Nigeria, once again, demonstrated that it has the mettle to confront tough economic situations. Apart from making its voice heard, the country recorded some wins by getting positive reviews on its economic reforms and even appointed as Chairman of the African Governors’ Forum of the World Bank. Assistant Editor NDUKA CHIEJINA reports.
Nigeria, at the just-concluded 2023 annual meetings of the World Bank and the International Monetary Fund (IMF) in Marrakech, Morocco, had a successful outing as she became the most sought-after investment destination. The Minister of Finance and Coordinating Minister for the Economy Mr Wale Edun, had five days of hourly back-to-back meetings, marketing Nigeria’s potential to investors.
His trump card was the economic reforms the Bola Ahmed Tinubu administration is implementing. It appears the international economic community has been waiting for these reforms to spur them into looking at Nigeria’s way to channel investments into the country’s economy.
In May 2023, Charlie Robertson of Renaissance Capital told The Nation that “investors do invest to make profits. So, a change in policy that lets investors take those profits will be welcome. The problem is winning back the trust of investors who have twice been scarred by 2015 to 2017 and 2020 to 2023 foreign exchange restrictions.” By June of the same year (a month later), he said: “Nigeria has become investable again. Attracting foreign money is wise when local savings are in short supply.”
What brought about the change were essentially the twin decisions to remove subsidies on petrol and allow the value of the naira to be determined by market forces. As expected, these reforms have brought on severe hardship on the masses, characterised by high inflation. However, there have been gains too as the country has made significant savings from resources that could have been used to fund subsidies.
In Marrakech, Edun explained that during several important meetings, such as those with the World Bank, International Finance Corporation (IFC), European Bank for Reconstruction and Development (ERBD) and other international banks, Nigeria’s reform efforts were recognised and praised on a global level. These efforts are believed to have the potential to lead Nigeria towards economic recovery. He emphasised the importance of gaining access to investment capital, particularly from the private sector, on a large scale, which indicates that Nigeria is seeking significant financial support from private companies to fuel its economic growth. Additionally, he stressed the need to support the development of the private sector, indicating that Nigeria is focusing on creating a favourable environment for businesses to thrive.
Meeting with institutions
At various discussions with institutions such as the International Monetary and Finance Committee (IMFC), the International Finance Corporation, the Islamic Development Bank and the British Government, it was agreed that domestic revenue mobilisation is a critical component of Nigeria’s long-term path to sustainable development finance. The Nigerian economy, it was agreed, is not immune to these global headwinds and the overall geo-political fragmentations as a result; fiscal consolidation remains the preferred policy option for many countries so that buffers can be built after long years of stimulus.
The major issues of concern to those who gathered for the meeting, Wale Edun said were those of food and energy insecurity risks, rising poverty and inequality, which are key concerns, especially in low-income countries. At the IFMC meeting where he represented 22 Sub-Saharan countries, Edun highlighted that longer interest rates have amplified debt service burdens and capital flow reversals. He then called for continued multilateral cooperation to tackle debt challenges which supports the G20 Common Framework and the Global Sovereign Debt Roundtable.
As the leader of the Nigerian delegation to the meetings, the Finance Minister emphasised “the strengthening of the IMF Global Financial Safety Net to serve the needs of the membership, especially the more vulnerable ones. “This includes the successful completion of the 16th General Review of Quotas and the creation of 3rd Chair for Africa–to be occupied by Sub-Sahara Africa.”
At the Development Committee of the World Bank, discussions were held about the ongoing World Bank Group (WBG) evolution agenda which is in response to the G20 Independent Panel on Capital Adequacy Framework. “We encouraged the World Bank to remain focused on the twin goals of poverty eradication and shared prosperity while enhancing its operating and financing models so that it can cope with increasing trans-border and global challenges and avoid needless trade-offs. We emphasised the need for a robust framework that would enhance global liquidity for the purpose of settling the balance of payment, fiscal crisis and reduce the cost of borrowings. We reflected on the increasing poverty level in low-income countries and called for a robust International Development Association (IDA) 21 Replenishment,” Edun said.
At the G20 meeting, which is a gathering of the world’s major economies and an important platform for discussing global economic issues and coordinating policies, the Minister of Finance commended the international community for their timely response and strong progress on the implementation of the G20 Capital Adequacy Framework. The G20 Capital Adequacy Framework is a set of regulations and guidelines that aims to ensure that banks have enough capital to withstand financial shocks and maintain stability in the global financial system.
Some recommendations were made regarding the Capital Adequacy Framework. The first recommendation was the reduction of the policy minimum Equity-to-Loan ratio to 19 per cent. The Equity-to-Loan ratio is a measure of a bank’s capital strength and stability.
By reducing the minimum ratio to 19 per cent, it means that banks will be required to hold less capital in relation to their loans. This could potentially free up more capital for banks to lend or invest in other areas.
The second recommendation was the removal of the Statutory Lending Limit from the International Bank for Reconstruction and Development (IBRD) Articles. The Statutory Lending Limit is a regulation that restricts the amount of loans that can be extended by the IBRD. By removing this limit, the IBRD will have more flexibility in providing loans and financing for development projects.
The third recommendation was the increase in limits on bilateral shareholder guarantees. A shareholder guarantee is a commitment made by a shareholder to cover potential losses or debts of a company. By increasing the limits on bilateral shareholder guarantees, it means that shareholders will be able to provide more financial support for the company if needed.
Overall, these recommendations aim at making the Capital Adequacy Framework more flexible and efficient; allowing banks and financial institutions to have more freedom in managing their capital and providing financial support. Edun, on behalf of Nigeria, expressed the country’s approval and appreciation for the efforts made by the international community in implementing these regulations. Additionally, he expressed Nigeria’s support for the recommendations contained in Volumes 1 and 2 of the G20-Independent Expert Report.
The G20-Independent Expert Report is a comprehensive analysis and assessment of global economic issues conducted by independent experts. Volumes 1 and 2 of the report contain specific recommendations and proposals for addressing various economic challenges.
By expressing Nigeria’s support for these recommendations, Edun has indicated that Nigeria agrees with the suggested actions and policies outlined in the report. This demonstrates Nigeria’s commitment to working with the international community to address global economic issues and promote financial stability.
On the contentious issue of crypto assets, the Finance Minister “commended the G20 Road map on Crypto assets which provided a global framework on crypto assets regulation and supervision, and urged that the implementation should be left with the Central Banks.”
The ultimate takeaway from all the meetings, Edun said, was that “during various plenary and bilateral meetings, including World Bank, IFC, ERBD and other international banks, we were encouraged that our reform efforts are being globally acknowledged and applauded as capable of putting Nigeria on the path to economic recovery.
“We emphasised access to investment capital, particularly from the private sector and at a large scale; as well as the need to support private sector development,” he said.
At the International Monetary and Financial Committee (IMFC) meeting, Nigeria called for the “elimination of export restrictions on fertiliser and grains, avoiding protectionist policies and leveraging the normalisation of supply chains and shipping costs to reinvigorate global trade.
Gains for Nigeria
At the Marrakech meetings, Nigeria assumed the leadership of the African Governors’ Forum within the World Bank Group. What this means is that Nigeria will help to set the agenda and push the case, for instance, for a third member of the Board of Governors from Sub-Saharan Africa. According to Edun, there are two from Africa currently, and the third one should come from Sub-Saharan Africa so that we have a bigger voice in the governance. We have more representation in the board of the World Bank Group and the IMF.”
While Nigeria will appreciate debt relief or forgiveness, she will not approach the matter in a beggarly manner.
On the issue, Edun said: “I think it’s not so much the issue of any debt or forgiveness, the issue is that Nigeria is very much on the narrative, particularly from investors. There’s a very good vibe, there’s a very good buzz and there’s a lot of interest in the Nigerian economy, in the reforms that are currently being undertaken, and of course, in the investment opportunities that the largest economy in Africa, the largest population in Africa, the most youthful population in Africa has to offer.
“In addition to that, of course, are the resources that are on the ground. So, when you put all that together, perhaps, China, India, and Nigeria is the next largest economy that is being sought after as investment destination; and what it takes is for the country to be ready to attract that investment, to turn the initial interest into investments in agriculture, in solid minerals, in industry, in manufacturing, in import substitution. These are all the areas where there is interest in coming to Nigeria and investing.
The government’s wish, he said, “is to grow the Nigerian economy to reduce poverty, make life better for all Nigerians, which is the determination of President Bola Ahmed Tinubu and, indeed, his whole administration. I think we are laying the groundwork for achieving that. He’s making the tough decisions and the reception is very positive. We’re here at the World Bank IMF meetings and so we get a sense of what the whole world thinks. Here you have the development finance institutions, but also you have the private bankers, you have the investors, you have the analysts, you have the rating agencies and the reaction from one and all so far is very positive.”
The minister noted that “despite funding squeeze, harder to get capital, and very high spreads, for several economies and exchange rate pressures, Nigeria has a growth forecast that goes from 3.3 per cent this year to 2.9 per cent next year, before going up to 3.1 per cent in 2024. There’s a downward revision for this year. Partly, this is because of the demonetisation, the high inflation, and the shocks to agriculture and hydrocarbon output.
At the Marrakech meetings, Edun was appointed as the Chairman of the African Governors’ Forum of the World Bank. The African Governors’ Forum serves as a platform for African finance ministers and central bank governors to engage with the World Bank on matters of mutual interest. The African Caucus, established in 1963, aims to strengthen the collective voice of African Governors. This appointment is significant because it is the first time in 60 years that Nigeria has assumed the role of Chairman of such a forum. It is seen as an opportunity for Nigeria to have influence in the implementation of President Tinubu’s Renewed Hope Agenda.
According to the International Monetary Fund’s guiding principles for the forum, the Chairman is determined through rotation based on the alphabetical order of African countries. This ensures that each country has the opportunity to lead the group, preventing one country from chairing the forum twice before others have had a chance to assume the role.
Global outlook
There are various economic issues and challenges faced by developing countries and the global community as a whole.
The IMF predicts that global economic growth will be at its lowest level in many years. This suggests that economies around the world are facing significant challenges and may experience slower growth rates. In response, decision-makers continue to push for raising interest rates in an attempt to stop inflation. Despite signs of easing inflation, policymakers are advocating for an increase in interest rates. The intention behind this move is to curb inflationary pressures in the economy, as higher interest rates can reduce consumer spending and borrowing, thereby slowing down inflation.
However, it was argued by some at the meetings that the flawed policy of raising interest rates means that more developing countries face debt crisis and food and fuel are too expensive for all. They criticised the policy of raising interest rates, arguing that it can lead to negative consequences for developing countries. Higher interest rates can make it more difficult for these countries to manage their debts, potentially leading to a debt crisis. Additionally, it can contribute to the rising costs of essential goods such as food and fuel, affecting people globally.
Some speakers highlighted the broader impact of the conflict in Israel and Gaza. They suggested that the ongoing conflict not only results in tragic loss of life but also has economic implications, affecting stability, global trade, and the well-being of vulnerable populations worldwide. The Sustainable Development Goals (SDGs) are becoming more difficult to reach due to the pandemic, conflicts, inflation, and the climate crisis.
The speakers, including Nigeria’s Minister of Finance, argued that achieving the SDGs, which are a set of global goals aimed at addressing poverty, inequality and environmental issues, is becoming increasingly challenging. Factors such as the COVID-19 pandemic, conflicts, inflation and the climate crisis are hindering progress towards these goals. Also, developing countries spend a significant portion of their budgets on debt repayment, which leads to the financial burden faced by developing countries.
These countries allocate a substantial portion of their budgets to repay debts, which can limit their ability to invest in crucial sectors such as healthcare and education. More than half of all countries are having trouble repaying their debts and meeting basic needs. A report on the work of the Global Sovereign Debt Roundtable indicates that there has been limited progress in addressing the challenges related to debt restructuring and relief.
However, Zambia left the annual meetings with a formalised debt relief deal with public creditors. This indicates that efforts are being made to address the debt burdens faced by developing countries.
The meetings agreed on more options for wealthy countries to use their emergency pandemic relief or Special Drawing Rights to help increase the ability of development banks to provide aid and lend. These measures aim to enhance the capacity of development banks to provide assistance and loans to countries in need. Some countries are increasing contributions to the IMF to increase low-interest lending to poor countries. This is intended to boost the availability of low-interest loans for poorer countries, enabling them to access financial support more easily.
A hotly debated issue at the meeting was IMF’s surcharges on large emergency loans which have added to debt burdens when countries are already in crisis. Speakers raised concerns about the IMF’s practice of imposing surcharges on large emergency loans. They argue that these additional charges can exacerbate the debt burdens of countries that are already facing crises, potentially worsening their financial situation. The IMF’s surcharge is a fee charged to member countries that use more than their IMF quota of currency reserves. The fee is intended to discourage excessive borrowing from the IMF and to distribute the cost of borrowing more evenly among member countries.
Surcharges are currently set at rates ranging from 0.25 per cent to three per cent, depending on the amount of borrowing in excess of the quota. It is anticipated that decisions regarding the augmentation of IMF resources to address crises will be made by the end of the year. However, they note that progress on voting reforms, which would likely impact decision-making within the IMF, appears to be stalled or delayed.
