The Chief Executive Officer (CEO), Nigeria Economic Summit Group (NESG), Mr Laoye Jaiyeola, has declared that the issue of fuel subsidy, which was “conceived initially as a short-term support tool, has endured over time, thereby becoming a threat to fiscal sustainability”.
The NESG noted that the removal of subsidies on petrol “will come at a cost. Tough reforms are costly and the cost of inactions is also enormous”.
Laoye Jaiyeola made this declaration in Abuja on Tuesday at the launch of the NESG 2022 Macroeconomic Outlook Report.
He, however, advised the government to “work to minimize this cost on citizens through direct and indirect interventions. Implementing subsidy reforms without complementing the policy with effective mitigation measures will only elevate economic hardships for Nigerians and could stoke social unrest as a result”.
According to the report, “the abrupt removal of fuel subsidies pronounced on January 1, 2012, led to week-long nationwide protests and demonstrations. Since the EndSARS protest in 2020, Nigeria has been in a fragile state and therefore, abrupt fuel subsidy removal might lead to protests that the country cannot afford”.
More importantly, the report added that “rebuilding public trust is not easy to come by, but if government actions continuously favour credibility, the trust deficit will be narrowed”.
This, the NESG believes, will also go a long way in improving public acceptance, as reforms will be implemented in the general interest of the populace.
On his part, the International Monetary Fund’s (IMF) Nigeria Country Representative, Mr Ari Aisen called on the Federal Government to take full charge of its reform programmes.
Speaking against the backdrop of recent policy inconsistencies on whether or not petrol subsidy should be removed, Mr Ari Aisen called on the government to “be in charge of reforms instead of being reactive”, and urged the government not to carry out reforms when it is convenient.
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Also, the CEO of the NESG said that the Naira is no longer a store of value and urged Nigerians not to save their Naira, stressing that the moment you invest in the naira, it loses its value.
He gave the example of investing in Treasury Bills. With inflation currently at 15 per cent, the NESG Chief Executive stated that the moment an investor buys Nigeria’s Treasury Bills, inflation and other factors wipe away the expected profit or interest from the investment.
Mr Jaiyeola asked rhetorically, “why should you tell anybody in Nigeria to store his money in naira when your interest rate on the naira in some places is even lower than the interest rate of some foreign currency?”
He went on to say that “if you put your money now in a one-year treasury bill, I’m not sure you are going to get up to 5 per cent per annum, inflation is 15 per cent. Effectively from the day, you save your money you have lost it. That explains why people will still go and buy money and keep it in dollars because naira is significantly becoming something that is not of store value”.
The NESG report noted that “the challenge to the poor forex supply in Nigeria is mainly attributable to the lack of diversification of forex sources, with colossal dependence on crude oil export proceeds and, more recently, foreign borrowings”.
Another challenge facing forex management in Nigeria the report stated “is the frequent intervention of the CBN at the forex market, which exerts intense pressure on the country’s external reserves.
“Faced with the continued dwindling of the external reserves, the Apex Bank resorted to an exchange rate devaluation (three episodes were witnessed in 2020) and forex rationing among end-users.
“These challenges send wrong signals to prospective investors who are more concerned about the safety of their investments (particularly forex repatriation at maturity of investments, in addition to returns).
“Despite the various interventions of the CBN in the forex market, the issues of forex unavailability and inappropriate forex pricing have not been fully addressed.
“To this end, we propose that reforms to address Nigeria’s foreign exchange problems should focus on two key areas: the need to boost forex availability and guarantee appropriate forex pricing”.
On the need to boost foreign exchange availability, the NESG is proposing, leveraging the African Continental Free Trade Area (AfCFTA) and ensuring effective border control; removing capital controls and encouraging the inflow of stable investments; prioritizing non-oil forex sources; enhancing the quality of import substitutes and the fixing of local refineries and constructing of new ones.
With regards to ensuring appropriate pricing of foreign exchange, the NESG is recommending a clear forex policy to instil investors’ confidence and the need to determine the fair value of the Naira.
Speaking to the various reforms, the report advocated that “the pace of reforms, however, needs to be accelerated for the following reasons: “The heightened insecurity and social vices in several parts of the country are direct fallouts from the social exclusion suffered by many citizens. Therefore, the government cannot afford to procrastinate on implementing these reforms as further delay could offset the gains from the recent rapid economic recovery. The urgency of now should be the watchword’.
Also, the launch of the National Development Plan (2021-2025) provides a veritable starting point for the government to initiate reforms that can change the development paradigm in Nigeria. It adequately recognizes the need for private sector development and sectoral growth to drive inclusive development”.
The effectiveness of the Plan the report said “hinges on the need for the government to provide a supportive business and policy environment that will sustain the interests and confidence in the Nigerian economy”.
Being an election period, the report stated that “as the general elections in 2023 approaches, there is the possibility that the space for implementing crucial reforms in Nigeria will be narrow. But the political elite should note that prioritizing the populace’s interests should take the front burner on their agenda, before and after the elections.
“This will not only narrow the existing trust deficit between government and the governed but will also ensure that much-needed reforms attract little or no opposition from all stakeholders”.
The report identified key events that will shape the Nigerian economy in 2022 to include: proposed removal of subsidy on petrol; implementation of the new National Development Plan (NDP) 2021–2025; completion and launch of the Dangote Refinery and rising levels of insecurity.
Others are the introduction of the International Financial Reporting Standard (IFRS) 17 for insurance companies and recapitalization of insurance and pension firms; commencement of operations by the Infrastructure Company Limited (INFRACO).
It also pointed out that election-related spending would over-bloat fiscal spending in 2022, pressure on commodity prices will persist in 2022 and worsen the rate of poverty, the introduction of the Pan-African Payment and Settlement System (PAPSS) and forex shortage and a persistent backlog of demand.
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