Why the Nigerian Economy Requires Immediate Reforms

Not too long ago, Bola Ahmed Tinubu won the presidential election. He will take over the presidency of Nigeria in May 2023 and will have the difficult challenge of reviving the weak Nigerian economy by implementing many crucial changes.

GDP Growth Rate

The National Bureau of Statistics’ latest data on Nigeria’s Gross Domestic Product (GDP) shows a decrease in the annual GDP growth rate to 3.10% in 2022, compared to 3.40% in 2021. However, in the 4^th quarter of 2022, the economy grew by 3.52%, in contrast to the 2.25% in the previous quarter.

Non-oil sectors were responsible for most of the growth. More precisely, 95.66%, while Nigeria’s oil sector contributed 4.34%. Daily oil production increased to 1.34 million barrels per day in Q4, up from the previous quarter’s 1.20 million barrels. However, it is still lower than the 1.50 million barrels per day recorded in the same quarter of 2021.

The services sector was also one of the main reasons for growth, contributing 56.27% to the GDP in the 4^th quarter of the year.

Furthermore, the information and communication sector also played a significant role. It caused a 16.22% growth in the 4^th quarter, compared to 15.35% in the 3^rd quarter and 15.21% in the 4^th quarter of 2021.

Another sector that helped with the GDP growth was the trade sector. It added 13.20% to the GDP in Q4, higher than the 12.45% in Q3. Although the sectors mentioned above had a positive effect on the GDP, there are still some sectors that lowered it.

Agriculture’s contribution to the GDP in the 4^th quarter was 24.90%, a bit lower than the previous quarter’s 27.55%. Severe flooding across the country significantly set back agriculture, causing the sector to record a 0.94% decrease.

Manufacturing’s contribution to real GDP in 2022 was 8.40%, lower than 15% in 2021. So, the new president can work on expanding labour productivity through education to improve the country’s GDP.

Socio-Economic Issues

Mrs Zainab Ahmed, the Minister of Finance, Budget, and National Planning, mainly worries about the government’s ability to fund important programs due to low tax compliance among Nigerians. In the past, citizens paid taxes, but this changed since Nigeria became an oil-based economy. But, perhaps quite surprisingly, Nigeria’s gambling industry could provide a good source of revenue as it is relatively advanced compared to other African countries.

In general, governments tax the gambling industry to generate revenue, which also applies to Nigeria. However, with the online gambling world remaining largely unregulated in Nigeria (as well as in the vast majority of African countries), Nigeria is missing out on a significant potential source of income, not to mention that Nigerian citizens gambling online remain primarily unprotected due to the lack of regulation in the country.

With no deposit bonuses and other enticing offers brought about by the rise of online gambling attracting more and more players each year, it’s crucial to address the problem of the lack of legislation in this sector – for both players’ and the country’s sake.

And although tax collection has increased significantly from N6 trillion in 2021 to N10 trillion in 2022, the government still needs to address the growing expenditure that outpaces revenue growth by almost double annually.

Improving the Transmission Infrastructure

Power transmission is a huge issue for Nigerian citizens. Despite installing almost 13 GW of grid power-producing capacity, only an average of 3.4 GW reaches customers.

According to Prof. Kingsley Moghalu, the next government must increase revenue and address waste and corruption in governance by bringing in competent professionals to manage the economy. In addition, the new president must take direct ownership and leadership of the power sector, and mandate key players, to enhance transmission infrastructure.

The CEO of Proton Energy, Mr Oti Ikomi, emphasizes the need for a single individual who is accountable and takes instructions from the president, who must take ownership and not just hold a titular position. This individual must have technical, administrative, and supervisory responsibilities and meet regularly with the president.

He cited the example of Egypt, where the President had weekly meetings, which improved the transmission infrastructure. He added that Siemens Energy, a giant global energy corporation, is willing to work with Nigeria, but the country must also be ready to expedite things.

Domestic Debts

Dr Baba Musa, the Director-General of the West African Institute for Financial and Economic Management, finds Nigeria’s large debt a major challenge. He highlights the need to remove fuel subsidies and increase revenue through innovative means, such as cancelling tax relief.

Dr Musa also emphasizes the importance of spending only on essential items until revenue improves. He calls for coordination between the fiscal and monetary authorities and suggests evaluating the quality of fiscal spending.

In contrast, Mrs Zainab Ahmed states that the main issue with the Nigerian economy is the lack of ability to generate sufficient revenue rather than the current debt situation. Therefore, domestic revenue needs to be increased to reduce reliance on borrowing.

All in all, the new Nigerian president, Bola Ahmed Tinubu, must tackle the various economic challenges by implementing critical reforms that will ensure sustainable recovery.

The president must prioritize fiscal management, establish a unified and stable market-based exchange rate, and put an end to fuel subsidies. These measures are necessary to navigate the country toward economic prosperity.