How states, local government can help spread gains of reforms

Nigeria’s economy is set to rebound in 2025 but states and local governments must actively play a role in ensuring gains of reforms are felt at the grassroots after painful reforms dealt a blow on households’ spending.

The recent economic reforms in Nigeria have led to a few positive developments, including the recent exchange rate stability, reduced inflation forecasts, increased business activity, and renewed investor confidence.

But Nigerians are growing out of patience as the economic pressures continue to shrink their wallets and plunge 129 million below the poverty levels as the reforms sparked an unprecedented price rise.

According to Olajide Oyadeyi, a UK-based macroeconomist and researcher, a combination of fiscal, monetary, and structural policies is necessary for these gains to be widely felt by businesses as well as households.

“Targeted fiscal policies are essential to ensure businesses and households benefit from economic improvements. The government may expand tax relief for small and medium enterprises (SMEs) to reduce financial burdens and encourage business expansion,” Oyadeyi said.

Read also: El-Rufai criticises sequencing of Tinubu’s economic reforms

Reducing Value Added Tax (VAT) on essential goods and services as stipulated in Nigeria’s Tax Reforms Bills means households whose incomes have been eroded get succor on rising costs.

Investment in infrastructure development, particularly transport, electricity, and digital connectivity, will help businesses reduce operating costs and increase productivity.

This, in turn, can translate into lower consumer prices and increased employment opportunities. Meanwhile, social protection programmes such as targeted cash transfers, school feeding schemes, and healthcare support should be strengthened to cushion the effects of economic changes on vulnerable populations due to the cost-of-living crisis in Nigeria today.

The worst is gradually getting over as different forecasts show positivity this year. Analysts have said the government needs to create a “price management” mechanism to cushion the pains of the radical reforms.

For Uzo Uchenna, professor of marketing at Lagos Business School, the government needs to “socialise these reforms” in a way of communicating its benefits and how it would improve citizens’ quality of lives in the medium to long term.

Uchenna added that businesses can stay more profitable if the new tax reforms that provided tax waivers for small and medium enterprises (SMEs) are passed and executed properly.

Read also:How tax reforms will benefit SMEs, Nigerians

“On the side of inflation, in Nigeria, when prices go up, they never come down. So, there has to be some creative way of price management and communication from the government and from the companies involved to get people to get some special benefits,” the university don said.

“If the prices are not going to go down, what are the special benefits to go with those prices? What are the packages that people will be able to get to justify why they should continue to pay a high price when inflation has come down? These are some of the things that the government will need to do,” Uchenna stated.

FAAC largesse yet to reflect on citizens’ living standards

In the wake of fuel subsidy removal by President Bola Tinubu, the monthly disbursement to the three tiers of government by the Federal Account Allocation Committee (FAAC) increased significantly.

With the jettisoning of the unsustainable subsidy which had cost the nation’s treasury over $10 billion annually, more funds are, thus, made available by FAAC to the states.

“The state governments have more money as a result of the reforms,” said Muda Yusuf, director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), adding that citizens’ wants and needs should be prioritised as a way of benefiting from the additional revenue.

Read also: FX-induced FAAC windfall dries up as naira stabilises

States like Sokoto, Bauchi, Jigawa, Zamfara have the highest poverty levels despite the, at least, doubled allocation. Being enmeshed in multi-dimensional poverty means citizens’ living standards are worse off.

Meanwhile, a report showed that 15 Northern states spent an approximate sum of N45 billion on different poverty alleviation programmes in the first six months of 2024.

“They should democratise their expenditure,” Yusuf advised, stressing that projects that are not of direct benefits to the citizens should be jettisoned while focusing more on agriculture.

“For many of the states, the dominant business in those states is agriculture. So we need to see a stronger presence of the states in the agricultural sector and whatever business that is dominant in their states,” he said.

Speaking on how states and local governments can be involved in the reform processes, Uchenna urged the FG to ensure transparency and accountability in the allocation of funds to the LGAs, emphasising the need for them to be educated on budgeting and financing “as soon as possible if we want to have the kind of growth and development we want to see.”

“I think at that level is to foster more public-private partnerships because those states and local governments are closer to industry than the federal level is.

“And they experience first-hand what these businesses are going through, what those sectors are going through. It would be very important for them, for each of those local governments to look at what drives competitiveness in the allocation,” the LBS professor said.

Read also: Local councils to receive direct FAAC allocations from January 2025

Oyadeyi noted that state governments should focus on industrial and economic diversification, leveraging their unique resources to boost local industries.

“For example, northern states can prioritise agriculture, Lagos can continue leading in technology and financial services, and the Southeast can enhance manufacturing and trade. Supporting these industries with infrastructure and investment incentives will attract domestic and foreign investors,” he said.

Improving the ease of doing business at the state level is also essential. Faster business registration processes, simplified land acquisition, and increased access to financing can encourage entrepreneurship and economic expansion within states.

Sharing similar sentiment, Babatunde Adesanya, an economist with the University of Abuja said state and local governments can help to improve governance by “increasing transparency, accountability, and efficiency in their operations” as this will help to reduce corruption, improve public services, increase trust in government and service delivery to the people at the grassroots.