Tinubu’s Policies are Killing Manufacturing; That ’s Nothing to Brag About! -By Olu Fasan

A braggart by nature, President Bola Tinubu is never shy of boasting about what he, self-referentially, believes are his achievements in managing Nigeria’s economy. Recently, he boasted that his administration had met its revenue target for 2025 sooner than expected in August and would no longer borrow domestically. Speaking to members of a group called The Buhari Organisation, who visited him on September 2, Tinubu said: “Today I stand here before you to brag: Nigeria is not borrowing. We have met our revenue target for the year, and we met it in August.”

In a country where there are no independent think-tanks like the UK’s Institute for Fiscal Studies to provide credible and unbiased counterpoints, the Nigerian government and its agencies are the only purveyors of data and narratives on the economy. Yet, when presidential spokespersons – I call them sophists – and government agencies talk about the economy, they give the appearance of solidity to pure wind, à la George Orwell, and put lipstick on a pig!

Take Bayo Onanuga, President Tinubu’s special adviser on information and strategy. He recently tweeted: “The Almighty US dollar is not the ultimate king here”, just because the naira’s exchange rate was N1,525/$1 in August, as against a previous rate of N1,650. In another tweet, Onanuga said: “This is a watershed moment for our economy. For the first time in decades, oil is no longer the dominant driver of government revenue.” He was referring to the government’s announcement that non-oil revenue accounted for N15.69trn (nearly 75 per cent) of the total revenue of N20.59trn from January to August this year.

Well, both claims are wrong: The dollar is still king over the naira, and non-oil revenue won’t sustainably displace oil revenue as the government main source of revenue, not with Nigeria’s mono economy and diminished industrial base. The government would always paint a self-serving, rose-tinted picture, but someone should strip its claims of their hyperboles and present a true and balanced picture for informed public discourse.

Think about it. The government says the non-oil sector generated unprecedented revenue. But how? Given that the main source of higher fiscal revenue is greater economic activity, characterised by faster economic growth and higher productivity, did the stratospheric increase in non-oil revenue come from faster economic growth and higher productivity? Of course not! The Nigerian economy is trapped in anaemic growth, and productivity remains abysmally low – both would be considered incompatible with greater prosperity and higher fiscal revenue in any true market economy. So, what are the sources of Nigeria’s recent high non-oil revenue, despite the sluggish economic growth and low productivity?

Well, there are two main sources. First, Nigeria is a high-tax country, where multiple taxes are piled on businesses. According to the World Bank, there are 59 tax payments in Nigeria, compared with an average of 37 in sub-Saharan Africa. And, unlike its predecessors, the Tinubu administration has pursued an aggressive tax mobilisation agenda, using automation, digitised tax filings and stringent enforcement to rake in stupendous tax revenue. Of course, improving tax administration and revenue mobilisation is commendable, but if, in doing so, Tinubu behaves like the medieval kings who were simply extracting heavy taxes from the people to fight wars, he would be harming businesses and the economy. No country flourishes on high tax burdens, considered a disincentive to business growth and investment inflows.

The best way to generate higher tax revenue is to grow the economy and broaden the tax base, so as to spread the tax burden more widely through low taxes, not by attempting to squeeze water from a stone by aggressively enforcing an excessively high tax burden on businesses. Unfortunately, when the Tinubu administration brags about boosting non-oil revenue, it is, from a tax perspective, simply talking about forcing businesses to pay the multiple taxes imposed on them, not about generating higher non-oil revenue through private sector dynamism and faster economic and productivity growth.

But what’s the second source of the higher non-oil revenue? Well, it’s the massive currency devaluation, resulting from President Tinubu’s floating of the naira, its exchange value now determined by market forces, not government diktat. This matters because while crude-oil export is subject to prices determined by the international oil market through the interactions of demand and supply, non-oil exports are subject to the exchange rate of the exporting country’s currency. It’s basic economics that if a country’s currency is overvalued, its exports would be more expensive and, thus, unattractive to foreign buyers. However, if a country’s currency depreciates in value, its exports would be cheaper, making them more attractive to foreign buyers who would buy more of the products.

Now, what David Hume famously described as the “price-specie flow mechanism” is playing out in Nigeria: the naira’s devaluation is making Nigeria’s non-oil exports cheaper, and foreigners are buying more of them, resulting in higher export volumes and more inflow of foreign exchange, which when converted into the devalued naira amounts to quite a lot. Thus, from an export perspective, devaluation is the reason for the astronomical increase in non-oil revenue. But that’s not the whole story, and it is dishonest not to tell the whole story!

Recently, Tanimu Yakubu, Director-General of the Budget Office of the Federation, wrote a powerful article to defend the floating of the naira, titled “Notes on the Economy” He was absolutely right: there was no viable alternative. However, Yakubu utterly erred for, 1) conflating the floating of a currency with devaluation, and 2) talking glowingly about devaluation without acknowledging its downsides. First, a floating currency doesn’t have to depreciate massively. India operates a floating foreign exchange regime, but the rupee is INR87.65/$1. South Africa runs a floating forex regime, but the rand is ZAR17.41/$1. So, the naira’s whopping exchange rate of N1,525/$1 is not necessarily because the currency was floated but because the underlying economy is fundamentally weak: a currency is as strong as the economy that sustains it, period!

Now, coming to devaluation, I discussed its advantages earlier. In truth, currency depreciation only benefits countries that have value-added products to export and that have a strong tourism sector attractive to foreign tourists. Nigeria has neither. Yet, the negative effects of currency devaluation can be devastating to the manufacturing sector. For instance, naira’s devaluation has made imported goods more expensive, resulting in rising domestic prices and reduced consumer spending power, which has left manufacturers with rising unsold goods inventory, estimated to be N1.4 trillion in November 2024. Meanwhile, to tackle inflation, the CBN repeatedly raised the interest rates, currently 27.50 per cent, significantly increasing borrowing costs for businesses. Furthermore, naira’s devaluation has led to higher costs of imported intermediate products, which, coupled with shortage of foreign exchange, have increased input costs for manufacturers, reducing their competitiveness and profitability.

Recently, the Financial Times cited the Manufacturers’ Association of Nigeria, MAN, as saying that 800 manufacturers closed shop in 2023. Since then, several hundreds more would have done so. Yet, Nigeria’s real sector continues to face debilitating supply-side constraints, including high energy costs, excessive regulatory and tax burdens, such as the new four per cent import charge. When the Tinubu administration trumpets higher non-oil revenue based on a massively devalued currency, it ignores the knock-on effects on manufacturing, a major source of growth, productivity, jobs and prosperity. Surely, that’s nothing to brag about!