Maintain sound macroeconomic policies
First, there is a necessity for fiscal probity. Fiscal deficits cannot continue indefinitely without severely weakening the country. This is because a deficit can precipitate a debt crisis in the long run. Debts can also induce huge interest obligations that can threaten sustainability. No doubt, there are episodes of stagnation or economic crisis in which deficit spending by the government makes sense. Enough deficit spending can stimulate consumption and/or investment until economic growth becomes self-sustaining. But the government should allow deficits to become entitlements by allowing them to grow excessively. We should remember that they need to be funded and monetized, which can lead to spiral inflation. If not, they can cause interest rates to rise, crowding out private domestic investment, and accumulate foreign debt. In the long run, spending beyond the country’s means is imprudent. Likewise, taxes should be somewhat redistributive and discourage excessive consumption. It shouldn’t just be an avenue for generating revenue, but rather a fiscal policy tool for redirecting or stimulating the economy.
Encourage savings and investment
These are both crucial to economic growth and invariably, development. Countries that save more and invest more grow e.g Japan, Singapore, and China. Countries that also do not invest in human and physical capital cannot achieve sustainable growth and development.
So having some sort of policy, institutions, incentives, or cultural bias that encourages savings is key for Nigeria. Singapore’s Central Provident Fund is a model that Nigeria should consider adopting. Of course, it is possible to attract foreign savings and fund investment. That is what the United States has been doing over the past three decades. But in the long run, domestic savings is obviously preferable to foreign savings – for several reasons. Debt service is denominated in domestic currency and relatively less connected to exchange rates. And Nigeria would not have to sell her domestic assets to foreigners to obtain the savings, thus depleting the wealth on which future generations must rely.
Consumption meets present needs; savings meet future needs. Nigeria must strive to balance the two. The costs of excess consumption are hidden for the moment but will eventually reveal themselves. Before then, Nigeria needs to adjust – she needs to find the motivation to save – if she is to move out of her present predicament.
Sound microeconomic policies – in today’s world, liberalization (sometimes) is necessary to facilitate growth. By liberalization, I mean the removal of barriers to trade and foreign investment, an exchange rate policy that follows the market, and eventually, privatizations of potentially competitive assets. For sure, restrictions can (and did) work for a time. But in every case, Nigeria matures and as the global economy develops, such restrictions may result in distortions, and as such must give way. Labour market flexibility – Nigeria has a relatively restricted labour market with some measure of restrictions on hiring and firing (expatriates), a low minimum wage, and severely large unemployment insurance (pension liabilities from the old scheme). This is one of Nigeria’s weaknesses as a country. What she has today, which must be addressed with a high sense of urgency, are elaborate work rules and labour market rigidities that hampers productivity, prevents firms from structurally adjusting, and driving up labour costs (mostly in highly specialized professions or skills).
Resource endowment –
Nigeria must prudently manage its resources. For years now, revenue from oil-fueled imprudent government spending invariably contributed to corruption. The presence of such valuable assets or natural resources, moreover, tends to support the country’s overvalued currency. As government spending fuel inflation and price rise, her non-resource exports have become less competitive – the so-called Dutch disease. Nigeria needs to manage such wealth by putting in place a sound set of institutional controls to keep the rents from distorting all other elements of the economy – sometimes like an oil stabilization fund.
Inequitable income distribution also seems to be holding back Nigeria’s economic progress and certainly weakening her social structure. The country must address her severely imbalanced distribution of income. Not doing so will cause more social frictions as a large segment of her population will be left without purchasing power and this will continue to undermine the potential for growth. Poor governance, lack of social infrastructure, low quality social services among several others should be address as they all seem to cause poverty and hurt income distribution.
Sustainable current account asymmetry
The country must also address its huge current account deficit. It must embark on aggressive structural transformation and import substitution policies. As a matter of urgency, we must work hard to reduce our dependence on imports while at the same time engage in export promotion. Failure to do so with a sense of urgency will worsen our current account balances as the years go by. In the short run, Nigeria will continue being a consumer, rather than a producing country. Conversely, to grow, she will have to continue borrowing from other countries or multilateral agencies by selling its assets and incurring more and more debt in the long run.
This asymmetry, while unfairly burdening the future generation, cannot continue indefinitely. Sooner or later, either the exchange rate will adjust or some creditor countries/institutions will lose their nerve. When such happens, a severe adjustment will unfold – undermining the standard of living in the country and causing severe unemployment and deep recessions.
Strong Monetary Authority (Central Bank) – The Nigerian government must ensure that the country’s central bank isn’t just strong, but also independent. This is necessary for noninflationary growth. The central bank needs to provide adequate liquidity for growth but must not provide excessive liquidity, or prices will (continue to) rise. For the fact that inflation is disastrous, she must ensure that it is properly managed. Failure to do so will further drive up interest rates and weaken the Naira.
If the Nigerian government continue to allow excessive deficits, then the country is failing. if the courts or judiciary allow organized crime to thrive or rampant corruption to go unpunished, again the country will be failing. But when government agencies encourage savings or contain inflation or reinvest resource rents, then the state will be on the path of competitiveness. When health care is effectively managed, or poor people are educated, then the government would be creating the institutions necessary to engender sustainable economic growth and national competitiveness. Nigeria must transform itself into a capable state by doing away with what organizational sociologists refer to as isomorphic mimicry as well as premature load-bearing. Our policymakers must stop conflating development forms with functions – that is, presuming that what development looks like largely determines what they do.
Promote/provide basic property rights
these are essential. If Nigeria cannot guarantee private property, its protection and the right to exchange it, the development of a working market economy will at best be slow and invariably affect her competitiveness. The absence of secured property rights, a constitutional legal system, and enforceable contracts will make the country uncompetitive and development impossible. Markets work, and contribute to growth, only within a secure legal framework, which the government must provide.
Address the Shortage and Quality of Production Resources
Although the fundamental structures in the economy have been changing, production resources have been a decisive determinant of national competitiveness. Production resources in Nigeria remain short and low quality. In other words, the supply of inputs for the economy is insufficient in both quantity and quality such as lack of skilled labour, poor infrastructure (transport and electricity supply), and barrier of capital resources. Therefore, some measures are needed to fulfil production resources shortages in Nigeria in the coming years.
Reform Higher Education and Develop Vocational Education
The quality and cost of human resources are the defining characteristics of national development. Human resources must not only be efficient but also innovative and dynamic to proactively meet the continuous changes required by an ever more competitive marketplace. The basic skills possessed by human resources need to be further channelled into more specialized areas so as to fulfil specific tasks which require technical skills. The competitive supply of certain products and services require properly trained human resources, and efforts at maintaining a top-class vocational and higher education system are important components of the country’s competitiveness.
Create a favourable business environment
This can be achieved by simplifying regulations to eliminate bottlenecks, outdated laws and regulations as well as redundancies. Likewise, the underlying objectives of policies should be outlined before development through collaboration and stakeholder engagement – engage subject matter experts where necessary. The government should regularly undertake deliberate and focused fora to evaluate policy performance objectives and milestones achievement o Improve competitive rankings/assessments for Foreign Direct Investment (FDI) attraction and human capital.
Develop economic diversification strategy
Nigeria needs to continually develop short – to – long term plans with clear objectives where different levels of ownership and accountability are well defined, the country’s comparative advantage and exploit opportunities identified. Likewise, the required resources (human & capital) must be identified. Also important is to ascertain competitors, cost of production, customers for export trade. The country should also put in place a well-defined performance monitoring and measurement framework and milestones as well as process checks and controls in the public sector. All uncertainties around policies must be addressed so that the economy is made more attractive for foreign investment.
Improve Governance and Structures for improved productivity
Nigeria government should (must) leverage private and public sector partnerships (PPP) to share risk and increase business productivity, and at the same time restructure relevant governmental agencies to improve efficiency/decision-making.
In conclusion, Nigeria must create and foster all the crucial institutions that facilitate sustainable economic growth and prosperity. Trade policy, saving incentives, a financial environment conducive to investment, good governance, equitable income distribution, and the absence of crime and corruption are just a few of the institutional conditions that those in government must create and sustain. Taken together, these policies will amount to a national strategy, and the institutions will invariably create the necessary organizational structure required to translate the strategy into results.
The proposed economic strategy should answer the following questions should be asked:
o What is the unique competitive position of the country, given her location, legacy, endowments and potential strengths?
o What is our national value proposition?
o What role can Nigeria play in African Continent?
o What are the key strengths that we can build on?
o What weaknesses must be addressed to achieve parity with peer country?
Providing sincere and adequate answers to the foregoing questions is an essential requirement for the development of a National Economic Strategy that will pave the way for Nigeria to achieve a tremendous and optimum level of growth and socio-economic prosperity. As it is today, Nigeria needs an overall strategic framework, and not just lists of aspirations and weaknesses if she must systematically navigate her way out of her macroeconomic crisis.