Introduction

The economic strategies adopted by nations to manage and stimulate their economies often involve complex fiscal and monetary policy decisions. In Nigeria, recent economic policy shifts under President Bola Ahmed Tinubu, particularly the weakening of the Naira and the expansion of the tax base, have generated significant debate. Dr. Farooq Kperogi recently highlighted a relatively obscure speech by Asiwaju Bola Tinubu in which he advocated for the deliberate weakening of the Naira to stimulate economic growth and expand the nation’s tax base.

While I am neither an advocate of Tinubu nor a fan, having questioned the prudence of his candidacy years before his presidential declaration, it’s important to note that my perspective is not that of an economist. This analysis is intended to provide a balanced view of Nigeria’s current economic situation based on publicly available data and economic theory.

Background

Upon assuming office, President Tinubu made his intentions clear to devalue the Naira and widen Nigeria’s tax base. These decisions were compounded by the cessation of subsidies on the pump price of crude oil, leading to increases in the cost of petroleum and subsequently other commodities. The exchange rate of the Naira has since deteriorated, significantly affecting the daily lives of many Nigerians.

Weakening of the Naira

The government’s central strategy has been the deliberate devaluation of the Naira to enhance export competitiveness by making Nigerian exports cheaper and more attractive on the international market. This policy could potentially bolster the agricultural and manufacturing sectors, leading to higher foreign exchange earnings and job creation in these industries. Additionally, a weaker currency might theoretically provide some relief for the government’s debt service obligations by reducing the real burden of foreign-denominated debt when converted to local currency.

However, as Chief Onaolapo Soleye and Muhammadu Buhari argued in 1983, devaluation can only stimulate local production in a productive economy. Unfortunately, Nigeria’s economy, with its almost comatose agricultural sector, poor infrastructure, and nearly nonexistent electricity supply, is far from the ideal candidate for this policy. Little wonder then that Buhari’s military administration refused the adoption of Structural Adjustment Programs (SAPs).

The recent era of Naira devaluation under Tinubu has also led to significant negative economic effects, particularly inflation. As a nation that imports a considerable portion of its consumables, the increased cost of these imports has dramatically raised the price of goods, contributing to a sharp rise in the cost of living. The National Bureau of Statistics reports escalating inflation rates since the introduction of these policies. Moreover, the diminishing purchasing power of average Nigerians due to rising prices and stagnant wages has led to decreased consumer spending and increased poverty rates.

The volatility induced by a rapidly devaluing currency has also deterred foreign investment. Investors seek stability, and the abrupt shifts in currency valuation currently being witnessed are provoking capital flight and making investors hesitant to commit to long-term investments in the country.

Expanding the Tax Base

Alongside currency devaluation, expanding the tax base has been another critical policy of Tinubu’s government. Theoretically, this aims to significantly increase government revenue, which could be redirected to fund public services and infrastructure, potentially driving economic growth if managed effectively. Moreover, by broadening the tax base, the government reduces its dependency on oil revenues, which are historically volatile and susceptible to global price fluctuations.

Yet, this raises the question: who will bear the burden of these taxes? The impoverished populace or companies that are already contemplating relocating their investments?

Despite the potential benefits of an expanded tax base, higher taxes for both individuals and businesses during times of economic hardship are not only burdensome but can also decelerate economic growth. Consumer spending is crucial for businesses to generate tax revenue. History shows that increasing the tax base in the face of poor consumer spending significantly hinders economic growth. Furthermore, broadening the tax base in an economy like Nigeria requires systems that are not only robust but also compliant and efficient. Historically, tax collection in Nigeria has been marked by inefficiency and corruption.

The think tanks behind the Tinubu administration appear to embrace textbook views on economic growth, which often overlook the practicalities of economic development. Historical examples, such as the Structural Adjustment Programs (SAPs), demonstrate how such textbook approaches can fail to consider the unique economic and social realities of nations. When these realities are sidelined in favor of public speeches, the potential for genuine national development is compromised, effectively mortgaging the future for the sake of maintaining a certain narrative. This approach risks ignoring the nuanced, often complex nature of a country’s specific needs and circumstances, leading to policies that may not effectively address or even exacerbate existing economic and social challenges.

Conclusion

The economic policies of devaluing the Naira and expanding the tax base have had mixed effects on Nigeria’s economy. While these measures can theoretically promote economic diversification and stimulate exports, the immediate consequences have been largely negative, characterized by inflation, reduced purchasing power, and strained public sentiment. For these policies to yield positive results, they must be part of a broader, more comprehensive economic strategy that includes robust mechanisms for mitigating adverse effects, particularly on the lower and middle-income segments of the population. If the manner in which Tinubu ended the subsidy is any indication, it is evident that this government shows little concern for developing robust mechanisms to mitigate the adverse effects of its policies, especially on the lower and middle-income segments of the population. It is crucial for Tinubu to understand that attempting to revitalize Nigeria’s stagnant economy through brute force tactics is unlikely to be effective.

Moreover, enhancing administrative capacities, fostering transparency, and securing public trust are essential to achieving the intended outcomes of these economic reforms. As Nigeria navigates these economic shifts, careful consideration and adjustment of policies will be crucial in realizing economic stability and growth. So far, the Tinubu administration has not shown any capacity for developing any carefully thought-out adjustment of policies.

I am fully aware that governance is no easy task. I understand the immense economic challenges facing Nigeria and recognize the urgent need for economic reforms. However, the implementation of policies that have previously failed, without a thorough analysis and understanding of the reasons for their failure, is a recipe for disaster. Let no one be misled: if, within a year, the highly praised Tinubu and his team of technocrats fail to meaningfully alter Nigeria’s trajectory, we need not wait for divine intervention to foresee that this government is heading towards failure.