After early promise upon coming to power in Nigeria in May, the government of Bola Tinubu has struggled to sustain its early reforming momentum. The naira hit an all-time low in mid-November, with the country facing an acute shortage of foreign currency.
Wale Edun, the country’s minister of finance and co-ordinating minister of the economy, spoke last week with Middle East and Africa editor John Everington on stage at the Africa Financial Industry Summit in Togo about further changes to the country’s foreign exchange market, efforts to investment flows from within and outside Nigeria, and the ministry of finance’s fiscal consolidation plans. The conversation has been edited for clarity and length.
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Q: It’s now nearly six months since the new administration assumed power in Nigeria, taking early moves to abolish fuel subsidies and harmonise official and black market exchange rates by way of a managed currency float. How would you assess the progress that has been made over the last six months, and what are the government’s economic priorities for the next six months?
A: In the past six months, right from day one of the leadership of President Tinubu, the country has changed. [Nigeria] was facing a fiscal crisis, and a situation where an unsustainable, unaffordable, very ill-conceived and poorly implemented fuel subsidy was costing 2% of gross domestic product (GDP), and basically taking the country down the drain financially.
That has been resolved, and the country is now on a path and [moving in] a direction to achieve the macroeconomic stability that will enable investment to flow and the economy to grow. When I say investment, I’m talking about domestic investment, from Nigerians in Nigeria, Nigerians with funds abroad in the diaspora, Nigerians living in Nigeria keeping their funds abroad, as well as, of course, foreign direct investment.
The emphasis is on equity, rather than debt. We heard earlier … about how costly it is to borrow in international markets at this stage. So the emphasis is on domestic resource mobilisation, and on attracting equity. Around the world, interest rates are high, they’re likely to stay high, as the Western world is concerned with a battle against inflation.
So what we have to look to, for instance, is the $10tn in sovereign wealth funding that is out there, as well as private capital that is also in the trillions, and the green financing that is available. So we are on the path to attract those funds to invest [in order] to increase productivity, grow the economy, create jobs, and reduce poverty in Nigeria.
Q: While the early successes have been widely acknowledged, there is hesitancy over the staying power of the reform agenda, with reports of fuel subsidies creeping back in, and the gap between official and black market foreign exchange rates widening again. How confident are you that you can sustain the reform agenda going forward?
A: When it comes to the kind of macroeconomic reform that is being undertaken in Nigeria, it’s not always a straight line. Having set the direction of travel, there may be times to pause for breath, and then go again. But one thing that has come up earlier in the conversation today is the importance of communication, the importance of being able to get the message over as to what the intention is, where we are, and where we are going.
Clearly, the fuel subsidy removal has led to a cost-of-living spike. But I think another important aspect of the reform process is the intervention that is being made on behalf of the poor or on behalf of the most vulnerable to ease the pains of the inevitable process of transition to a better economic platform.
It does cost, it does take time to achieve the benefits, and in that time, an important part of that communication is to intervene. And that’s what’s been happening in Nigeria; there has been tremendous intervention to help with food inflation by increasing food supply. There have also been wage awards to workers, and so on and so forth, [as part of] a whole package of interventions to ease the pain.
Q: Can you predict how long such interventions will need to be maintained?
A: In terms of achieving macroeconomic stability, it’s important to stabilise the exchange rate, to bring down inflation, and of course eventually bring down interest rates so that borrowing for investment is affordable.
Clearly the issue in Nigeria at the moment is one of foreign exchange liquidity. And that is being tackled systematically, starting with the obvious place, namely by getting oil production and oil revenues up, at a time when prices are high. This is being done by systematically making efforts to reduce the losses in the oil sector, and increase production, sales and revenue.
It’s also important to point out that in terms of mobilising foreign exchange resources, there are tremendous resources available in Nigeria itself. Within the banking sector, there’s an estimate of about $30bn that people are holding, [because] they have not been given an incentive to release those dollars into the formal money supply. Similarly, there’s a lot of cash that’s outside the system.
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The president made two executive orders [on October 24] to bring in this cash that has been sitting outside the system. A lot of the funding that’s required is actually available [domestically], we just have to restore confidence for people to hand it over.
Q: When these executive orders came out [which allow, under forbearance, all cash in the domestic economy to legally come into the formal money supply, and permit the issuance of domestic currency instruments] you said you expected $10bn in foreign exchange inflows within weeks. Are they already having an impact on helping overcome foreign exchange shortages?
A: I will say yes, but there’s much more to come. Right now, I think you’ll see that the gap between the unauthorised market and the formal market has closed, and that there are no longer the same inefficiencies and anomalies that make people target foreign exchange speculation and arbitrage as a way of making a living.
There is going to be a comprehensive reform of the foreign exchange market. Individual retailers [currently] are unprotected; they’re dealing in a market without rules. The intention is to have all players [operate] inside a formal market, where there is rules-based price setting, where the smaller retailer is protected, and where speculators that deal illegally will face appropriate sanctions. It’s important to point out that the president is a man that believes in rule of law, and that one of his major priorities is to really instil the rule of law in all that is done.
The Central Bank of Nigeria is autonomous in terms of setting interest rates, and controlling money supply. But it is one economy, and so the foreign exchange question is something that is done with collaboration. So it will be a joint effort by the central bank, in collaboration with the Ministry of Finance, to really deliver a new framework for the foreign exchange market.
Q: In mid-November you made comments about the importance of a national asset registry. Can you speak a little more about this and what impact it will have?
Clearly one of the options that the government has, when the decision is taken, is the monetisation of [government] assets. And an important aspect of that process is updating your register, knowing exactly what you have got, so that you’re in a position to decide if there are some assets you would like to monetise by way of concession, by way of private-public partnership, by way of licensing, and even by way of partial divestment. Before you can do that you need a rigorous and robust national asset register.
Q: Beyond efforts to attract further investment from within Nigeria and from the diaspora, what are you doing to attract foreign direct investment?
A: On a trip a few days ago in the Middle East, the president said that he was the chief marketing officer of Nigeria; that’s because his plan and strategy is to stabilise the macroeconomy and investment environment, and then, of course, attract investment to fuel the growth of the economy.
The results are very positive. The reception worldwide of his courageous and extremely timely macroeconomic reforms have provided a platform and a positive environment within which people now can look at having confidence restored enough to talk about foreign direct investment in the Nigerian economy, which of course, as we know, is the largest market in Africa; and that is attractive to people.
Q: Can you say something finally about your efforts to reform the country’s tax system and consolidate fiscally?
A: There is a fiscal policy and tax reform committee that has been at work since August, and they have started rolling out measures because there is a root and branch reform of the fiscal policy environment and the tax system. Tax to GDP is currently less than 10%, and the plan is within two years to get it up to 18%. Similarly, government revenue, as a percentage of GDP, is also relatively low. The plan is to get that up to about 20% of GDP by 2027, so that there are steps being taken to reform taxes and to manage expenditure better.
When people see that their funds are being wasted, you lose the public trust. There are some fiscal incentives that cost 1% of GDP, including tax exemptions and import waivers, so all that is being rationalised. The fact that the fiscal space, both on the revenue side and the expenditure side, is being reformed in a very robust manner … will lay the basis for growing the economy through investment, particularly private investment.
