EDITORIAL: Tinubu administration and the necessity of real, efficient economic reforms

PREMIUM TIMES believes in the need for a genuine and holistic reform of the Nigerian economy, for it to deliver better value to the people. If nothing else, by lifting pressure at the expenditure end of government activity, the reforms should improve the economy’s fiscal space. And the government’s spending needs are plenty. As the world warms, we will need to improve the economy’s resilience in a hotter environment.

The economy’s shopping list includes mitigating the effect of the green transition on our dependence on the export of fossil fuels for the large part of our foreign currency earnings, improving and enriching our supply of heat-resistant cultivars, future-proofing the output from our educational institutions, etc. All of which have to be funded.

Beyond this, though, there is the mechanical argument – that simply by improving the allocative efficiency of the economy, the resort to the price mechanism, which lies at the heart of the incumbent government’s reforms, gives us a more efficient domestic space.

The problem, though, is that however well thought-out and/or implemented, reforms end up empowering some sectors of society while leaving others feeling like they lost out. Nearly always, a reforming government is invited to provide support for the latter cohort if its policies are to be successful. Figuring out which sectors of society gain and which ones lose from the effect of reforms is thus a critical part of the reform implementation process.

Despite the fevered controversies generated by the Tinubu government’s attempts at reforming pricing in the downstream oil and gas sector, the truth of the recent fuel price increase is that market-based prices hurt cadres from the middle class up, far more than they do the average Joe on the street.

Fuelling those car parks full of sports utility vehicles will certainly cost more in absolute terms. But because of the extremes of income inequality in the economy, even the marginal increases on transportation costs on the back of higher prices will hurt marginal sectors of our economy a lot.

Thus, a compelling case for cushions on this effect for relative losers ought to be made. Such cushions must be targeted at those whose income levels mean that they bear a disproportionate burden of the reform effects – and they must include sunset clauses.

Unfortunately, the chapters of palliative efforts embarked upon by successive governments aimed at cushioning the disruptive effects of their change initiatives on the poor and vulnerable have failed, largely because we have not been able to means-test them.

Because these initiatives have proven vulnerable to elite-capture, it would be difficult, in good conscience, to support their continuation. In the same vein, it would be counterproductive to put the kybosh on reform initiatives until we can solve the problem of the proper design of palliatives for those who suffer disproportionately from the effects of reforms.

Incidentally, government gains far more immediately from legitimate reform efforts. The added fiscal room lifts the spending pressure on the budget, while improving government’s credit/risk ratings.

These savings that the government makes from its reform drive underscore a further dimension of the economic reform process. If they are to succeed, reforms usually need more reforms. To illustrate this case, we simply need to put a Nigerian refinery side-by-side an Indian or Turkish one. Both the latter are geographically closer to China – the source of much of the global demand for fossil fuels. So, they already enjoy an unearned advantage.

Beyond this, though, our hypothetical refining operations in Turkey and India power their operations from the mains. There opposite number in Nigeria must build its own infrastructure from scratch. Its costs are, accordingly, necessarily higher. Uncompetitive, it needs a nanny state to still be in business.

The one implication from this thought experiment is the realisation that the government’s task, post-freeing prices, is to bring domestic costs down – improve power generation and transmission, reduce the number of steps and ministries, departments, and agencies (MDAs) of the state that may receive and authorise applications from the private sector entities.

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Indeed, why not insist that any application to an MDA that is not responded to within a month is considered approved? Conversely, rejections of such applications communicated within the month must say clearly why.

Unfortunately, the Tinubu administration’s messaging on the thinking behind its reform process, and its expected trajectory, as with most other aspects of its governance, has been abecedarian. Rather than “shrink the civil space”, as it has recently appeared minded to, there is plenty of work for this government to do – if only it has the nous, or the backbone needed.