There is no quick and easy solution to Nigeria’s economic challenges, the United States Government has disclosed.
The US Deputy Secretary of Treasury, Wally Adeyemo, who stated this at a forum with business leaders in Lagos, said the country lacks a macroeconomic framework to attract more dollar-denominated foreign direct investments into its economy.
He spoke at the Lagos Business School on the US–Nigeria Economic Relationship.
“There is no quick easy solution to those challenges, I want to be honest about that. That is what true partners are,” Adeyemo told his audience.
“But ultimately, we know that by helping to make investments in Nigeria economy in your businesses, especially, SMEs, we can help build a type of ecosystem that can help Nigeria be successful over time,” he added.
The US Deputy Secretary, who arrived in Nigeria on Sunday, is on a visit to the country as part of the President Joe Biden administration’s commitment to deepening the US – Africa economic and trade relationship.
According to him, while the early steps of the new administration will help the country attract investors, there are still concerns from the investors as regards the repatriation of their funds.
Adeyemo, who was responding to a question about investments and the Nigerian economy from the audience, said, “Nigeria lacks a macroeconomic framework that is going to help to bring more foreign direct investments including dollar-based foreign investments into the country.
“The early steps the government has taken is good in terms of what they have done (fiscal policy), in terms of what they are trying to do with unifying the exchange rates. More needs to be done and they recognise that. The truth is as companies around the world become more comfortable with their approach, you would expect that Nigeria would be a destination for FDI.”
Adeyemo noted that the government needs to develop a macroeconomic framework that demonstrates its commitment to the fundamentals and this will in turn help attract foreign investors to the country and help the country’s economy thrive.
According to the Deputy Secretary, proposed reforms by the Nigerian government will not have bring quick solutions because things have been difficult economically over the past few years due to to COVID, the Russian-Ukraine war, and a confusing exchange rate policy.
“We need to make sure that as you are making the transition, which will take longer than anyone wants, that you are taking steps to make sure that you are helping Nigerians who are feeling it the most. But I think the most important point, is that you need to put reforms in place that allows people to bring in capital into the country in a way that they are secured and can take their money out when they choose to and they continue to make investments,” he said.
According to him, America is bullish on Nigeria because of its people.
He stated that the recently introduced reforms in Nigeria were long overdue.
He said the US had made it clear to the Nigerian government that it wanted to partner in the implementation of the reforms.
He disclosed, “And this is not just the US, the World Bank, the AFDB, and other international institutions too. I know that before I came, I spoke to the president of the World Bank who has seen the president of the administration and is ready to work with them in terms of trying to help make the transition easier, especially for Nigerians feeling the pinch.”
He noted that United States is one of the largest foreign investors in Nigeria, with the country being the US’s second-largest African trading partner. He stated that the US government provided Nigeria with over $1bn assistance in 2022, to support Nigerians with access to health care and reduce food insecurity.
Since President Bola Tinubu began his tenure on May 29, 2023, he has implemented many reforms with the unification of the exchange rates and removal of fuel subsidy headlining these reforms.
The unification of the naira has pushed the exchange rate from N471/dollar to about N800/dollar. The removal of fuel subsidy has caused the price of fuel to surge from between N185 to N220/litre to N617/litre. These policies have contributed to a recent spike in the country’s inflation rate, which rose to 25.80 per cent in August.
According to the World Bank, 7.1 million Nigerians will become poor if the Federal Government fails to compensate or provide palliatives for them, following the removal of fuel subsidy.
The reforms have been met with mixed reactions, and recently the labour unions in the country embarked on a two-day warning strike.
While backing the unification policy in his speech, Adeyemo explained that a stable naira is good for the country and businesses. However, he highlighted that the path to unification will not be easy, but the government must be commended for taking the difficult step.
He said, “Unifying Nigeria’s foreign exchange rates will create the kind of macroeconomic stability that is essential to attracting foreign investment.”
He further stated that Nigeria should be more concerned with FDI that comes from companies that want to invest in its economy and people. He argued that Nigeria’s investment portfolio will increase once it sorts out its macroeconomic framework.
Commenting on the country’s security challenges, the US representative stated, “There are two different security challenges, but we are very invested in working with Nigeria to address them because the insecurity that exists in Nigeria doesn’t exist only within your borders.
“We know that to be the case. That is why America is interested in a strategic and economic partnership with Nigeria. We also want to ensure that we are making investments in communities all over Nigeria to demonstrate to people that there are economic opportunities in their communities that take them away from doing actions that hurt them and their communities.
“Part of this is making sure that we are investing in the security relationship between our two countries, which I know that when Secretary Blinken was here, he had an opportunity to speak to. As you know, or may not know, President Biden had the chance to see the new president on the sidelines of the G20 and talk about the security situations in the region and deepen our relationships.”
Rooting out corruption and the perception of corruption in the business environment is essential for the success of the reforms, Adeyemo pointed out.
There is a legitimate fear that corruption and mismanagement will impact the dividend of these reforms among Nigerians, according to him.
Adeyemo further stressed that Nigeria must prioritise the integrity of its financial system as part of its economic reforms.
He urged, “The cowardly kidnapper, corrupt official, and fraudster all are seeking to launder their money. Taking steps to make your banking system more secure will help reduce the ability of criminals, terrorists, and others to illicitly use the Nigerian financial system.
“I applaud the leadership of the Tinubu Administration in committing to work with the Financial Action Task Force to tackle money laundering and terrorist financing. Our government stands ready to help work through these steps and challenges in financial institution supervision, implementing controls in high-risk sectors, and pursuing investigations and prosecutions.”
The US official added that the 40 million micro, small, and medium-sized businesses in the country, which represent the beating heart of its economy, need government policy to go from being the problem to providing solutions.
Speaking with The PUNCH, Nigeria’s Consultant at ECOWAS Common Investment Market, Jonathan Aremu agreed with the US envoy. According to him, comprehensive reforms to boost productivity and attract foreign investments into the economy must begin with the power sector.
He added that many more reforms would have to be carried out in the areas of port infrastructure and enabling Small and Medium Enterprises to get easy and cheap access to credit to improve foreign direct investments in the country.
Aremu said, “Unless you use a mirror, you cannot see yourself very well, but somebody coming from outside may see better, what you need to do. We know that our power situation is not ok. Just as I always say, when God wanted to create the world, he said let there be light. It is only when you are wiser than God that you can produce when there is darkness.”
On his part, the Director of Research and Strategy at Chapel Hill Denham, Tajudeen Ibrahim, stated that key reforms are needed to boost government revenue beyond oil exports.
Ibrahim noted that foreign investors are often wary of the dynamics of the economic environment they plan to invest in, and would usually shy away from economies overly reliant on debt or a primary source of revenue, such as petroleum resources.
He said, “When we talk about reforms, there are some fiscal reforms that we still have to do. One very important reform are economic reforms that will underpin the ability of the government to generate substantially higher revenue and be less dependent on borrowing.
“We need reforms that will significantly boost our non-oil exports that will enable us generate higher forex inflows. Foreign investors may see the fact that we are trying to attract them as a trap if we face another foreign currency crisis, it will be like a trap to them.”
An economist with the School of Management and Social Sciences, Pan-Atlantic University, Prof. Bright Eregha, also agreed that there are no quick solutions.
He said, “It’s true, there are no quick and easy solutions to our challenges. That means there should be proper planning to take us to where we should be.
“Don’t forget that almost all the statistics are showing that we are not really doing well. This devaluation shows that Nigeria’s economy is not the number one (in Africa) if you compute the figures in dollars. The point is that where we have found ourselves, there will be no easy answers or solutions and as a government, we need to plan.
“One of the problems I have with politicians is that they are always short-term in their planning. After one election, they are looking at the next election. We need to set the foundation for Nigeria on the path of the desired outcome and to do that, we need to plan long-term. In that long-term plan, there should be short-term and medium-term solutions provided.”
The Chairman of the Foundation for Economic Research and Training, Professor Akpan Ekpo, in his opinion agreed with the US Deputy Secretary of Treasury, Adeyemo, but only to a certain extent as he believed that there were certain short-term measures that could be put in place to moderate the effects.
He said, “I agree to some extent. There are certain things to be done in the short term to help the economy recover. There are no quick but certain things can be done.
On needed reforms to attract foreign investment, Ekpo said, “Definitely, CBN should have some reforms. For example, they should build back their reputation. This will help potential investors to regain confidence in the apex bank. Also, when they constitute the board and the Monetary Policy Committee, it should be more of technocrats than politicians.
“Also, the CBN shouldn’t float the Naira. What they should have is what is called the ‘managed float.’ They should ensure enough supply of the foreign exchange and that can only be done by the CBN working with the fiscal authorities to ensure that the economy becomes productive; where our business people are able to export non-oil goods and services to earn forex.”