Nigeria's Post-Election Economic Realities

Abstract

This paper examines Nigeria’s post-election sectoral, fiscal and financial realities and highlights reform priorities.Sectoral realities: Nigeria’s economy is Africa’s biggest. Indeed, just the largest six of Nigeria’s 46 production sectors combine to generate slightly more than South Africa’s GDP! However, the sobering sectoral reality is that, beyond the six giant sectors, Nigeria’s remaining 40 sectors are mostly small, constituting weak or broken links in Nigeria’s output and growth chain. Nigeria needs to accord priority to fixing the broken links.Nigeria has a great potential to enable growth by urgently fixing the sectors that will contribute the most to the reduction of system-wide transaction costs and restore competitiveness and growth across all sectors, cities, states, and regions, such as rail transportation, gas, and petroleum products supply.Unlike the colonial regime that had to rely on tax revenue to develop the narrow gauge rail tracks and termini across the country a century ago, the new regime is well placed to explore self-financing mechanisms that would enable the government to sell property development rights in advance and capture some of the anticipated increases in land values around new rail termini that will be constructed in hundreds of towns and big cities across the 36 states and the FCT to fund the development of an ultra-modern rail system across the country.The resulting growth across sectors will provide jobs and better economic livelihoods for all. The reduction in system-wide transaction costs will translate to reduced cost of living that will enhance the welfare of all. Renewed growth of cities, states and regions will provide increased revenue for all levels of government, especially increased internally generated revenues for states and local government to raise the quality of health, education, security, defense and general infrastructural services delivered by government.Fiscal Realities: Nigeria faces a paradox of having Africa’s biggest economy but not Africa’s biggest government revenue. While Nigerian economy is about 155.4 percent of South Africa’s economy, the revenue generated by Nigerian government is only about 79.5 percent of the revenue generated by South African government. The total revenue in the Nigerian federation account has been 12 percent of GDP, compared to minimum government revenue of 25 percent of GDP in Africa’s next five largest economies: South Africa, Egypt, Algeria, Angola, and Morocco.Thus, the stark fiscal reality is that Nigerian government currently has less than half of the revenue required to deliver quality governance. Little wonder that health, education, security and basic infrastructure services provided by Nigerian government are very poor. However, revenue leakages through crude oil ‘theft’, spurious petroleum ‘subsidy’ payouts, abuses of tax/import-duty waivers and too much ‘autonomy’ for revenue collecting agencies is the bane of Nigeria’s revenue inadequacy.Nigeria needs to put an end to crude oil theft, stop all petroleum subsidy payments, streamline tax/import-duty waivers, amend existing laws to abolish the autonomy granted revenue collecting agencies and create a single-treasury-account for all types of government revenue, with all government ministries, departments and agencies included in a single appropriation process to ensure adequate resources for good quality governance. In addition government should rely on self-funding mechanisms for developing nationwide rail network and related infrastructure systems.Financial Realities: Financial intermediaries and markets are contributing their bits in mobilizing the financial assets required for Nigeria’s growth and stability, but Nigerian government has to pull its weight as an independent attractor of foreign capital, and also court investors more actively by liberalizing growth enabling sectors, getting out of the way, making necessary arrangements to provide concrete assurances of stability, and being more conscious of the sensitivity of inward investment to realities of, especially government’s pronouncements about, the fiscal situation.Realistic Priorities: A fully functioning rail transport system urgently required to unleash economic growth in Nigeria is readily within the country’s reach. Optimal revenue mobilization is required for meaningful governance. Nigeria’s government needs to master ways of making other people’s money work for the country.