 2015, Nigeria was not just the largest economy in Africa, it was larger than the second, which was Egypt, by 142 US billion dollars.  However, this commentary is not about mocking President Buhari’s economic policies. It is about pointing out how things can be much more different under President Bola Ahmed Tinubu than it currently is.  So, here, I share three fiscal policy mistakes of the Buhari years that should not be repeated by President Bola Ahmed Tinubu.  But before I do that, I want to take a quote from the book by Greg Mills, “Why Africa is Poor.” Greg Mills wrote, and I quote, “The main reason why Africa people are poor is because their leaders have made this choice”. He added, “The record shows that countries can grow their economies and develop faster if leaders take sound decisions in the national interest.” In the 8 disastrous years of President Buhari, the attitude, rarely publicly mentioned or discussed is that the government elevated Nigeria’s external problems. The government would readily blame the decline in oil prices from 2014 to 2016 for the economic recession of 2016 and 2017, the Covid – 19 shock of 2020 and the Russia / Ukraine war of 2022. Yes, these shocks were significant and were the fault lines, but the awful fiscal policies of the government amplified the problems and impact on the Nigerian economy.  How? By escalating Nigeria’s deficits and debts, and by failing to carry out a single economic reform, President Buhari’s responses to economic shocks made economic outcomes even worse. Under President Buhari, Nigeria experienced an “Idi Amin” type of fiscal policy. He did not merely escalate Nigeria’s deficits and debts before expanding revenues but continued to expand them on the back of unrealistic and folly revenue expectations. The second mistake was to think that increases in government expenditure automatically translates to increases in investment, growth, and jobs. Nigeria’s experience has shown that not all government expenditures contribute to growth. Turning now to current contexts.  The initial evidence is that President Bola Tinubu is different, and he is. In the first month of his administration, he carried out two major economic reforms. First was the removal of fuel subsidy, followed by the aggregation of all formal foreign exchange transactions into the Nigeria Foreign Exchange Market (NFEM). Unfortunately, these reforms have not progressed as intended. Exchange rate volatility invariably means that some element of fuel subsidy has returned, while the volatility of exchange rates negates one of the important reasons for the reforms.  It is evident that President Tinubu recognizes that the difference he can make on Nigeria’s growth performance is not necessarily by increasing government expenditure. He knows that the greater impact on growth is dependent on the other things that he has started to do, which are the reforms around fuel subsidy, exchange rates, power and taxation. Policy reforms, which are invariably policy investments can shift the gear of the economy for another 25 years because of their impact on private investments.  However, there is still something missing.  If anything, the last seven months has buttressed the notion, and some will argue that it has reinforced the notion that the government believes monetary policy tools, elements, and applications will be sufficient to stabilize the Naira and bring inflation expectations down. In the context, the Central Bank of Nigeria has rightly tightened monetary policies, made the foreign exchange market more transparent, and removed many elements of market rigidities.  However, what is the contributions of fiscal policy? Historically, every successive government have sought to use foreign savings for investments in Nigeria. That is great, but it is not sufficient. It is the reason why we suffer disproportionately from every shock to the economy. So, fiscal policy must step up. Nigeria needs to improve its level and rates of savings, and the government must lead. Indeed, the only government that followed this principle was also the one that was able to attract significant foreign investments.  As I close, the point I’m making is that we must grow our reserves. We must seek to replicate the growth in reserves like Nigeria did under President Olusegun Obasanjo. It is the only antidote to frequent economic shocks, to attracting long term foreign investments, and a platform for keeping the value of our collective relative wealth stable in US dollars. The notion behind the role of foreign reserves in modern economic development is simple. It is like the share of equity of a business owner asking others to invest in the business. Foreign reserves is the equivalent of our skin in our development journey. It is the insurance that foreign investors look out for. And it is ridiculous to ask that only monetary policy to bear the brunt. That is not sustainable. For more of my thoughts, please visit tb.africa. I thank you.

Food Crisis: Why its happening and what can be done about it. – Ogho Okiti

Last week, the National Bureau of Statistics released inflation figures for April 2024. Headline inflation was 33.6%, up from 33.2% in March 2024. Food inflation was 40.53%, compared to 24.61% in April 2023.  The inflation report coincided with the release of an excellent brief by Nextier, an Abuja based think tank on the 15th of May titled “averting Nigeria’s imminent food crisis.” The brief relied on the combined work of four major international institutions to arrive at its conclusions. UNICEF, Food and Agriculture Organisation of the United Nations in the report “The State of Food Security and Nutrition in the World 2023, and the United Nations World Food Programme 2023 all estimated that 25 million Nigerians were at high risk of food security last year. The international rescue committee has now projected that that figure will reach 32 million this year. These estimates mean that in the space of two years, 15 million Nigerians have been added to the number of those at risk of acute food security and hunger.  It is not only unacceptable, but also grossly irresponsible and portends serious social danger for the country. We all know how we got here, and all the reports alluded to that. According to the reports, continued conflict, climate change, inflation and rising prices were the key drivers of the awful trend. The reports went further to say that food access has been affected by persistence violence in the North East States of Borno, Adamawa, and Yobe, while armed banditry and kidnapping in States such as Katsina, Sokoto, Kaduna, Benue, and Niger have displaced farmers.  In addition to these reasons, Nigeria experienced a catastrophic flooding across many states in the country in 2022. According to the National Emergency Management Agency, the 2022 flooding damaged more than 600,000 hectares of farmlands, affecting harvests in the year and subsequent farming seasons. Many of these communities have not recovered nearly two years after the crisis.  So, the food inflation figure of 40% is no fluke. If anything at all, it masks the dangerous and rapid increases in the prices of food that have left millions of families in the country impoverished. In preparing this, I found out that the price of a bag of garri is now N90k, while the price of a bag of rice is now N70k. The price of a paint bucket size of beans is now N7k, whereas it was N3k in December 2023. A loaf of bread is now above 1k, selling as high as 2k in some areas. Generally, prices of foodstuffs now double every 3 – 4 months.  In most of the analysis, there are some critical points that are missing, though and these points have implications for food production in the future. The most important is the data shared by the National Population Commission ahead of the planned 2023 census.  The 2023 enumeration recorded a significant shift in urbanization of the Nigerian population. In 2006, 65.1% of Nigeria’s population lived in the rural areas, while 34.4% lived in the urban areas. In 2023, rural population is now 41.3% while urban is 58.7%. It means that since 2006, there has been a rural urban shift in Nigeria’s population of about 20% in favour of urban areas. While population growth means that some previously classified rural areas are now urban, it has mostly been caused by migration. For context, the average urbanization for Africa is 44.5% in 2022, according to the UN Trade and Development (UNCTAD).  The rural urban migration that we see coincided with the rise in insecurity in the country. The implication is that the rise in migration has not followed the economic motivation reasons of jobs and economic opportunities in urban areas. The corollary of this is that migration into urban areas has not translated into increasing productivity in the urban areas, but also means less agriculture production in the rural areas. Nigeria is thus losing both ways.  Symptomatic of that is the many thousands of young people that one sees on the streets of Lagos that are very likely out of school and homeless. Food prices are also up in the rural areas, which suggests that the usual narrative of subsistence farming requires reexamination.  Now, long term fall in food prices have implications for both long term growth and underline productivity. Until food prices are relatively stable, it is difficult to have stable prices, rising productivity, and rising real income growth. The long-term prospects of the economy to generate long term savings, low interest rates, and increasing discretionary income is dependent on the increasingly lower proportion of income growth spent on food. This pattern of development has been replicated everywhere else and needs to be replicated in Nigeria.  As I conclude, I propose three things. First is the deliberate and intentional support of large-scale farming. The rural migration data has shown a decreasing number and proportion of people in the rural areas. The continuation of that trajectory leaves the continued reliance on subsistence farming in tatters. Second, improve the security of the rural areas to slow down the migration to the extent any form of migration from the rural to the urban areas is only motivated by better income opportunities. Third, there should be a deliberate focus on rural infrastructure. That will not only improve the living conditions in the rural areas but also improve their capacity for income growth and opportunities.  For more of my thoughts, please visit tb. Africa. I thank you.