Nigeria awaits the third-quarter growth statistics set to be released later this month. However, irrespective of the figures, the new economic team is confronted with the hard task of fixing the economy.
While Nigeria awaited President Buhari’s cabinet, the absence of an economic team, especially a finance minister, left a vacuum for economic policy formulation. The apex bank by default took responsibility for economic strategy and direction and has enforced foreign currency restrictions.
Although Buhari kept both Nigerians and investors on a long wait, the choice of his ministers is markedly impressive for the most part, particularly the technocrats on the team. However, the new cabinet is confronted with slackening growth, inflation and the weakening of Nigeria’s currency caused primarily by the fall in oil revenues.
The Unavoidable Tough Policy and Monetary Choices
Nigeria’s finance minister has been appointed at a time when tough economic choices have to be made. She has inherited a national treasury that the president had indicated is near empty.
With economic growth slowing to 2.4 percent in the second quarter of 2015, and inflation sliding towards 10 percent, the new minister and the economic team are face to face with an inescapable task of rescuing the nation’s sliding economy.
The team will need to either make a choice or work out a possible balance between the liberalization of Nigeria’s Foreign Exchange Market and sustaining the current apex bank’s controls on the Foreign Exchange Market.
Nigeria’s macroeconomic environment remains fragile. In the quest of making the economy attractive to global investors, Nigeria requires clear and definite economic policies.
While a fixed exchange rate will help maintain a currency value within a very narrow band that will make investment in the economy predictable for investors who had waited so long, sustaining the current central bank’s controls on the foreign exchange market will help increase locally made goods and prevent foreign reserves from being depleted. This presents some difficulty in making a viable policy choice.
Now is the time for Nigeria to diversify its foreign exchange earning base. Previous administrations from 1999 have made attempts at diversifying the economy, while some achievements were recorded, Nigeria still relies largely on oil for its revenue.
Given the prevailing economic realities, it is clear that Buhari’s administration does not have the luxury of time and resources his predecessors enjoyed, therefore irrespective of the monetary policy decisions his economic team came up with, diversification of the economy compels an immediate action.
Following the global rise in food prices in 2008, food security has become a top priority in the international policy agenda. There are countries of the world that have witnessed economic transformation and significant poverty reduction through agriculture.
Before Nigeria began to pump commercial oil, it produced and exported groundnuts, palm oil, rubber and cocoa in commercial quantity. However, given its abundance of arable land, effective sectoral strategy by Buhari’s economic team has the potential to create millions of jobs for Nigeria’s unemployed youths and make the country Africa’s leading exporter of both food and cash crops, as the world expect additional two billion people by the year 2050.
At this time, Nigeria’s top policy priorities for 2016 should be to improve the rural environment, food security, encourage and support rural farmers to improve production methods and capacity, and strengthen effective linkages with industry to achieve maximum value-added and processing for export.
Looking ahead, Nigeria must ensure it produces higher-value goods to earn comparative advantage in the international export market.
To be sure, Nigeria can benefit from the abundance of its solid mineral deposits.
Mineral resource is a possible foundation to becoming an industrialised economy. Exploration of available minerals, precious metals, industrial minerals such as barytes, gypsum and marble, as well as various stones is sure to give Nigeria an economic footing.
With the required government approved license, investors have remarkable opportunities for investments in the Nigerian solid mineral sector.
Manufacturing and Services
Nigeria is doing great in domestic services. Banking, telecommunications and retailing have all accounted for a significant percentage of GDP growth in recent years.
Going forward, Nigeria has a strong long-term growth prospect. However, it cannot afford to delay lessening its reliance on oil. Rising global demands for minerals, arable land and food present Nigeria with the opportunity to boost fiscal revenue and bring about economic recovery.
To attract foreign investment in agriculture and solid mineral sectors, Nigeria must create the right policy environment for private investment and remove possible constraints.