The road to reform for the Nigerian economy – GIS Reports

The next Nigerian government will inherit several daunting challenges, and it is not yet clear whether abundant resources will translate into growth.

Inflation in Nigeria soared after rising energy costs following Russia’s invasion of Ukraine. ©Getty Images
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In a word

  • Under President Buhari, the Nigerian economy has declined
  • Ethnic and religious divisions still undermine national unity
  • The next government will have to address pressing issues to avert catastrophe

Amidst many uncertainties, the 2023 presidential election in Nigeria will certainly bring a change in leadership, as President Muhammadu Buhari completes his second and final term. Whoever succeeds him will face multiple crises: a contested political system, inflation, high rates of youth unemployment, violent conflict, terrorism and food insecurity.

Given Nigeria’s regional influence and burgeoning population, the extent to which the next administration is able to pave the way for growth, security and stabilization will have far-reaching implications for the whole of Nigeria. ‘West Africa.

Zoning and federalism

Nigeria is a mosaic of nations with different geographical, economic, ethnic and religious characteristics. Maintaining a unitary state in the face of such diversity has always been a challenge.

Since the return to civilian rule in 1999, the rotation of power in Nigeria has been under an unwritten rule observed by the two main parties in the country, according to which the presidency and the vice-presidency must alternate between the north and the south. and also between the six established geopolitical zones. This zoning policy aims to ensure that each region and ethnic group has equal access to power. However, as evidenced by the legacy of President Buhari – who hails from Katsina State in northern Nigeria – politics is more about meeting the ambitions of the political elite than regional development outcomes. .

Much will depend on the ability of the economy to keep pace with population growth.

The federal solution was adopted in 1954 but was interrupted during the period of military rule when political changes and the oil boom led to the centralization of power. However, despite the return to civilian rule and the inclusion of the federal principle in the constitution, the Nigerian political system is often described as a federal constitution without “true federalism”.

Fiscal federalism, in particular, remains problematic, as resource-rich states contest how wealth is redistributed, while poorer states depend on Abuja. This is a major obstacle to federalism, since one of its basic postulates is the financial autonomy of the federal states vis-à-vis the central government. While tensions between the federal government and state governments reinforce ethnic and religious divisions, Nigerian federalism remains a work in progress.

Struggling economy

The challenges of the Nigerian economy – the excessive size of the government, its high maintenance costs and its limited achievements – are reflected in the country’s budget. About 70% covers salaries and allowances, while only 30% goes to capital expenditure. Over the past 11 years, 72% of the health sector budget has been spent on salaries and operating costs.

The Nigerian economy is still dependent on oil and is vulnerable to fluctuations in domestic production and world prices. It also relies heavily on state donations. Fuel subsidies in 2022 are expected to cost $9.6 billion. While President Buhari had announced that these would be cancelled, the decision was reversed amid inflation and growing fears of unrest.

A daunting challenge for policymakers – one that is unlikely to be resolved in the coming decades – will be to create the right conditions that foster growth and job creation so that economic conditions keep pace with population growth. . It will not be easy, given the structural challenges. After two decades of robust growth, the economy is now stagnating. At less than 1% over the past six years, economic growth has been overtaken by a population expansion rate of 2.6% per year.

Atiku Abubakar
Atiku Abubakar, Nigeria’s leading presidential opposition candidate, is running on a market-driven platform. ©Getty Images

The end of the commodity boom, the Covid-19 pandemic and a setback in global trade and integration have all hurt the Nigerian economy. But even taking these factors into account, the performance of the Buhari administration was far from impressive.

The past seven years have been characterized by a “command and control” approach to economic management based on excessive regulation, high levels of government spending, import substitution, subsidies and social programs. Key indicators suggest that “neo-Buharism” has largely failed. Since 2015, both domestic and external debt have increased significantly, with outstanding debt rising from $28 billion to $72 billion. The unemployment rate has quadrupled to 33%, making Nigeria one of the worst performing countries in the world, while the underemployment rate is estimated at 22.8%. In June 2022, inflation was 18.6%.

The next Nigerian president will inherit a dire economic situation. A pressing issue will be to tackle the growing debt. In the midst of a global recession and with heavy borrowing from China and commercial creditors, debt restructuring will be a daunting task.

In the medium to long term, much will depend on the ability of the economy to keep pace with population growth. While fertility rates are already falling, the population will continue to rise over the next few decades. If things remain as they are – anemic growth, slow industrialization, high unemployment and fragility in the face of global shocks – political instability and violence are likely to increase. Economic diversification and decentralization will be essential for the Nigerian economy to overcome some of its structural problems.

Multiple security challenges

Reforming Nigerian federalism and fixing its ailing economy seems even more daunting given the security outlook. Terrorist groups such as Boko Haram and the Islamic State West Africa Province remain active in the impoverished northeast of the country and are expanding their operational reach, as evidenced by the recent attack on Kuje prison near from Abuja. The number of insurgent groups has increased in Nigeria, reflecting the fragility or absence of the state in many parts of the territory.

Whoever wins, the challenges ahead are such that even in the best-case scenario, it will take several more years to reap the benefits of reform.

In central Nigeria, violence between farmers and herders over water and land has intensified in recent years, with professional and ethno-religious divisions feeding into each other. In the central-southern regions, violent banditry has become the main security threat, as organized groups engage in cattle rustling, kidnapping, armed robbery, murder and rape. In the south, separatist movements have stepped up their activities, challenging a state they deem ineffective and predatory. In the megacity of Lagos, the crime rate has increased.

The Nigerian security forces are under-equipped and lack effective leadership. They are often accused of corruption and human rights violations, which makes them ill-suited to meet the challenges described above.

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Scenarios

The extent to which the next administration will fail or succeed in meeting each of these challenges matters far beyond Nigeria. If the country remains trapped in a vicious cycle of poverty and violence, it will negatively affect the entire West African region. Moreover, with a population expected to double to 400 million by 2050 and 40% of Nigerians living below the poverty line, Nigeria is the most populous country in the poorest region of the world. Even a modest reduction in poverty could make the country an example, while a failure would make it a cautionary tale.

The presidential candidates of the two main parties – the People’s Democratic Party (PDP) and the All Progressives Congress (APC) – have different priorities and strategies for solving Nigeria’s main problems.

Atiku Abubakar, the standard bearer of the center-right PDP, served as vice president between 1999 and 2007, and privatized sectors such as telecommunications and banking. His victory would represent a break with current economic policies. The PDP candidate presents an economic agenda based on three principles: the participation of the private sector; the end of public infrastructure monopolies and a market approach to economic issues.

APC candidate Bola Tinubu served as governor of Lagos, Nigeria’s smallest but most populous state, from 1999 to 2007. Since the transition to civilian rule, Mr Tinubu has been a key figure of Nigerian politics, often playing the role of kingmaker. While from the same party as President Buhari, Mr Tinubu worked in the private sector in the United States and Nigeria and would likely take a different and more technocratic approach to governance, especially in economics.

Despite the differences between the two candidates, the next president is expected to take a less centralized approach to the economy and more business-friendly policies. Whoever wins, the challenges ahead are such that even in the best-case scenario, it will take several more years to reap the benefits of reform.

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