Tinubu and the perils of reform

Over the last year, the Nigerian government under President Bola Tinubu has made efforts to implement a range of key policy reforms. Immediately dubbed a reformer within his first few months, Tinubu’s government announced some policy decisions, including the removal of fuel subsidies, liberalisation of the foreign exchange regime, banking sector recapitalisation, the removal of electricity subsidies, and the clearing of foreign exchange backlogs.

In June 2023, global news agency Reuters hailed Tinubu for moving at lightning speed and implementing what it described as a raft of radical changes that may finally unleash Nigeria’s full potential. The trouble, however, is that the reforms, while necessary, have created unintended consequences. In the last twelve months, Nigerians have faced unprecedented hardship, monumental pain, and despair as a result of the fallout of the reforms. Rising inflation, soaring food prices, an increase in energy bills, a rise in the cost of transportation, a decline in the value of the naira, and a cost-of-living crisis have left more people in poverty.

In fairness, at the outset of the administration, the options before the government were limited. President Tinubu was inheriting a fragile economy with high inflation, mounting debts, low government revenue, and inadequate economic growth. It was important to halt the slide and stop the economic haemorrhage. British economist John Williamson, who compiled the Washington Consensus in 1989, argued that policies such as reordering public finance from subsidies to key growth sectors, tax reform, and exchange rate liberalisation among others, represent some of the standard reform packages for transition economies. It is no wonder Nigeria has been hailed by multilateral institutions such as the International Monetary Fund and the World Bank, who are the main backers of the consensus, for implementing some of the reforms.

In the last year, Nigeria has recorded marginal gains from these reforms, especially with foreign portfolio investment (FPI) inflows and a capital market that has gone from N30 trillion in market capitalisation to N56 trillion. Despite these gains, the problem, as it would seem, is that the gains have not translated into democratic dividends for the average man on the streets, leaving many in doubt about the merit or otherwise of these reforms. If there is one thing, we can all agree on, however, is that reforms by their nature are painful; therefore, while it is hard to disagree with the merit of the reforms, it would appear there are key lessons for the government on how to identify, apply, and manage the fallout of subsequent reforms.

The most important lesson from the reforms is the sequence of the reforms. Shock therapy, some sort of “big bang,” which involves the implementation of many reforms as quickly as possible, does not always work. In his inaugural address, President Tinubu announced the removal of fuel subsidies and foreign exchange liberalisation. The two reforms immediately led to a cost-of-living crisis and a decline in purchasing power. The same shock therapy was tried in Russia in the 1990s, and it led to devastating effects, culminating in the Russian financial crisis of 1998. Rather than shock therapy, the emphasis should be on gradualism and a slow transition of the reforms.

The second lesson is on the need to establish a strong institutional base as a prerequisite for the reforms. Institutional requirements such as transparency, social safety nets, rule of law, and accountability are important for building confidence and resilience against the economic shocks that arise from the reforms. For example, the government did not work out the palliatives that would help to cushion the impact of the reforms and was only having to work out these requirements after the subsidy removal. The government has also not been transparent with the savings from subsidies, if any, and has failed to consistently lead by personal example in cutting the cost of governance.

Another lesson is the need to get away from elusive best practices. The government must understand that different contexts require different solutions, a point that was stressed by former World Bank Vice President Dr. Gobind Nankani in World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform (2005). Nankani emphasised the need for humility, policy diversity, and selective and modest reforms. Policymakers must understand that it can never be one size fits all; each reform must take into account Nigeria’s complexities.

The government must be reminded at all times of the need for humility and empathy in the implementation of these reforms. And that what is required to sustain reforms cannot be confused with what is required to initiate them. Sustaining reforms always requires a lot more than just initiating them; they must plan for the fallout and the impact of these reforms and understand that implementing multiple reforms at the same time does not always work; it would only unnecessarily overstretch and overburden the people.

Awogbenle, a development and public policy professional, writes from the United Kingdom. He can be reached via [email protected].