PREMIUM TIMES believes in the need for genuine and holistic reform of the Nigerian economy, so that it delivers greater value to the people. At the very least, by easing pressure on public spending, the reforms should improve the fiscal space of the economy. And the government’s spending needs are abundant. As the world warms, we will need to improve the resilience of the economy in a warmer environment.
The economy's shopping list includes mitigating the effect of the green transition on our dependence on fossil fuel exports for most of our foreign exchange earnings, improving and enriching our supply of heat-resistant cultivars, securing the future of production of our educational institutions, etc. All of which has to be funded.
But beyond this, there is the mechanical argument: simply by improving the allocative efficiency of the economy, recourse to the price mechanism, which is at the heart of the current government's reforms, gives us a more efficient internal space.
The problem, however, is that, however well thought out and/or implemented, reforms end up empowering some sectors of society while others feel disadvantaged. A reformist government is almost always invited to provide support to the latter in order for its policies to succeed. Determining which sectors of society benefit and which are disadvantaged by the effect of reforms is therefore a fundamental part of the process of implementing reforms.
Despite the heated controversies generated by the Tinubu government's attempts to reform prices in the oil and gas sector, the truth of the recent fuel price hike is that market-based pricing hurts middle class cadres and above much more than the average man on the street.
Fueling those parking lots full of SUVs will certainly cost more in absolute terms, but because of the extremes of income inequality in the economy, even marginal increases in transportation costs resulting from higher prices will hit the marginal sectors of our economy hard.
A compelling case must therefore be made for creating protections for relative losers, targeting those who, because of their income levels, bear a disproportionate burden of the effects of reform, and including sunset clauses.
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Unfortunately, the chapters of palliative efforts that successive governments have undertaken to cushion the disruptive effects of their change initiatives on the poor and vulnerable have failed, largely because we have not been able to assess their means.
Since these initiatives have proven vulnerable to elite power grabs, it would be difficult in good conscience to support their continuation. By the same token, it would be counterproductive to end reform initiatives until we can resolve the problem of appropriately designing palliatives for those who suffer disproportionately from the effects of reforms.
By the way, the government benefits much more immediately from legitimate reform initiatives. The additional fiscal space relieves spending pressure on the budget, while improving the government's credit and risk ratings.
These savings that the government is making from its reform drive highlight an additional dimension of the economic reform process. To be successful, reforms often need more reforms. To illustrate this case, just put a Nigerian refinery next to an Indian or Turkish one. Both are geographically closer to China, the source of much of the world's demand for fossil fuels, so they already enjoy an undeserved advantage.
On top of this, our hypothetical refining operations in Turkey and India are supplied with electricity from the power grid. Their counterpart in Nigeria must build their own infrastructure from scratch. Their costs are therefore necessarily higher. Being uncompetitive, they need a paternalistic state to keep running.
The only implication of this thought experiment is the realization that the task of the government, after price liberalization, is to reduce internal costs: improve power generation and transmission, reduce the number of steps and ministries, departments and agencies (MDAs) of the state that can receive and authorize requests from private sector entities.
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Indeed, why not insist that any application submitted to an MDA that does not receive a response within one month be deemed approved? On the contrary, rejections of such applications communicated within one month should clearly indicate the reason.
Unfortunately, the message that Tinubu’s government has conveyed about the logic behind its reform process and intended trajectory, as with most other aspects of its government, has been mixed. Rather than “shrinking civil space” as it seems to have sought to do recently, this government has much work to do, provided it has the intelligence or determination to do so.
