Nigeria 2023: ‘Tinubu is committed to removing subsidies but offers a cushion for the hardest hit’ – Wale Edun

Should Tinubu cross the finish line ahead of his rivals in this month’s elections, Edun is tipped to become Nigeria’s finance minister.

He speaks to The Africa Report about how a Tinubu-run administration would manage an economy on the cliff edge of financial free-fall, with a ballooning public debt of some $170bn as state revenues are depleted by illicit financial flows costing tens of billions of dollars a year, and criminal cartels stealing some 400,000 barrels a day of oil.

Together with Tinubu, Edun has set out several radical economic reforms:

• ending fuel subsidies (costing an estimated $7bnn this year) immediately;
• letting the naira float against the dollar and stopping what Edun calls the “exchange rate subsidy”;
• boosting oil and gas production and sealing the revenue leakages;
• and calling time on the historic and inefficient regime of tax waivers and tariff exemptions.

All together, according to Edun, this would save the country some N24trn ($52.1bn) – roughly the quantum of Nigeria’s budget for 2023 – all without borrowing a kobo (a monetary subunit of the naira).

With one of the lowest tax to GDP ratios in the world, Nigeria’s big problem is revenue not debt, insists Edun. And that translates into a lack of funds for public services, investments in health, education and infrastructure.

A technocrat to his fingertips, Edun was recruited as an economist by the World Bank in the 1980s before taking on a series of senior posts with investment banks in Wall Street, such as Chase Manhattan and the ill-fated Lehman Brothers.

On his return to Nigeria, Edun was appointed Commissioner of Finance in 1999 after Tinubu won the governorship of Lagos state as the ruling generals returned to the barracks. Along with fellow technocrats, such as Yemi Osinbajo, Edun launched key economic and social reforms in Lagos.

Against that progress, there was a slew of allegations of opacity, political patronage and the vexed matter of private consultants gouging vertiginous commissions for collecting state revenues. It seemed, to many, that the technocrats were out-manoeuvred or co-opted by the political contractors.

Would such concerns haunt a Tinubu-led government at the federal level in Abuja? Edun sat down with The Africa Report’s Ben Ezeamalu to discuss Nigeria’s current economic realities and explain the rationale behind Tinubu’s policy platform.

The Africa Report: How would a Bola Tinubu presidency change Nigeria’s economy? What would be the priorities in his first 100 days?

A Bola Ahmed Tinubu presidency will focus on accelerated and inclusive economic growth, to drive broad-based, inclusive, double-digit economic growth. Tinubu said ‘you have to set a ceiling of at least 6% growth per annum because anything below that will not start denting poverty, not to talk of to start reducing it’.

Between 6% as a minimum and at least 10% growth as the target […] year after year is what Tinubu believes will take us to a better life for all Nigerians.

The backbone to that will have to be improving the overall environment: First of all national security and an enabling environment for business, particularly the sanctity of contracts; […] more efficiency in settling legal cases and disputes […]; tackling the monetary and fiscal issues to encourage the private sector to take up their role as investors; improving productivity by their investments; growing the economy; creating jobs [and] reducing poverty.

In addition to Nigeria’s private sector, the idea is also to open the flood gates to foreign investors. Tinubu’s view is that it is when local private sector investors come in that foreigners will also be interested.

We know what foreign direct investment can do to help economic growth. Portfolio investment, which is part of a people that want to play in a vibrant financial market, is an important aspect of funding economics and part of having a vibrant financial market.

People want to come in, they want to invest for returns, they want to invest for speculation even within limits. All that is seen as part of the environment in which the company can thrive.

How does Nigeria strike a balance between attracting international capital and stimulating its own industry?

It’s really a question of stabilising the macro environment. For the general investor to come through the front door and make his investment on an open and level playing field, you need a macro-economic environment that is conducive and you need stability.

When we talk about the exchange rate, interest rate, budget deficit level of the government, its debt levels, […] inflation, those are all key elements of what needs to be in balance to have macroeconomic stability where an investor can plan, can forecast, and base his investment decisions on such analysis …as opposed to being surprised at every element or being faced with galloping prices in which nobody can plan properly.

Given Nigeria’s abysmally low tax-GDP ratio of around 6% how might we boost revenue?

What you are touching on is part of the issue of [an] unstable macroeconomic environment. The government does have a revenue problem.

When we look at the ratio of government spending to GDP it is about 10% of GDP. Elsewhere, even in other African countries, it’s 30%-35%; and in some European countries, some Scandinavian countries, it’s over 50%.

It’s not so much that [the] government is borrowing too much; [the] government needs even more money to provide the basic services, to provide the key elements of infrastructure, social services, and public goods in general to a growing economy and a growing demographic, sprawling urbanisation and so on.

[The government] has a revenue problem. There are limits in terms of borrowing, we have overborrowed from the Central Bank, way beyond the statutory or legal limit.

In America they are talking about the lending limit or the limit of financing by the federal government and its borrowing limit. [Here], the Central Bank opened the tap and allowed the government to carry on spending and that is part of the inflationary pressure.

Asiwaju Bola Ahmed Tinubu, in his action plan, pointed out that there is revenue to be earned from [cutting] the fuel subsidy, it’s up to N7trn per annum. A removal of that subsidy is what he has promised.

He has also pointed out that [while] he’s committed to removing it, [he] is also committed to providing some sort of cushion for the hardest hit, for the most vulnerable; so he’s not just going to leave them behind.

His intention is to remove subsid[ies] for the efficiency of the economy and the people as a whole and increase the budgetary funding, not just at the federal, but state and local government level, because they are all paid a share of that subsidy; so that will give about N7trn.

If you look at the exchange rate subsidy –  which is as a result of the differential between the free market and the official exchange rate – there may be another N5trn or so. That’s N12trn, [which is] already over half the size of the budget from two areas.

Then you still have another N7trn or so. They say N10trn is the estimated revenue that we expect to earn in 2023. You are almost up to the size of the budget estimated for 2023 without even borrowing.

When you add to that the fact that oil production has been depressed through loss of production, broken pipelines, damage, vandalism and outright theft – you’ll even have the federal budget funded totally from saving on the subsidy and stopping revenue leakages.

The other area of revenue opportunity cost that he has pointed out is that there are a myriad of duty waivers, tariff exemptions, tax exemptions and general incentives which, on closer examination, we may find that there is a lot of room for savings there. That is worth over N5trn a year.

A more efficient and a better managed incentive regime may not only encourage foreign investors, giving a more level playing field and more transparency, it will also lead to actual savings.

On the debt side also, the key element there is apart from finding revenue as opposed to looking to borrow more, there is the action plan, which the proposed Tinubu presidency has put forward; […] borrowing will be done through the market – by taking a case to the investment bankers, the investors and pension managers and saying: ‘this is what the government wants to borrow, this is what they want to use it for’.

[This also includes] taking money through a normal process, through the open market so there would not be breaching of the statutory limits of Central Bank financing of the government, ‘ways and means financing’ as we call it, is an important part of stability of financial markets and also the credibility.

What are the infrastructure priorities and how can they be financed?

The key one is power. There [should be] a willing-buyer, willing-seller decentralised franchise model. It’s not a one-size-fits-all solution; so there are those in industry, there are those in commerce who can and are willing to pay more and those people are willing to pay a price, which allows an end-to-end investment, so the gas producers can get paid so they will invest in producing gas.

The generation companies can get paid a return that makes sense to them so they too will invest in generation; and, of course, the end user is willing to pay a price that makes sense to them so the distribution company can invest in providing them power, distributing it to them, making investment in transformers and other transmission and distribution equipment which the current tariff doesn’t allow.

The generating companies (Gencos) claim they have enough power but the distribution companies (Discos) aren’t buying it.

That’s because of the tariff. It’s when you have a buyer that is willing to pay a price that makes sense to you – otherwise why take the power and give it to someone that won’t pay or won’t pay enough? All it takes is encouragement of investment in that area and it will free up power for what we can call social uses or social objectives, whereby those who pay a lower tariff actually can get power and are not totally excluded or crowded out.

Tinubu has promised to push oil production up to 3 million bpd to pay for his programmes but industry experts say this is fantasy. What’s the thought behind this?

I think what he is emphasising is that gas is really the area that we would grow …where we have the big opportunity, big reserves and opportunity to turn gas into feedstock for petrochemical products and petrochemical complexes – from fertiliser to chemicals to raw materials for the textile industry, for the rubber industry, paint industry and so on and so forth.

The Petroleum Industry Act (PIA) has [been enacted] and whilst it may need few adjustments here and there, our presidential candidate believes it gives a basis for rejuvenation of investment in even crude oil production.

[…] there is a natural transition from multinationals to national companies, so there are those ready and willing to invest in the oil sector, to boost production provided the terms and conditions, fiscal conditions and physical conditions, make sense to them.

One of the areas in which the PIA gives room for manoeuvre, which could draw in investment, is that the companies, the joint ventures can be incorporated. These joint ventures could be listed [on the stock exchange and] it allows them access to financing.

It gives them greater visibility [for] their operations, […] the governance of their finances [and] the reporting requirements they are required to adhere to. In addition, it provides room for participation by Nigerians. It provides room for partial sales of equity, whether to joint venture partners, international investors, Nigerian investors [and] Nigeria pension funds.

It provides a source of financing and access to improved governance structure and perhaps multinationals [as well as] joint venture partners, who with the ability to follow the Liquefied Natural Gas model, may find that their interest in investing is rekindled.

The transition away from fossil fuels is focused hugely on the multinationals, but it’s also important to say that post-Covid-19, post-Ukraine war, things have also changed in that direction.

[However, the economic realities have people in Europe refiring coal mines that they were shutting down and so and so forth.

At a campaign rally, Tinubu voiced frustration with the federal government over the shortages of fuel and new naira banknotes – what effect will these have on the election?

The presidential candidate, Asiwaju Bola Ahmed Tinubu, is a man full of empathy. He ruled successfully in Lagos. What we see in Lagos today is a function of investors coming in, feeling comfortable and having a legal framework and legal institutions that make them feel that their rights are protected as investors.

By the same token, he has also always felt empathy for the common man, so his frustration at the petrol queues, his frustration at the pains people are going through in terms of changing a currency is essentially speaking up for the common man.

Leaving aside the advantages and disadvantages, the arguments for and against some of these policy decisions and actions, what he is focusing on is the outcome.

As the outcome of decisions people have made, the poor and the rural dwellers are suffering. They are less banked, so they are less able to take what money they have and put [it] in a bank and transfer electronically.

Some of them are miles from the nearest bank and yet they have to get to a bank, otherwise the money they are holding becomes useless. That’s a very worrying thought and the leader expressed his worry for that reason.

The second thing is that the pain of the petrol queues is more an urban thing but, yes, it is still the commercial drivers, danfo drivers, taxi drivers, bus drivers that mostly feel the pain.

Many have tipped you as the next finance minister should Tinubu win. Is that on the cards or do you have another job in mind?

[As we approach] the election, what matters […], from my perspective and the rest of the economic and policy team, is to [pass] the message that an Asiwaju Bola Ahmed Tinubu presidency and administration will make life better for all Nigerians by growing this economy and reducing poverty.

He would use the private sector, doing what it takes to attract the private sector, attract domestic investment and our own fair share of international investment and totally change the game as far as economic growth and development in Nigeria is concerned.

There is an election to be won. Anything beyond that is very premature and some might even say presumptuous. If you have any experience of the political terrain you would know that there is no predicting how things will turn out. They are bridges you cross when it’s time.

In 2015, you were tipped as the finance minister for the incoming Buhari administration?

Exactly, but I think the point is that the excitement is that there are opportunities to turn around the fortunes of this economy given the human resources and the agricultural resources and land mass, the water resources, the geographical advantages.

Nigeria has no reason to be where it is in terms of the pecking order of successful economies, […] so bringing that success to this economy and this society is the aim and objective of Asiwaju Bola Ahmed Tinubu. It is exciting being part of putting together the nuts and bolts of day to day policies and actions that will achieve that objective.

Do you agree with the central bank governor’s policies?

The governor has made certain decisions and he has explained them from his perspective. What we see is the fallout as at this moment. He may be proved right in the end.

[However], as of today, people would say that the timing of the action is probably not optimal, from what they can see. Even the action itself, it could have been done in a way, which is less stressful on them.

It’s a normal thing to do some of these things that he is doing, particularly change of currency, tightening up the security of policy. Every country does it, but it’s the way and manner, the timing and the sequencing that people have issues with.

Why do you think these elections are so important?

We are on the verge of historic change. There has to be democratic change, that in itself will be historic because it further strengthens the democratic tradition in Nigeria.

[A]round the world democracy is under attack, even in the bastions of democracy, the so-called advanced world. There is a move to the right. There is a move away from respecting the will of the people and respecting democracy.

[…] it is to our credit that we are once again accepting the challenge of democratic procedure, of democratic change of government. […] we are all […] determined [to make it] a successful transition, a peaceful transition, above all.

That is what we need at this time to keep moving forward.