Setting up Nigeria’s economic policy tripod

Monetary and financial stability, investment in infrastructure, and structural transformation of the economy have emerged as the thrusts of economic policy of the Administration of President Muhammadu Buhari. Domestic and global investors can be assured that this policy trifecta is not just the priority of President Buhari, it is also what is needed to transform […]

Monetary and financial stability, investment in infrastructure, and structural transformation of the economy have emerged as the thrusts of economic policy of the Administration of President Muhammadu Buhari. Domestic and global investors can be assured that this policy trifecta is not just the priority of President Buhari, it is also what is needed to transform Nigeria’s well-known economic potentials into reality for the benefit of the citizenry and various Nigerian market participants.   
The ideal of monetary and financial stability is shared everywhere by policymakers, investors and the consumers. In this regard, there is strong agreement between the monetary and fiscal authorities to uphold socio-economic and financial stability in Nigeria. This is part of the policy direction that business leaders and investors have been anticipating. We now have the good news of the affirmation of the saliency of stability. This should instil investors’ confidence in Nigeria and spur new investments in the country.
However, sections of the market had been apprehensive about whether stability is feasible for Nigeria, especially with the downward pressure on the naira exchange rate, and under the present circumstance of lower oil prices. Agreed, the fiscal headwind of lower oil prices would suggest accommodation of a floating currency, but with the attendant downside risk, including monetary, and potential financial instability. This cannot be the right policy to implement even for a day; its negative effects would remain long after the policy has wound up.  But then, knee-jerk recursive currency devaluation has never been the only policy option the country has in responding to the cycle of lower oil revenue.
One of the pertinent policy options is for the country to ratchet up investment in infrastructure. To do so is to stimulate the economy and avoid a recession that could be precipitated by austerity measures and economic instability. Therefore, President Buhari has said his Administration will invest in road and rail transport infrastructures as well as support the power sector. A plan to raise $25 billion infrastructure bond has been hinted at by the Finance Minister, Mrs. Kemi Adeosun, giving further credence to the Government’s commitment to investment in infrastructure.
At a time of lower revenue, this policy choice is definitely audacious. But these infrastructure investment plans can prove to be the masterstroke that will remove the constraint of lack of infrastructure which is the staunchest barrier to broader domestic investment, trade and economic growth. This will pave way for structural transformation of the economy.
For Nigeria to overcome the harsh adjustments that arise every so often when the price of oil falls, structural diversification of the economy has to happen with much stronger results. One aspect of the restructuring relates to government raising more revenue from a wider tax net. The other aspect is for Nigerian businesses to export finished products and services, thereby broadening the sources of foreign exchange flows into the economy.
The other major hurdle Nigerian real sector businesses face is high cost of lending. But, since Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, came into office last year, he has been advocating a paradigm shift in which the real sector would benefit more from supportive monetary policy. This stance has been put beyond question at the November 2015 Monetary Policy Committee meeting when the Bank decided to bring down anchor interest rate by 200 basis points (from 13% to 11%) – the first rate reduction in six years; reduce Cash Reserve Ratio (CRR) from 25% to 20%; and make manufacturers the target of lending of over N770 billion that the combination of these decisions will inject into the banking system as additional liquidity.
It is also very good that the CBN, one of the shareholders of NEXIM, has recently declared that it is disposed to providing additional funding opportunities to enable the Bank provide more facilities at single digit lending rate to the SMEs towards boosting non-oil sector exports. This is a positive follow-up to the import curbs the CBN introduced a few months back through its forex sales policy. The use of both policy and financing instruments to spur local production to promote import-substitution and export-manufacturing sits quite well with the fiscal programme the Federal Government has been hinting at. And so the required synergy and coordination of monetary and fiscal policy are in action.   
No doubt, what Nigerian businesses need are roads and other modern infrastructures, not a weaker naira. What will create sustainable economic growth and improvement in the welfare of Nigerians is a virile local manufacturing industry, not availability of imported toothpick. And what will help remove downward pressure on the naira is more export revenue from the non-oil sectors, not devaluation at every turn of lower oil prices.   
The authorities needed courage in their decision for this policy tripod. They surely need to be resolute and stick to the decisions. The authorities also need the support of Nigerians as well as local and international financiers. In one form or another, the world’s economies are implementing programmes of adjustment in responding to a slower global growth. Nigeria is not alone in making the necessary policy adjustments which are very capable of transforming the structure of the economy in very remarkably positive ways. This is why we all need to support the change agenda and the transformational policies of the Government.
Orya is MD/CEO of Nigerian Export-Import Bank. He wrote in from Abuja.