OPINION: TINUBU’S FOLLY – LAGOS IS NOT NIGERIA, BY DR MALCOLM FABIYI
Tinubu and his proponents pointed to his term as Governor
of Lagos State and promised Nigerians that the transformations that he enabled
when he led Lagos would be replicated on the national stage.
Seventeen months into the presidency of Bola Tinubu, even
his most strident supporters and defenders will agree this is not the Nigeria
they imagined we would have under his leadership.
By every objective measure, the president has failed to
deliver on the promises that he made to Nigerians. Inflation is in double digits,
the currency has devalued by over 100% since he took office, unemployment has
remained high, industries that have been in Nigeria for decades are deciding
that it is best to exit the market, local industries are collapsing. In the
last few months, harrowing videos of people taking to social media to share
their pain and woes have become common place. There is simply no way to sugar
coat the reality of the dire economic challenges that Nigerians are going
through.
Even at the best of times, Nigeria is not an easy place
to lead. But those who raise their hands to run for the office of president are
not to be pitied. They are willing applicants for the job, fully aware of its
challenges. And in Tinubu’s case, he arguably fought longer and harder for this
job than any other person that has been president of Nigeria. He made many
arguments along the way as to why he was the most qualified person to lead
Nigeria.
Key among these was that he was a tested leader, who had
a verifiable record of accomplishment that Nigerians could look upon as the
case study for how he would transform Nigeria. Tinubu and his proponents
pointed to his term as Governor of Lagos State and promised Nigerians that the
transformations that he enabled when he led Lagos would be replicated on the
national stage.
Nigeria’s seemingly intractable slide towards the
economic abyss has people wondering about when that much touted Lagos like
transformation of Nigeria will begin. Where is the man that supposedly made
Lagos? Why are Nigerians yet to see Tinubu’s “Lagos magic” replicated across
the country?
A more appropriate question that many do not ask, but
which should be top of mind for most Nigerians is with regards to
what exactly Tinubu did in Lagos, which translates to the national stage.
Tinubu’s standout achievement in Lagos was that he
transformed Internally Generated Revenue (IGR), the taxes that the state
government collects, from about N13 billion when he took over in 1999 to N83
billion by the time he left office in 2007. That translates to an
almost five hundred fold increase and a salutary year on year growth of about
60%. No other state even came anywhere close to Lagos’ spectacular IGR growth
achievement in the Tinubu era.
However, it is one thing to grow IGR, but it is another
thing entirely to actually grow an economy. IGR can be increased without any
growth in the economy if the tax collection base was poor to start with.
If IGR grew 500% between 1999 and 2007 under Tinubu’s
watch in Lagos, did the economy of the state grow by that same amount in that
time frame? The answer is a definite and unequivocal No! The economy of Lagos
did not grow by 500% when Tinubu was governor – and neither he, nor his
supporters have ever made such claims. In any case, Tinubu and his team must
have convinced themselves that collecting more taxes, without commensurately
growing an economy provides transferable skills that can be applied
to a complex, structurally challenged economy like Nigeria’s.
It was with some chest puffing that Tinubu arrived in
Abuja with largely the same team with whom he worked in Lagos almost two
decades ago. Nigerians have now waited for seventeen long months to
see the Lagos miracle translated to Nigeria. And so far, what we have seen does
not inspire any confidence.
The administration’s policies have been poorly
implemented. And the chaotic approach to policy making began on his very first
day in office, when with no plan and no team in place, the president on what he
himself admits was a whim, announced consequential policies during his
inauguration. The whiplash approach to policy making and implementation has
continued since then.
If the challenge Tinubu faced in Lagos was how to collect
more taxes from a state that already had a dynamic economy, that certainly is
not Nigeria’s problem. The larger issue in Nigeria is how to grow the economy.
How to put tens of millions of people to work. Nigeria’s problems are not a tax
collection issue. They are a revenue generation and wealth creation issue.
Taxes are easy to collect. Enabling the economic growth that creates those
taxable incomes is much harder to enable.
We may not see any meaningful progress in Nigeria’s
economic fortunes unless the Tinubu government makes certain course corrections
to its current economic trajectory. There are four (4) key areas that such
revisions of thought and action must focus on:
First, the President and his team must acknowledge that
Lagos is Not Nigeria. The president and his Lagos team must begin to
acknowledge that being able to collect more taxes in a State that is full of
industrious people, who thrive in spite of, and not because of government,
might not have many lessons that can be directly applied to a nation that is in
dire need of policy makers who understand how to create jobs, provide an
enabling environment for businesses and support entrepreneurship.
Many people
seeking to fulfil their dreams in Nigeria, head to Lagos. It is the City of
opportunity, bursting at the seams with tens of millions of self-driven and
ambitious people. If the jobs are there they take them. If they are not there,
they create them. If the conditions are enabling, Lagosians create booming
enterprises. If the conditions are crippling, the average Lagosian keeps moving
and still works to make something happen. A person who governs Lagos might be
fooled into thinking that the progress that they see is due to their efforts,
forgetting that Lagos has a dynamism that government has nothing to do
with.
The dominant economic activity in Lagos is in the service
industry, which makes up about 90% of the economy of the state.
Services only make up about 40% of the Nigerian economy, and so structurally
the economy of Lagos state is not at all similar to the national economy which
is dominated by the agricultural and industrial sectors. A service driven
economy is somewhat self-propelling. A large metropolis full of hard working
people, who are constantly hustling and bustling, must feed itself, provide
lounges for relaxation, restaurants for feeding, hotels for lodging, clubs for
leisure, concerts for enjoying music, theatres for movies and galleries for the
arts.
There must be barbers and hairdressers to make people
look good, schools for children and youth, mechanic workshops to repair
vehicles, electricians to mend appliances, clinics, and hospitals to treat
ailments and dispense drugs. In short, a city like Lagos has a life and energy
of its own that no government can claim to enable. And collecting more taxes
from the industrious people of Lagos, is certainly not a feat to be heralded ad
nauseum.
The team that Tinubu took with him to Abuja might be
skilled at tax collection, but they do not have a track record for job creation
and economic growth, and it shows. One of the Tinubu administration’s first
acts in office was not to boost job creation, but to change how unemployment is
measured in Nigeria. In one fell swoop, they adopted a formula that turned an
unemployment rate of almost 40% to 4%, soothing themselves with low
unemployment metrics, while tens of millions of Nigerians still wallow around
in unemployment and writhe in the throes of underemployment. The fact that the
policies of the government have caused long term players in the Nigerian
economy like PZ Cussons, GlaxoSmithKline, Sanofi, and P&G to either exit
the market, or stop manufacturing locally to focus on import only
models, is evidence of how crippling the Tinubu administration’s
policies have been. To lead Nigeria, the Tinubu team must put on the hat of job
creators and not tax collectors.
Secondly, the energy sector must be urgently
transformed. Nigeria has about 5,000 MW of power that reaches its people, and
about 18,000 MW of generation capacity. This translates to about 22 Watts per
person, enough to power a dim incandescent bulb for each Nigerian. To provide a
simple comparison for how terrible our power availability situation is, South
Africa has 50,000 MW of delivered energy and 59 million people, translating to
about 850 Watts per person. Their power availability is almost 37 times more
than Nigeria’s and even they still suffer from occasional black outs. Without
power, there will be no economic growth.
The Tinubu government has stopped pretending it has the
means or the ability to solve Nigeria’s power issues and has passed the
challenge of providing power to the states, while the federal government has
taken on the role of managers of the paltry 5,000 MW of energy that is
currently available. If Nigeria is plagued with ineptitude at the federal
level, the states are even more terribly resourced. Every nation that has drawn
itself out of poverty and onto the path of economic growth has begun by first
addressing the challenge of energy availability, access, and
affordability.
The cost of energy must be significantly lowered if
Nigerian manufacturing is to be revived. A simple example will drive home the
critical nature of energy cost in job creation and economic growth.
Let us assume an imported product that is sold for N100
per unit in Nigeria has an energy component cost of 50%. This means about N50
of the cost of that product is from energy. Energy costs across much of the
developed world is about $0.05 per kWh for industrial users. At an exchange
rate of about N1,500 per USD, this would be N75 per kWh. Nigeria’s power cost
is about N225 per kWh for Band A customers and about the same for those who
choose to generate their own power.
Nigeria’s power cost is therefore about three times the
cost of energy in the nations that we import our goods from. It means that the
N50 per unit in energy cost for our hypothetical product, will be about N150
per unit for just the energy cost component if it was manufactured in Nigeria.
Assuming all other costs are the same, the Nigerian manufacturer can only
deliver such a product at N200 per unit vs the N100 per unit that it is
imported for. There is little wonder therefore that manufacturers that have
significant energy input in their production process are leaving the Nigerian
economy in droves.
Energy generation, transmission and delivery must be
prioritized. Programs and policies to reduce the cost of energy must be
developed and urgently rolled out. These can include rebates on energy cost for
manufacturers, or the granting of tax free periods to local manufacturers to
allow their energy cost effectively come to a value of about N75 per kWh or
less to provide energy cost parity with global competitors.
The economic growth, jobs created and multiplier effects
of industrial capacity development that will be unleashed will more than make
up for any short term dips in government revenue that would result from such
stimulatory policies.
Just to get to South African levels of energy
availability, Nigeria must generate, transmit and distribute an additional
200,000 MW. One idea for doing this is to set a 5 year goal of reaching this
milestone and closing 20% of the deficit per year. This translates
to putting in about 50 MW of decentralized power in each Local Government Area
per year. 2 MW of power generation capacity can be placed in a container.
So already built, plug, and play power units delivered in
about 25 containers per year can be installed in each LGA and within 5 years,
attain the goal of making over 200,000 MW of useable power available in Nigeria
vs the 5,000 MW we have today. By localizing and decentralizing the
installations, the challenge of transmission will be minimized.
Thirdly, the Tinubu government must stop playing
games with monetary and fiscal policy. Since Tinubu took office, Nigeria’s
inflation rate has gone from 22% to about 33%. In that time, Cardoso’s CBN has
raised monetary policy rates (MPR) 6 times, in a misguided attempt at using
rate hikes to tame inflation. The theory behind raising interest rates is that
inflation is caused by having too much money in circulation which raises demand
for goods and services.
In a market where such goods and services have fixed or
dwindling supply, there will then be excess naira chasing limited goods, and
prices will then rise. That rise in prices between periods is what economists
term as inflation. According to the textbook theory, which works for nations
with textbook economies, by reducing the amount of money in circulation, demand
should drop and if supply does not change, then prices should drop as well.
Cardoso’s interest rate hikes are intended to encourage Nigerians to be so
“seduced” by the promise of high interest rate returns from saving their money
instead of spending it, that they then start moving money from their
wallets and purses into long term savings – to benefit from the 0.5% rate
increases imposed by the Central Bank.
That is the textbook theory. The reality in Nigeria is
that while Cardoso was busy raising interest rates using monetary policy to try
to reduce the amount of naira in circulation, the Tinubu government was busy
borrowing and printing money using fiscal policy and injecting even more money
into the Nigerian economy. The end result has been that after six rate hikes,
inflation has increased by 50%. It has been moving in the exact opposite
direction to what textbook economics would expect. Yet, the CBN has continued
to double down on raising interest rates.
The result has been chaos and even more worrying is the
cooling effect that high interest rates has on business. The exceedingly high
interest rates have made borrowing prohibitive. Current borrowing rates in
Nigeria are now about 30%. This means that a business that borrows from the
banks must make profits of at least 30% just to break even. We are talking
about profits here and not revenues. How many legitimate businesses can
generate such usurious levels of returns?
The Tinubu economic team should get themselves into a
corner and get aligned. The fiscal and monetary policy wings of the team must
be better coordinated and the confusing signals they are sending out to the
market should stop. Furthermore, the CBN should recognize that the simplistic
raising of rates and the expectation that this will curb inflation might work
in the US and Europe but will not work in Nigeria for a variety of reasons. For
starters majority of Nigerians do not have any monies that can be moved into savings
because of higher interest rates.
Most Nigerians live paycheck to paycheck. Much of the
“excess” money in Nigeria is held in a few hands and a meager 0.5%
change in interest rates will not convince such folks to put their money in
savings. Also, Nigerian inflation is largely driven by forex devaluation and
food scarcity due to insecurity. There is no interest rate increase that will
erase the fact that we import many of the things we use, and there has been a
100% devaluation of the naira over the last year, which naturally translates to
at least a 100% increase in prices for imported goods.
The bandit and kidnapping crisis that has forced our
farmers away from their lands has greatly reduced food supply, which drives up
prices and causes food inflation. To seriously curb inflation, government
should address those levers that have a clear impact and stop this obsession
with raising interest rates. Again, it is worth nothing that in the
last 17 months, the government has raised rates six times, and inflation has
ballooned by 50%. Why the CBN continues to double down on an approach that has
clearly failed is troubling.
Fourth, the Tinubu team must get serious about
safeguarding the value of the Naira. Few people will argue with the need to
float the naira. Nigeria simply did not have the $15 billion per year that it
took to support the naira. The problem was not the flotation policy per se, but
the terrible way in which it has been implemented.
When a currency floats, it means that the market forces of
supply and demand determine its value. For a market to be efficient, all of the
factors that can lead to manipulation of either demand or supply
would need to be tightly controlled. The greatest threat to the value of a
floated currency is speculation. In the context of foreign exchange,
speculators are people who transact in forex, not because they have any
immediate need of foreign currency to engage in any legitimate transactions,
pay for school fees or travel for leisure, but simply to use it as a store of
value.
They treat forex transactions as investments in long term
assets, not short term liquid transactions. Speculators are essentially making
a bet that the naira will fall in value relative to foreign currencies like the
dollar, and so they buy up all the dollars they can possibly lay their hands on
and save it. Speculators who buy up dollars and keep it as a store of value
effectively create “artificial demand.” In a market with fixed supply, higher
demand always leads to higher prices, or in forex terms devaluation of the
naira. But speculators do something which is even worse, they mop up the
available dollars, or other foreign currencies, and completely remove them from
the market. Which means they also reduce dollar supply in the forex market.
Reducing supply when demand has not changed also leads to increase in prices,
or naira devaluation.
Nigeria is now a big speculators’ market. The Nigerian
government accused Binance, a foreign cryptocurrency platform of
“moving” $26 billion in funds within just the last year. The banks have been
major players in the speculative market, and the Tinubu government even
recognizes this fact and has gone as far as passing new laws that impose a tax
rate of 70% on so called forex “windfall gains” at banks. This action shows
that the government is very much aware that the banks are gaming the system,
yet they allow these shenanigans to continue, satisfied with imposing taxes on
the backend and ignoring the devaluation and inflationary pressures that
speculation causes.
It is common knowledge that all of the printed and
borrowed “ways and means” monies that the Tinubu government allocates to state
governors and parastatals, first finds its way into the forex speculation
market, generating yet more “artificial” demand, and mopping up forex supply,
thereby making a bad situation even worse.
For Nigeria’s currency to be saved from the speculation
induced buffeting it now suffers, the Central Bank must wake up to its
responsibilities. Windfall gains from banks should not just be taxed, those
financial institutions that are actively speculating must be called to order.
The practice of allowing fiscal allocations which are borrowed funds from
unbacked ways and means reserves, to be used for speculative purposes should be
urgently curtailed.
The government must also do more to grow the economy and
there are so many ways that this can be done. Here are two simple ones: Nigeria
has a housing deficit of over 25 million units. There is more than a trillion
dollars of potential value that can be unlocked in addressing just some of that
deficit. Nigeria also has about 250 million acres of arable land mass much of
which can be made available for agricultural entrepreneurship initiatives that
will put tens of millions of youth to work.
But to realize these opportunities, the Tinubu government
must first wake up to the realization that Lagos is not Nigeria, revamp their
team accordingly and get to the business of doing the real work needed to
better the lives of the Nigerian people.
Dr Malcolm Fabiyi
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