Historical experience of countries and regions, following events that devastated their whole economies and markets, show that, no matter how huge the setback may be, it can easily be converted to a platform for recording achievements, at a rate and scale not considered feasible under normal conditions. This was the case with the United States of America after the Great Depression in 1933; this was the case with Europe and Japan after the Second World War in 1945; and, this was the case with Singapore after it was expelled from the Federation of Malaysia in 1965.
In such challenging circumstances and, indeed, in any human challenge, it seems reasonable to propose that there are two broad determinants of the ultimate result. The first, which is the necessary condition, is the objective material condition of the economy, summarised in its material resources and potential. The second, which is the sufficient condition, given that the first condition has been satisfied, is the attitude of the economic agents towards the country’s economic condition and its prospects. The economic agents are the households, the businesses and the government.
If the economy has, internally, the production capacity and natural resources in sufficient amounts, the appropriate response would be to undertake as many self-driven initiatives as possible. On the other hand, if an economy faces a condition of low internal availability of productive capacity and resource endowment, the appropriate response would be to seek external support. In real life, the prevalent conditions and corresponding responses are combinations of the two extreme corners. In whichever case, failure to make the right response could be because of ignorance of the opportunities and possibilities or it could be a reflection of pessimism, laxity and fatalism, which have conditioned people to succumb to, rather than triumph over, a trying time.
Embedded resilience and solutions
Nigeria passes the test for the necessary conditions for recording a triumph over its current economic setback. The resilience of Nigeria’s economy and sources of the solutions to the economic challenge are, paradoxically, embedded in the major sources of the problem. First, we see the logic of this thesis in the external sector – the import structure and the export structure. Using 2014 figures, Nigeria’s consumer goods imports (including food imports) amounted to US$29 billion. Applying the right collective attitude, we should programme to reduce this, in the minimum, by 50 per cent in the next three to five years, achieve a cumulative reduction of 75 per cent in the next five to seven years, and a further cumulative reduction of 85 per cent in the next seven to 10 years. This will give an average annual forex savings of US$15bn, US$22bn and US$25bn, respectively, in the three phases.
Applying the same logic with appropriate scale-downs for raw materials imports, and, scale-ups for exports of agro and agro-processed, manufactures and solid minerals, the forex gains from import replacement is estimated at US$17.3bn per annum for Year 3 to Year 5, US$25.6bn per annum for Year 5 to Year 7, and US$29.5bn per annum for Year 7 to Year 10; and from export expansion: about US$11bn per annum for Year 3 to Year 5, US$16bn per annum for Year 5 to Year 7, and about US$27bn for Year 7 to Year 10. These changes in import replacement and export expansion would impact positively and significantly on foreign exchange reserves, the exchange rate, output and employment. Such programmed substitution and expansion would dramatically change the economic landscape and dynamics in two major ways. First is the indirect impact in conserving foreign exchange reserves and supporting appropriate value of the local currency. Secondly, they will generate a big boost in economic activity, employment, poverty reduction, self-sustainability and economic sovereignty.
Hidden fiscal space
The second carrier of the problem and its solution is the fiscal sector. Of particular relevance in this respect is low non-oil tax-GDP ratio, taking into account the need to back-out oil-based tax revenue. The nature of modern economies is that as aggregate economic activity, summarised in the GDP, grows, so does public revenue. However, while the tax-GDP ratio for countries in Nigeria’s peer group is about 18 per cent, Nigeria’s non-oil tax-GDP ratio is below 6 per cent. It is, therefore, not surprising that when oil export prices decline, Nigeria experiences fiscal crisis. The explanations for this include low tax compliance rate and the large size of the informal sector. The Federal Ministry of Finance and the Federal Inland Revenue Service are already implementing initiatives to tap this fiscal space. The upside of the existing public revenue weakness is that even on the basis of the already achieved level of aggregate economic activity, and without raising the tax rate, the public revenue from non-oil tax could be tripled.
Sleeping resource base
Beyond the reconfiguration or structural twisting of existing dynamics, the third domain of Nigeria’s economic resilience is the abundance of untapped resources and potentialities, which offer direct opportunities for massive investment, growth and employment. These include geography and ecology, geo-vegetation variety, from mangrove swamp through tropical forest to sahel and desert, with their spectrum of animal and plant resources; over 48 per cent uncultivated arable land out of total arable land of over 76 million hectares; more than 30 non-oil minerals available in commercial quantities; abundant oil and gas reserves on which a massive petrochemical complex for fertilizer, industrial chemicals, medical chemicals, polymers and plastic can be built; huge infrastructure and housing deficit; huge internal market, with a population of over 170 million people, which is a major strength factor for countries like the U.S., India and China, as well as access to the ECOWAS regional market. These are all sleeping assets ready to be awakened and motorised to generate rapid, inclusive growth. They offer high returns to foreign direct and local direct investors.
Enablement from sector reforms
Various fiscal and structural reforms are already forming the base for a trajectory of inclusive and sustainable economic resuscitation: revenue reforms, including innovative measures that are capturing thousands of entities into the tax net; the Treasury Single Account (TSA) and other cash-management reforms heralding more optimal cash flow management; cost-saving and waste-limiting measures driven by the Efficiency Unit and the Presidential Task Force on Continuous Auditing; significant, though continuously challenging, fiscal stabilisation initiatives among the sub-nationals, including the ongoing operationalisation of the Fiscal Sustainability Plan designed by the Federal Ministry of Finance, which contains 22 reform points to which states of the federation have subscribed, towards creating the ambience required for medium-to-longer term stabilisation and self-sustainability.
Connection to debt strategy
What does this outlook imply for Nigeria’s public debt management strategy? It signals that, in the next four or five years, the debt strategy would change dramatically, as it aims to take advantage of the strength at home in its portfolio mix. It will be time to reap more fully and sustainably the benefits of domestic debt market sovereignty.
Nigeria’s economic outlook remains positive because it has adequate room to manoeuvre in both the external and fiscal sectors, plus an abundance of material and human resources. The sufficient condition for it to convert the challenge of recession to a base for turnaround and phenomenal prosperity is for all stakeholders to be committed to productive work, driven by an attitude of optimism and confidence.
Nigeria has everything it takes to build a strong economy for a great people.
• Dr. Nwankwo is the Director-General of the Debt Management Office, Nigeria