Nigeria’s foundering economy to test mettle of new ministers Edun, Anite, Bagudu

Africa’s largest economy Nigeria, monolithic and frail at its best for years, gets again the prospect of revamp as President Bola Tinubu named ministers to run three key ministries among those positioned as the anchor of growth under his watch.

The pressure of expectations from a country where four of every 10 persons, according to the World Bank, live on the breadline seems to be weightiest on Wale Edun, the minister of finance whose job functions have been broadened to include overseeing the economy.

Doris Anite, a surgeon with immense experience in treasury and fixed-income trading at Nigeria’s second-biggest bank, Zenith, will lead Trade and Investment.

Atiku Bagudu, the governor of north-western Kebbi State for eight years until 29 May, has undergraduate and master’s degrees in Economics and is to run Budget and National Planning.

Mr Bagudu carries the mark of Cain from having helped Nigeria’s former despot Sani Abacha hide stolen billions of dollars and acting as an enabler in other related deals, himself owning up to some of those malfeasances, having agreed to return $163 million to the government to avert extradition to Jersey from the US at a point in the past.

Mr Bagudu’s sordid past remains a dark spot on whatever promise could be found in President Tinubu’s cabinet for an economic turnaround.

Wale Edun

A sweetheart of overseas investors and a crusader for the liberal market economy, Mr Edun had his portfolio announced on Wednesday with reverberations beyond the country. At the trading session for emerging market bonds that day, Nigeria’s dollar notes having 2027 as their maturity suddenly jumped after a good number of its bonds had been down for days from a government action putting fuel price hikes on hold.

An England-trained economist, Mr Edun started off at the then Lagos’ Chase Merchant Bank, before becoming an investment officer at the development finance arm of the World Bank, the International Finance Corporation.

He later became an economist in the Bretton Woods institution, meaning an opportunity for a grounding in macro-economic and sector policies on top Asian economies including Indonesia and India.

He founded the credit rating agency GCR Ratings, now backed by New York-based Moody’s, has chaired the investment bank Chapel Hill Denham and was an executive director of Lagos merchant bank, Investment Banking & Trust Company Limited, the precursor of Stanbic IBTC Bank.

Yet, his noblest deed to date particularly in public service is helping wean Nigeria’s largest sub-national economy Lagos off its dependency on allocation from the federal government by pioneering strategies that enlarged its internally generated revenue from an average of N1.2 billion to around N7 billion monthly between 1999 and 2007.

Cutting national debt

Mr Edun will oversee an economy in the middle of one of its toughest fiscal crises, already N46.3 trillion ($60.4 billion) deep in debt with more than 96 per cent of its revenue for last year devoured by debt servicing.

But the outlook is even bleaker. Heaps of overdrafts now totalling N22.7 trillion ($29.6 billion), borrowed from the central bank by the Muhammadu Buhari administration, each ordinarily repayable in 12 months, have piled on for years now due for conversion to 40-year bonds.

That will increase Nigeria’s total debt to the neighbourhood of N70 trillion ($91.3 billion).

Yet the bigger headache for the minister lies in convincing investors to buy bonds at a time the country’s lack of potential for debt sustainability is repeatedly referenced by top creditworthiness assessors from Fitch and Moody’s to S&P Global Ratings. And the fear of possible default could keep bond buyers at bay.

During his ministerial grilling this month at the Senate, Mr Edun said, as he did during his Lagos days, his approach to raising revenue will explore investment funding rather than borrowing.

That will happen “by attracting investment fund, equity fund, not debt from those around the world interested in investing in the Nigerian economy,” he affirmed.

Restoring investor confidence

Rebuilding investors’ frail confidence will be top-of-mind for the duo of Mr Edun and Mrs Anite, considering that their individual ministries are at the intersection of winning foreigners over to plough their cash into the economy.

The task has become tremendously challenging lately in light of a plethora of systemic constraints, which is making Nigeria an increasingly problematic destination for foreign capital.

First, a logjam of unmet dollar demand dating back to pandemic lockdown days in 2020 is fuelling a crisis of confidence for potential investors in that they may not be able to redeem their investments at will if they look the way of Nigeria.

Earnings from oil, which contributes about $9 of every $10 that comes into the country, have been depressed on account of oil theft and low production.

Naira, the local currency, faces vulnerabilities and domestic pressures from the need to regularly weaken it, which makes the cost of importation unbearably high for manufacturers.

Mrs Anite was part of the presidential policy advisory panel set up by Mr Tinubu which in a report in May recommended some of the recent foreign exchange reforms. The council also included former Polaris Bank CEO Tokunbo Abiru and Yemi Cardozo, an erstwhile Citibank Nigeria chair and former Lagos State commissioner for budget and economic planning during Mr Tinubu’s reign as governor.

Nigeria’s previous web of numerous exchange rates collapsed into one in June in a march towards achieving parity with the rate offered by the parallel market, whose activities often pressure the naira.

The gap has widened by about 16 per cent since then and could be in danger of expanding further should Nigeria’s $7.5 billion exposure in security borrowing from JP Morgan and Goldman Sach alongside other short-term foreign exchange payables fall due and settlement is made from its depleted external reserves.

That could limit the reserves’ ability to defend the naira, leaving Mr Edun and Mrs Anite with the obligation of quickly rebuilding the reserves to avert the emergency of a major foreign exchange crisis.

“For a country that has revenue flows from oil revenue, from remittances, from other non-oil exports and from financing of over $100 billion a year, there is no reason that there should not be (a stable) exchange rate, all other things being equal and provided inflation is kept under control,” Mr Edun told the Senate this month.

“The N860 (exchange rate) or so we are seeing is not backed up by the fundamentals of the Nigerian economy.”

Improving Nigeria’s ease-of-doing-business ranking

Nigeria is number 131 among 190 economies in the latest World Bank’s ease of doing business ranking, not so impressive, but a considerable leap when compared to its previous ranking of 170.

The minister of finance and coordinating minister of the economy has a duty to restore the country as a key investment hub in Africa particularly by fashioning strategies that will sharply axe several barriers of entry for foreign investors.

Issues like multiple taxation, port congestion and regulatory bottlenecks associated with registering businesses are on the top of the pile.

For foreign portfolio investors, reviewing the Nigerian Exchange’s free float rule to raise the proportion of shares that could be held in quoted companies to those held by directors and insiders is a major policy concern that could help increase foreign participation in Nigerian stocks.

That is expected to be a top priority for an administration pursuing the epic ambition of growing the stock market to 25 per cent of the GDP within 18 months from 14.3 per cent as of May 2023.

Diversifying the economy

The mono-product economy has made the country of over 200 million people pretty much susceptible to headwinds from the volatile oil market without buffers from other income sources that are capable of varying revenues from exports.

Resource-rich Nigeria has left the bulk of its mineral wealth uncommercialised for years although all its 36 states have mineral deposits in vast quantities, including bitumen, gold, coal, barite, gemstone, lead and bauxite.

However, it has turned out to be a resource curse, with well above half of its citizens living in multi-dimensional poverty according to the statistics agency’s data.

Mr Edun has a duty to drive legislation that will boost mineral production across the states, the most pressing being the urgency to take the exploitation of mineral resources off the exclusive list to the concurrent list, setting the stage for the participation of sub-national governments in resource control.

Also, water-tight intelligence and security apparatuses need to be deployed to safeguard production and prevent foreigners from turning the mining trade to national disadvantage by aiding arms proliferation as has been seen in the alleged gold-for-arms deals in Zamfara State.

Large-scale commercial agriculture targeting crops with export prospects is equally imperative for Nigeria’s economic overhaul.

Commitment has been shown by the government’s declaration of a state of emergency on food production but Nigeria has never been known for policy implementation much as policies targeting fiscal and economic revamp abound.

Adding layers of value to internationally traded commodities like cocoa and cashew has been in advocacy for a while. But the immediacy of Nigeria’s fiscal problem requires that value addition be taken more seriously to make the economy competitive and expand the GDP.

Leveraging AFTCA to drive intra-African trade

The African Continental Free Trade Area (AFCTA) already presents itself as a low-hanging fruit for the actualisation of the dream of reshaping Nigeria into an export-oriented economy, easing Nigeria’s access to a regional market worth $3.4 trillion in combined GDP.

What is perhaps paramount beyond scaling up export size is quality assurance of made-in-Nigeria goods, which is a major factor that will make the country’s output competitive particularly in much more sophisticated markets like South Africa and Egypt.

In the spirit of continental free trade, Mr Edun and Mrs Anite need to explore inter-ministerial collaborations especially with the Ministry of Interior to tackle barriers like multiple checks and extortions on the part of the Nigerian Customs Service for seamless movement of goods.

Fiscal sustainability

With the Tinubu Administration bent on creating more ministries and the tenth National Assembly pushing for a pay rise, Nigeria’s cost of governance is set to strain its finances further. Analysts put the cost of running the civil service at around 30 per cent of the GDP, and a 2012 report by a panel chaired by Stephen Oronsaye estimated that the government could save N1.3 trillion a year by scrapping 38 agencies, merging 52 agencies and reversion of 14 agencies to departments of ministries.

Mesrrs Bagudu and Edun need to rigorously pursue those recommendations, which are crucial not only to cutting costs but also to blocking leakages.

Together they must prioritise budget implementation and performance, which are central to achieving the government’s developmental plans. The annual budget performance of Africa’s largest economy has been overwhelming at just 75 per cent for last year.

The country’s budget as a proportion of GDP is the weakest among its sub-Saharan Africa peers at 7.9 per cent, compared to Angola, Ghana, and South Africa at 14 per cent, 26 per cent and 29 per cent respectively.