In normal times, I don’t think economic policy makes a large difference one way or another. But in times of crisis, it makes all the difference in the world – Mark Zandi, Chief Economist at Moody’s Analytics
While it seems Nigeria is not in full crisis mode yet, the weak macroeconomic fundamentals point to a fragile economy and the right policy cocktail is needed now more than ever.
Reforms are gateways to economic progress
To achieve accelerated economic growth, one step to take is adopting adequate policy reforms. Thankfully, Nigeria is on this path. In less than three weeks in office, the president pronounced major reforms including the removal of the 46-year-old fuel subsidy and de-segmentation of the exchange rate market. While these reforms have immediate economic consequences like erosion of household purchasing power and squeezed margins for corporations, these reforms have become stepping-stones to boosting the economy. To complement the reforms and support economic growth, there is a need for increased and meaningful government spending, particularly on critical infrastructure and social welfare.
More so, the adoption of a single exchange rate window and a “willing buyer-willing seller” exchange rate model is expected to reduce currency risks and bolster investor confidence as the exchange rate becomes more stable and predictable. Expectedly, the exchange rate will be volatile in the short term, overshooting its fair value. Already, the official rate of the naira has moved from being overvalued at N462/$ to N768/$, closer to the parallel market rate of N773/$. This quick convergence will keep reducing currency risks, improving forex market efficiency, and bolstering investor confidence.
Reforms cannot happen in isolation, innovation is also key
While on the path of strengthening the economy, critical sectors like manufacturing still require innovation. In 2022, Nigeria ranked 114th in the Global Innovation Index, way behind Mauritius (45th), which tops the African countries in the ranking.
Successful innovations can lead to increased productivity, job creation, and economic growth as seen in Asian countries like Singapore. Innovation has fast become a key driver of progress in modern economies. However, it has remained a challenge in Nigeria, keeping it below its peers and hindering the attainment of much-needed growth.
In this edition of the FDC monthly bulletin, the FDC Think Tank unpacks these issues and more, providing their economic implications.
Enjoy your read!