Following the removal of subsidy on petrol and the harmonisation of the exchange rate, the federal government will continue to announce bold economic reform initiatives in its push to fast-track the recovery of the Nigerian economy and achieve its target of growing its Gross Domestic Product (GDP) at seven per cent annually.
A glimpse into the Policy Advisory Council report set up by President Bola Ahmed Tinubu before he was sworn in, especially the National Economy Sub-Committee developed last month, indicates that so far the president has faith in the recommendations of the committee since assuming office on May 29.
The committee, which is made up of Senator Tokunbo Abiru (chairman), Dr Yemi Cardoso, Samaila Zubairu and Dr Doris Anite, also has KPMG as consultants.
The committee in its report recommended the removal of petrol subsidy in line with Section 205 (1) of the Petroleum Industry Act (PIA), readiness of the administration to address the issue of multiple exchange rate and the gap between the official and parallel markets in the president’s inaugural speech. These actions have already been carried out.
The strategy hints about deploying strategic communication to engage stakeholders on the business case for subsidy removal, design and deployment of non-cash palliatives such as public transport voucher, education and healthcare support and increase in minimum wage as part of the strategy to cushion the impact of subsidy removal. Implementation of one-off Personal Income Tax reliefs for low-income earners for up to one year and work with NNPCL and other private sector players like Dangote and BUA to increase refining capacity.
Fiscal policy
The committee developed a compendium of refined action plan which includes the rationalisation of select government assets. Privatisation, concession or sell down of federal government’s stake in corporate assets to partners (with possible buyback option) to generate liquidity in the short to medium terms (focus on sub-optimal assets, NNPCL refineries, etc). List the shares of strategic and profitable NNPC subsidiaries, including NEPL, NNPCL Trading, NGIC and NGML.
The government is also set to leverage block chain to create and provide access to a central land registry to unlock dead capital, regionalise and concession the transmission grid to private investors to attract investment to expand the grid capacity to 30,000MW, accelerate the implementation of a well-functioning and market-oriented power sector, set a policy directive that all proceeds from the sale of assets must be used to settle existing debt obligations.
Monetary policy
The federal government’s overall objective is to achieve a nine per cent interest rate, a 13 per cent inflation rate from the current 18.5 per cent interest rate, and a 23 per cent inflation rate.
The document also recommended aggressively growing FX supply and building external reserves, including securing funding support from multilateral agencies and Direct Foreign investments (DFIs) at concessionary rates.
The committee noted that an estimate of at least $50 to $60bn in reserves, with a monthly inflow of at least $6bn to 8bn$ per month from export earnings and other forms of capital inflow will be required to defend the naira at an exchange of N500 to N600.
The committee also recommended the removal of all FX intermediation windows to allow the banks as primary dealers to supply the FX market through a willing buyer/willing seller model, as well as raise the capital requirements of BDCs to ensure only strong, well-capitalised and automated BDCs are allowed to operate, Travelex.
Reformation of CBN’s operating model
The committee recommended the need to explore opportunities to strengthen the CBN’s governance structure and refine its operating model to enable it to operate efficiently and reduce its costs given the expected significant future reduction in its interest earnings arising from the reduction in Way and Means facilities. CBN charges the federal government at MPR +3 per cent on the outstanding obligations.
It also recommended the need to conduct a detailed evaluation of CBN’s current quasi-fiscal operations. Review, rationalisation and transfer of the operations that are incompatible with the core monetary policy management to the relevant fiscal authorities.
Specifically, amend the CBN Act to substantially curtail it in performing the following functions: overlapping roles with other regulatory agencies such as oversight of Collective Investment Schemes carried out by the CBN and the Securities and Exchange Commission. Developmental finance functions such as the N-Power programme and SME lending.
It noted that, “These responsibilities should be transferred to other agencies that have the capacity and expertise to carry out these functions effectively.”
On banking supervision responsibility, the committee noted that prudential and consumer protection functions should be transferred to a separate regulatory authority that would have the expertise and resources to ensure the stability and safety of banks and the banking system.
The committee also recommended the establishment of a strategic economic policy coordinating organ which will meet monthly to ensure alignment of monetary policy and fiscal policy. The body, chaired by the president, should comprise the vice president, Minister of Finance, CBN governor, Minister of Trade and Investment and the Chief Economic Adviser. The Chief of Staff (CoS) may be in attendance.
On the naira redesign, the committee recommended to the need to resolve the cash shortage situation by extending the December 31, 2023, deadline to December 31, 2024, bring in new notes through the Deposit Money Banks (DBMs) by five per cent monthly and take out the old notes through the DMBs by the same five per cent.
Industry/manufacturing
In its bid to transform Nigeria to become Africa’s most efficient trading nation, the committee recommended the implementation of a National Single Window Trading Platform to facilitate product valuation and classification, provide information, minimise human discretion and streamline the import and export processes.
It also recommended the prioritisation of the build-out of rail infrastructure along selected rail routes for agricultural and trade logistics, enter into preferential trade agreements with key countries to grow and improve market entry and cost of trade, provide incentives to facilitate the establishment of warehouses through Public Private Partnerships (PPPs for exports, imports and transit locations outside the ports, decongest the area up to four kilometres around the ports and designate them for cargoes, roads and railway.
It further recommended the enforcement of the presidential directive on 48-hour clearance of goods at seaports in line with Executive Order 001, redefinition of the performance measures of key agencies of government to emphasise trade facilitation, setting up a whistle-blowing mechanism that enables and empowers transporters to report and escalate issues with the various authorities while transporting food and other critical items, implementation of stringent sanctions on all reported cases.