Ari Aisen is the representative of the International Monetary Fund in Nigeria. In this interview with , he discusses the challenges confronting the Nigerian economy and what the government needs to do to address the problems
In Nigeria, we at the IMF always believe that the potential for growth can be much higher. But because of the shocks since the pandemic and the food price shock that came with the war in Ukraine, the country suffered quite a bit. It managed to grow by 3 per cent (last year). This year, we are forecasting 3.2 per cent growth rate. It could be higher. The economy is helped by the service sector, which is mainly responsible for the growth on the supply side of the economy. The oil sector has not contributed as much as it should have contributed, partly because investments in the sector have been very low and partly because of leakages, particularly oil theft. This has reduced the ability of the country to produce a much higher volume that would be closer to the quota given to Nigeria.
These issues are gradually being addressed and we are hopeful that they will continue. The potential is intact. Throughout these crises and through the years, we have observed that the ICT sector has become very strong. It just shows the capacity and ingenuity of the youths and talents in creating new digital opportunities in telecommunications, financial services. We have been observing these and taking notes. We think that this is the way to go. The private sector is the main engine for growth in the economy, and it needs a good macroeconomic and business environment with macroeconomic stability to help with predictability.
It is important for Nigeria to achieve this macroeconomic stability because with the funding squeeze that we are experiencing, it is going to be very important to rely on your own resources, from appropriate tax management to raising and mobilising more revenue. To achieve this macroeconomic stability, you need a better fiscal balance so that the fiscal authorities will be in a much better position to look at the social spending, the infrastructure spending and also assess what will be needed for the private sector to further contribute to the growth of the economy.
This is because our projections indicate that despite the cash crunch that we had in the first quarter of the year, when the bank notes swap was happening, the economy will recover over the next quarters of this year. We are also assuming that oil production will pick up in the right direction. We see the service sector continue to support the economy as in previous years. Ultimately, we think that 3.2 per cent still makes sense for Nigeria. Of course, a much higher growth rate is possible, but in our view, it will require some reforms.
This is a very complex situation. It is not simple to achieve diversification. The first thing that we have to recognise is that conducive macroeconomic environment, stability and predictability are very important both on the exchange rate front and the fiscal fundamentals as well as monetary policy because this will show the horizon and the clarity needed by domestic and foreign investors to bring resources to foster economic growth in Nigeria. It can be done with structural reforms. Those investments will be able to create employment and create opportunities for diversification.
Nigeria is a large economy. It can tap into trade, increase its productivity and export to different regions. So, there are opportunities, but it is important to have policies; both macro and structural policies that are conducive for the private sector, which is the main engine of growth. This will diversify the economy into new areas of production. There are going to be challenges along the way. Infrastructure may not be optimal. You need roads; you need electricity. So, these have to go hand in hand; but the focus should be the private sector and the main engine for growth while the public sector creates the right environment for businesses to thrive.
The IMF does not engage in projects specific to sectors. The IMF focuses on macroeconomic stability. Of course, other development partners engage directly in sectoral policies and specific projects. For example, the World Bank, the African Development Bank, the Islamic Development Bank can and should support Nigeria to straighten its energy sector.
We always advocate policies to stimulate industrialisation and diversification. But they need to be very well designed to avoid creating more problems. In the context of Nigeria, I would like to mention two structural issues that go beyond the traditional macroeconomic policies and the goal of achieving stability, which, in itself, is going to be very relevant.
The first one is trade. Nigeria has a huge potential to be the hub of trade. It has more than 200 million people. It can attract production and demand from the entire region. So, this is a golden opportunity for Nigeria to really establish itself as a hub for the entire region and maximise the potential of being the giant of Africa. Here, we need to pay close attention to making sure that trade flows accrue to Nigeria. Because of this, we are trying to support, for example, Customs in terms of technical assistance, capacity building, making sure that non-tariff barriers and procedure at the ports and borders can be improved and made more efficient so that Nigeria can export more and import appropriately, the goods (inputs) that it needs. Smuggling should also be contained. So, this is an area where I see extreme unused potential. With better policies, and tariff and non-tariff barriers being brought down, I think Nigeria can benefit a lot.
The second one is agriculture. There should be specific discussions on the issues faced by the agricultural sector. We have reflected that agriculture employs a large share of the population in Nigeria. Their welfare is critical. The success of the sector could be essential for this economy to prosper. So, we have reflected a lot on the availability of fertilisers, seeds and market infrastructure. Anything that can be done to boost the productivity of the agricultural sector will favour the welfare of the people living in the remote areas, which is the nerve of agriculture and will bring rewards to the economy as a whole.
We have to recognise that there are shocks of external nature that cannot be anticipated. They happen quite often. But what the government can do to be able to survive those shocks is to create buffers. Buffers play a major role. It was not the IMF; it was not economists; it was Joseph who said in the Bible that we need to save in good times so that when we have bad times, we will be able to deploy resources to withstand the effects of an unexpected shock. I think that this is something many countries, including Nigeria, have not really paid close attention to.
Let me give you an example. Last year was a year in which oil prices were very supportive. Some countries were able to accumulate reserves. If you go to countries in the Persian Gulf in the Arab Penninsula, they were able to accumulate international reserves. In Nigeria, it was not possible to build buffers in the midst of a tremendous trade shock, with oil prices so supportive. This needs to bring a deep reflection, because it is an anomaly. Because in good times, you should accumulate buffers so that when bad times come, and they will always come, you can withstand these bad times. Where are the buffers that you have accumulated in good times? So, the adjustment comes because the buffers were not made in the good times. This can only happen with good tax administration, reliable sources of funding, budget integrity, good governance, transparency, and accountability.
