Mitigating the pains of PBAT’s market-based reforms, By Muhammad Sagagi
PBAT has embarked on major economic reforms to chart a new economic direction for Nigeria. His momentous decisions to allow market forces determine the domestic price of PMS and the external price of our local currency (or an ‘appropriate’ exchange rate) have expectedly elicited a wide variety of reaction from around the globe. To complete the ‘package’ one would expect more of these market-based reform measures in the coming days and weeks, including market-determined interest rates, cost-reflective electricity tariffs, right-sizing of government, privatization of State-owned Enterprises (SoEs) and,
possibly, budget cuts designed to ‘discipline aggregate demand’ etc.
These policy prescriptions are not new, having featured as the key specifics of IBB’s Structural Adjustment Programme (SAP) and OBJ’ ‘home grown’ economic reform agenda NEEDS. Indeed, the Nigerian version of ‘small-government-market-activism’ was started by IBB (1986-1993), shunned by Abacha (1993-1998) and reincarnated by OBJ (1999-2007). The actions or inactions of Yar’adua (2007-2009), GEJ (2009-2014 and PMB (2015-2023) portrayed them as, at best. neutral or uncommitted. Pundits have extolled the virtues of market-based reforms around the globe, but a key lesson is that there are always risks associated with their design and implementation.
Experience has shown that the ‘market system’ lacks the discipline or the coherence and .orderliness to ensure a stable economic system. Although a market system enthusiast, I remain sceptical about its ability to determine prices and allocate resources- especially public goods- fairly, justly, and equitably.
The market system must be appropriately guided especially in a developing economy with severe structural defects.
Reform outcomes will depend on policy makers’ ability to provide the ‘guidance’, to identify the potential risks and apply the appropriate mitigating measures.
Reform enthusiasts are already celebrating that the initial reforms rolled out by PBAT are beginning to pay off as Nigeria’s fiscal space gets bigger. This is undoubtedly of significance. Nigeria’s precarious fiscal position poses significant risks to its long-term
growth and development. But history has shown that an enlarged fiscal space, though desirable, does not necessarily provide the impetus for growth, job and wealth creation on a scale that will lift large numbers of citizens out of poverty. Indeed, even at the best of times, Nigeria’s fiscal space has had limited impact on incomes, poverty and indeed on growth and development. Besides, putting more money into the purse of state governments doesn’t provide any solution to their rent-seeking and unproductive culture of overdependence on government transfers. It is therefore too early to celebrate!
For now, we should focus on the associated risks of these reform measures and the mitigating factors.
Market-based interventions almost always create difficulties for businesses, whether micro, small, medium, or large. IBB’s SAP adversely affected the fortunes of several businesses in the small and medium scale range. Indeed, the Nigerian manufacturing sector’s journey to the abyss began with IBB’s blind pursuit of trade and payments liberalization policy, which exposed domestic enterprises to unfair competitive practices from foreign firms. SAP contributed to the re-shaping of the trajectory of the northern economy, as the region lost nearly 70% of its manufacturing firms. The formal
sector of the economy is yet to recover from SAP-induced dislocation.
Market-based reforms inflict excruciating pains on citizens, worsen poverty,
unemployment and living standards. The withdrawal of subsidy payments has
exacerbated Nigeria’s inflationary trends and will consequently lower real wages, reduce buying power and push millions into poverty. As inflation soars and businesses collapse, citizen’s levels of vulnerability and deprivation will undoubtedly increase. In varying degrees, both IBB’s and OBJ’s pro-market reform agenda impacted negatively on incomes and living standards. By 2010 Nigeria was ranked amongst the poorest countries in the World, with more than 54 million people -36% of the population- living in extreme poverty.
Mitigating the negative impact of market-based reforms requires that we do at least two things. First, it is important to sequence implementation. Unleashing an unspecified number of market-based reforms on the populace will be an over kill especially in an endemically poor society with an unacceptable level of income inequality. Policy makers must pause, between ‘episodes’ of reforms, reflect and update the situation based on new ideas and information generated from the assessment.
Second, the selection of transformative interventions to mitigate the risks associated with market-based reforms is key to sustainable outcomes. Each of the success stories around the world has a holistic approach that spans social assistance, community empowerment and sustainable livelihoods all designed to reduce the levels of
vulnerability and deprivation. Other transformative interventions will seek to address the
capacity of micro- and small enterprises, to increase aggregate productivity and
absorb relevant skills; to re-build social and economic infrastructure to enhance
the productive base of the rural economy and build resilience. Interventions to
create economic opportunities for the economically marginalized
demographics will represent significant implication for social cohesion and national security.
As a rule, government must apply the balm where it pains most. The burden of these reforms will be borne disproportionately by micro and small enterprises in the informal sector as well as the marginalised populations including the youth and adults with no incomes. Consideration may therefore be given to the following.
- Establish a (Micro, Small Enterprises) MSE Protection Fund with targeted
interventions to support survival-oriented activities often undertaken by poor
women in rural and urban communities and growth-oriented micro and small
entrepreneurs wishing to set up new businesses or expand existing ones. The targeted support will be in the form of conditional grants to be given to
the enterprises within established clusters/cooperatives. - Implement special programmes to enhance youths access to economic
opportunities through (a) Vocational Training and Skills Acquisition programmes targeted at the ultra-marginalized populations (b) Graduate Internship Programmes
which will deploy unemployed graduates of tertiary institutions as interns and
Development Corps to work in agriculture, education, and health sectors for a period of 12 months. - Set up an Infrastructure Rehabilitation and Expansion Fund to enhance the productive base of the rural economy and build resilience: The Fund will
support the construction, rehabilitation and maintenance of rural infrastructure
including feeder roads, irrigation canals, rural electrification, food storage facilities etc to enhance living standards and support sustained livelihood improvement. - Reach out to the most vulnerable in society through Social Protection
Programmes that provide income support to adults without livelihoods.
Necessary reforms should be undertaken to ensure the programme goes beyond income support to the poor and vulnerable by linking them to other interventions focused on ‘graduating’ from poverty to productive livelihoods through skills acquisition, access to finance and employment opportunities. - Increase investment in the Social Services Sectors – (Education and
Health) for (a) the rehabilitation of a specified number of primary schools’ classrooms and Primary Healthcare Centres (PHCs) in each state; (b) Installation of solar panels to enhance cold storage capacity and reduce medication waste and (c) the introduction of special allowance/bonus especially for teachers and healthcare workers in rural communities. - Set up a Vehicle Maintenance Fund to be jointly managed with the road transport unions from which owners of commercial vehicles using petrol
can draw to maintain their fleet. It is important that the unions must in
consideration for this fund commit to keeping transport fares unchanged across the nation.
For more effective coordination and Value-for-Money considerations all the proposed Funds can be set up and operated as Directorates under one Trust Fund for Economic Reconstruction with a life span not exceeding four years.
These interventions are admittedly not new. Many have failed in the past for several reasons.
First, many of these interventions were not well adapted to the specific needs of the intended beneficiaries, because relevant stakeholders were not consulted during design.
Second, with Nigeria’s precarious fiscal positions, funding was small and erratic whereas significant resources were required for impact.
Third, delivery structures were notalways reflective of the state, regional or zonal
peculiarities: interventions were designed in Abuja, implemented, and monitored from Abuja, while State and local government offices lacked implementation capacity or powers.
Can we learn from the mistakes of the past and improve for impact?
I worry about the readiness of public institutions to design, implement and monitor the reform measures. The successful transition from state- to market-led growth goes beyond policy pronouncements. It requires, among others, a complete transformation of the public sector, which we all know is characterized by poor coordination, limited accountability, corruption and insufficient capacities and strategies for change. Indeed, the resistance to
change, both passive and organized, will be championed by sections of the public sector which is a huge beneficiary of the status quo. A public sector with inefficient institutions and inappropriate infrastructure cannot be the foundation upon which the conditions for rapid growth and development can be erected.
The speed with which PBAT handles public sector reforms will determine the speed and outcome of his economic reforms.
Muhammad Sagagi
July 11, 2023
