Last week this column dwelt on the cost of reform paralysis to Nigeria, but a major factor pertaining to reforms is regulation, which has an overarching influence on the success of reforms. As Nigeria reforms, the urgency and necessity of regulation become more manifest.
Reforms point to the direction where an economy, a business entity, or a government is headed for improved performance. Regulation, on its part, shows how to get to the destination in cost-effective ways. That is, regulation strips a process of all the baggage that could bog or derail it entirely. Regulation is critical because there are forces that want to abort the reform processes; so, there must be rules to keep such forces in check.
The benefits of some reform programmes have been lost because the required regulatory frameworks were either absent or failed to deliver on their mandates. Regulatory lethargy, for instance, contributed significantly to the delay in Nigeria’s exit from the global financial crisis of 2008-9. Weak institutions, coupled with the government’s tardiness in handling some issues within that period, prolonged the nation’s stay in the crisis.
There have also been more recent examples where early regulatory actions by the state or its relevant agencies could have averted and diminished the impacts of certain events in the economy. Two good examples are the crisis brought upon Nigeria by the scandalous issue of oil subsidies and the unbridled penchant for government borrowing.
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These two issues account in many ways today for the state of the Nigerian economy. They arose significantly because regulatory benchmarks were breached, set aside, or ignored by the state and other powerful operators in the systems. And, worse still, it was possible because the regulators chose to look the other way or ignore the infractions.
Today, the world has so much that needs to be regulated. AI and some other technological breakthrough innovations need regulation in some ways. Banks and their industry need to be regulated. Industries and their organisations need reforms, just as do national, regional, and global economies. Our political processes and institutions, and the media (traditional and new) are in need of reforms. Beyond the need for reforms, these entities or groups are in dire need of regulation.
Nigeria is entering into a gale of reforms aimed at strengthening the performance of the economy. Our industrial output needs to rise. Our agricultural sector needs to improve in productivity. We need to grow the economy so it can generate more job openings. Our foreign sector needs to improve so that the pressure on that sector can abate. There are several other ways the economy needs to show significant signs of improvement. All these, it has been clearly shown, call for reforms.
It is clear, however, that the success of these reforms is dependent on the quality of regulation offered by the agencies saddled with the responsibility of ensuring that these processes do not dither or veer off the track.
In Nigeria, critical institutions of the state are needed to midwife the regulation of the systems being reformed. Among these is the Central Bank of Nigeria, which must rise to the challenge facing it and the economy generally now. Nigeria must also strengthen its judicial system, which will definitely play a critical role in the drive for investments, both foreign and local.
Indeed, all entities that offer goods and services, including governments and their agencies, need reforms and regulations, otherwise, they will cease to be relevant to their clients. Governments must regulate to be effective in their service delivery to the citizens. Citizens’ rights are often trampled upon because the system refuses to reform; and where there are reforms without regulation, the process sends confusing or conflicting signals. In such cases, the citizens are told that things have changed or are changing, but the actions of government officials or agencies do not reflect that professed change.
We need regulations in order to safeguard our fundamental freedoms. Things go wrong when the boundaries set by regulatory agencies are treated as moveable points that can be stretched or compressed at will by powerful players, especially the state. This implies that the principle of the market must apply here, in the sense that each player should be accorded equal status in the application of the rules. But we know from experience that this is hardly the case. And it creates distortions in the system.
Whether our systems are operating on old or new frameworks, there is always a danger of sacrificing the core values of society, thereby threatening its future when there are no guideposts. Thus, regulation is all about setting standards on how things should be done and getting everyone to keep to such standards. And such standards should be applicable to all across the board, to ensure uniformity in assessment and evaluation of progress over time.
In other words, reforms do not obviate the need for regulation; they rather make it imperative. The reason is that reform in itself is not a destination, but a process that seeks ways of improving the way things are being done or have always been done. The reason for this is in part because an unregulated reform today could become tomorrow’s nightmare for an economy.
Its purpose should always be to search for ways of achieving higher results from the system we are concerned with, be it the financial system, the educational system, or just the capital market. The aim always is to make that system perform more efficiently. So, as we reform, we must strengthen the regulatory arms of the system to guarantee the sustenance of the reforms. That is why, as we begin to zero in on the envisaged reforms, whether sector-specific or economy-wide, there must be key operational rules that will guide the processes.
Reforms have in some cases created new platforms for financial innovation and engineering, which now make it possible for exotic financial products to be created in places where they did not exist before. They have introduced new rules for asset ownership, with, in some cases, foreign investors now allowed to participate in industries or sectors of national economies from where they previously were barred.
With these comes the challenge of ensuring that reforms lead to higher welfare values for all citizens.
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