Merits of Tinubu’s Bold Economic Policies
By Raheem Akingbolu
By the time President Bola Ahmed Tinubu assumed the leadership of the country on May 29, 2023, it was obvious that something had to be given economically if the country would not be brought to her knees economically.
With soaring inflation coupled with an obvious inability to meet her obligations, the Nigerian nation was on the edge, at least economically.
In his inaugural address, then newly sworn-in President Tinubu announced to a bewildered nation that fuel subsidy was gone. Many were shocked. Even some of his aides admitted that they were taken unawares as the former Lagos State governor never broached the idea with them. Even the nation was never expecting such announcement on the day of his inauguration. But it was a bold, courageous, and badly needed move to save the nation from total financial collapse.
First, it was discovered that there was no budgetary provision for fuel subsidy beyond June in the 2023 budget. Secondly, a large chunk of our national income was going into payment of fuel subsidy with the attendant and known corruption that goes with it.
Going by information provided by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) as well as the Nigeria Extractive Industries Transparency Initiative (NEITI), the nation, alarmingly, spent about N17 trillion on petrol subsidy between 1999-2023. The breakdown is as follows: N812 billion was spent between 1999 and 2006, N794 billion was expended between 2007 and 2009, N3.9 trillion was burnt on subsidy between 2010-2014 and a whopping N11 trillion between 2015 and 2023.
Anyone who understands the value of hard earned money to a nation and the peculiar nature of Nigeria’s weak infrastructure will agree that this N17 trillion, if judiciously used, could have gone a long way to ameliorate our decaying national infrastructure. Unfortunately, this humongous amount of money was wasted on fuel subsidy, ordinarily designed to help the poor but which invariably became a very easy way to become billionaire overnight with massive sleaze and bazaar-like sharing of dollars!
Just recently, Mamman Ali, son of Ahmadu Ali, former chairman of the Peoples Democratic Party (PDP), was handed a jail term of 14 years. He was not alone. Mr Christian Taylor, his co-defendant, was also sentenced to 14 years imprisonment as well. They were found guilty of collecting N2.2 billion in subsidy payments for “importing” 20 million litres of petrol, but they did not bring in even a litre! As at the time they collected this money, N2.2 billion was equivalent of $13 million!
Another area where the present administration has taken a courageous step was in the area of foreign exchange. The unification of the day exchange rate was meant to achieve so many objectives. Before, there were the CBN exchange rate, importers and exporters exchange rate, and the parallel market exchange rate.
But with the harmonisation of the exchange rates, the nation stands a lot to gain. First, it will reduce government intervention in the market. Many times, the government used to intervene to save the naira. The cost of these savings can be allocated to other priority areas like education and healthcare.
It will also lead to actual value discovery.
When the managed-float exchange rate regime, there were several exchange rates, as earlier mentioned. These multiple exchange rates encouraged unproductive arbitrage, rent seeking, and unfair competition. It also made the determination of the real value of the naira almost impossible. Now investors and those who trade in hard currency can know the exact value of the naira, and they know it can’t just go up astronomically overnight.
Also, with this unification of the exchange rate, access to foreign exchange based on a single-known exchange rate will help traders and business people plan. This increased access to foreign exchange will encourage import substitution among SMEs and encourage the export of Nigerian goods and services to international markets.
From one government to the other, the nation has always sought foreign direct investment (FDI) inflows to bolster the economy. The unification of the foreign exchange will help greatly in this regard. It will bring more direct foreign exchange inflow into the country through higher foreign portfolio investment inflows and higher remittances. And, of course, FDIs will surely lead to more employment for Nigerians.
As earlier mentioned, a large chunk of the nation’s foreign exchange earnings were being used to shore up the naira against the dollar due to multiple exchange rates. This is one of the reasons for budget deficits. Since this unification of the foreign exchange rate will not require government intervention to save the naira avain, a major reason for budget deficits has been taken care of.
Another bold and good economic policy is the Tax Reforma Bill recently accented to by President Tinubu. In the new tax law, the Value Added Tax rate remains at 7.5 per cent. This is very good as many have been proposing and incrementing to 12.5 5 Even with the retention at 7.5%, essential items such as food, education, healthcare, public transport, residential rent, and exports are zero-rated to ease inflationary pressure.
From now on, 30 per cent of VAT proceeds are distributed based on consumption (rather than contribution), 50 per cent equally among states, and 20 per cent to population-based allocation.
The greatest beneficiaries are low income earners, with ndividuals earning up to ₦1 million ($650) annually receiving a ₦200,000 rent relief, reducing taxable income to ₦800,000, there by exempting them from income tax.
Akingbolu is a journalist and public affairs analyst
