Policymakers in a prisoner’s dilemma
It was as if policymakers were trapped in a classic prisoners’ dilemma, where “you’re damned if you do and probably more damned if you don’t”. If you go for policy reform, you risk facing a furious backlash from the public; if you do nothing, the economy sinks further into the doldrums. The new administration made policy pronouncements in the belief that policy statements lead to instant economic outcomes. However, in reality, all economists know that there are lags, which are usually underestimated by politicians.
Nigeria’s economy is already plagued by record-high inflation (22.8% as of June 2023), sluggish growth (2.31% in Q1’23), bloated debt (₦49.9 trillion in Q1’23), and a currency crisis (₦890/$). Two petrol price increases in one month were more than the public could bear. The corporates are also counting their losses, with five companies posting over N700 billion in exchange rate translation losses. However, these losses are one-offs; after this difficult patch, there is a silver lining. With a populace that is fatigued and reeling from adverse economic conditions, the policy changes could easily become a recipe for chaos.
Nigeria is in a vantage position to benefit from good policies if the leadership is able to dimension the timing, magnitude, and impact of the policy statements. What is true is that overpromising and underachieving erode the credibility of politicians, leading to a crisis of false expectations. The leadership must align the people’s expectations with reality.
Tinubu’s “Marshall Plan” (₦500bn Intervention)
Desperate times call for desperate measures – Hippocrates
The US Marshal Plan itself in 1948 was a big one, involving intervention that was in excess of 10% of the US GDP. The recent ₦500bn interventions announced by the President are good sound bites, but they only come to less than half a per cent of the GDP ($477bn), and they are unlikely to make a material impact on the lives of Nigerians. More importantly, the new administration needs to prioritize investment in institutional infrastructure (which is more durable) over physical infrastructure. Effectiveness has become inevitable for all reforms and social safety nets to work. The policy transmission mechanism has to be strengthened, and the time lag for impact must be shortened.
Nigerian policymakers are not oblivious to what is happening in French-speaking West African countries. There is a high risk of a contagion effect. In trying to implement economic policies, they must be aware of a possible backlash from the embattled populace. The worst thing to do is throw a baby out with the bathwater. Nigerians must be ready to make sacrifices rather than go in the wrong direction politically.
In the latest LBS Breakfast session, Bismarck Rewane and the FDC think tank share and dissect the implications of the recent economic reforms on Nigeria’s bifurcated (formal and informal) economy, businesses, investments, and overall economic growth.
Do enjoy your read!!!