• Monday, July 15, 2024
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BusinessDay

Sense and nonsense of Nigeria’s economic crisis

Nigeria’s promise fades as economy stutters

ANigeria is probably in the worst economic crisis of a generation, screamed The New York Times on June 11th, 2024. Two other influential global publications, Foreign Affairs and The Economist, had earlier said the same thing under different headlines. Although Nigeria’s economy is not yet in a recession, all other economic indicators have gone south, and the curve is not bending in the short run. Statistics on inflation (above 33 percent), youth unemployment (above 50 percent), poverty levels (over 133 million multidimensionally poor), the value of the Naira (over 200 percent decline against the dollar in the past year), education (18.3 million out-of-school children), healthcare (inadequate health facilities and professionals), insecurity (144th position in the 2023 safest countries in the world ranking), and homelessness (24.4 million people without a home) are frightening. More than ever, Nigeria needs crisis leaders to turn things around.

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Great leaders have always come up to guide their countries out of the worst crises throughout history. The American people looked up to Barack Obama in 2008 to lead the nation through its worst economic crisis since the Great Depression. He conducted many consultations and made critical but well-considered decisions to lay a new economic foundation. We are in an “economic war’ and cannot use the tools applicable in normal times.

Leadership during normal times is different from leading in the storm, which is the subject of my forthcoming book. The expertise and skill set required for both cases are different. The dynamism and multiplicity of socio-economic and political factors converging to create the Nigerian volatile ecosystem are such that effective crisis leadership is needed at all governance strata. Although required in normal times, these crisis leadership competencies are most relevant during a crisis. They include sensemaking, effective decision-making, team coordination, facilitating learning, emotional intelligence, and effective communication. It is the masterful use of these competencies that makes great crisis leaders.

The commentators have attributed our present economic crisis to a cycle of thoughtless policies, squandering governance, negative or low investment in innovation, uncoordinated economic thinking, and placing politics above commonsense economic frugality. It is also true that our poor understanding of the interplay of global events and their impact on local economic factors also contributed. The consequence is the country’s inability to respond to vulnerabilities, shocks, and opportunities.

Read also: Economic crisis: Triple blow for Nigerian families

Nigerian leaders must understand the complex circumstances surrounding the current economic crisis by focusing on historical and immediate causes and potential solutions. Sensemaking is crucial for effective crisis leadership, especially in diverse environments like Nigeria. It involves gathering information, exploring perspectives, and understanding complex situations to guide decision-making and action. During the economic crisis, sensemaking helps leaders understand its scope, identify root causes, anticipate impacts, and develop appropriate responses.

Leaders in Nigeria must understand the historical context of the economic crisis, considering its cultural, ethnic, and economic diversity. Effective crisis leadership involves understanding the complexities of the crisis, their influence, and potential responses. Historical issues like colonial legacies, policy missteps, structural inequalities, and global turbulence can contribute to the crisis. Leaders must identify and interpret economic, social, and political signals.

The economic crisis is often framed narrowly, as it is inherited and requires tough actions that may cause short-term pain for long-term prosperity. This framing can be dangerous as it may sound like an excuse rather than a creative strategy to address the issue. It can lead leaders into a state of inertia, as they are unable to take action when there is a real threat to their economy. Therefore, it is crucial for leaders to carefully consider their framing when dealing with complex issues.

How this economic crisis is communicated to the public and stakeholders influences their perceptions and reactions. Effective crisis leadership involves framing and communicating the situation in an understandable and actionable way for diverse audiences. Little wonder Nigerians are at a loss regarding our political class’s perceived poor choices. The government needs to rethink its crisis communication strategy.

Economic crises are unpredictable and require leaders to adapt their response strategies and understand the issues. Involving stakeholders like experts, community leaders, and affected populations provides comprehensive insights, enabling informed decisions that benefit the greater good. Examples include government prudentialness, quitting luxury spending, reducing taxes to encourage savings and investment, fixing security to boost investment, and borrowing less from external sources.

Nigerian leadership’s ability to navigate economic crises is crucial. The 2016 recession, triggered by a drop in oil prices and policy challenges, was a prime example of this. The Economic Recovery and Growth Plan (ERGP) was developed to address these issues, focusing on diversification and stabilisation. However, it also underscored the need for consistent policy implementation and addressing structural issues. Despite this, Nigerian leaders have yet to learn lessons to apply in subsequent crises, highlighting the need for deeper understanding and strategic planning.

The second is the current economic crisis that has been exacerbated due to the implementation of fuel subsidy removal. Every Nigerian knows the need to remove fuel subsidies, but it takes work. Periodic attempts to remove fuel subsidies faced public resistance due to their impact on living costs and inflation. Our leaders needed to balance fiscal sustainability with socio-economic impacts. Understanding public sentiment and economic realities was crucial in framing and communicating subsidy reforms. Subsidy removals were often met with protests, highlighting the need for transparent communication, phased implementation, and accompanying social protection measures.

However, the hurried end of the subsidy without mapping the multiple scenario implications and making adequate provisions to cushion the impact threw our economy into a whirlwind of desperation, and the repercussions have been devastating, as indicated in the above economic statistics. Developing multiple scenarios based on different interpretations of the crisis helps prepare for various potential outcomes. Effective sensemaking includes proactive risk management and contingency planning. Lack of effective policy management is creating more public angst than the actual policy itself.

The third is the unintended devastating impact of harmonisation of the exchange rate during a period of dollar crunch and scarcity without remedial provisions for the inflationary implications of a devalued naira in an import-dependent economy. The naira has collapsed by over 200% in the past year, forcing the prices of all imported goods to follow suit. The combo of exchange rate-induced inflation and subsidy removal inflation has resulted in the worst inflation rate in a generation in Nigeria.

Crisis leaders are problem-solvers. They can adjust plans, policies, and responses as new information is gathered or situations change. This means listening to stakeholders, voices of reason, and experts. The recurring question throughout this economic crisis is: Where are our crisis leaders? Political leaders are poor crisis leaders because they fail to recognise the warning indications of impending challenges and rarely put the lessons they have learned from past crises into practice.

Decision-making in a position of leadership is challenging. It is more significant when a decision impacts the lives of numerous individuals. Our leaders at various levels have yet to appreciate this. Decisions are often made without the rigour of clear thinking or fall back to the narrow framing of A or B. Lack of strategic foresight and thinking abilities manifest in most of our decisions.

Therefore, Nigerian leaders must deeply analyse the crisis’s economic, social, political, and cultural dimensions. This involves understanding both macroeconomic trends and grassroots realities. They should engage with various stakeholders to enrich the sense-making process. Collaboration with experts, community leaders, and international partners provides diverse insights and fosters collective action. Sensemaking is not a one-time activity but a continuous process. Leaders must remain open to new information, willing to reassess situations, and ready to adapt strategies as the crisis evolves. Transparent and consistent communication will help them manage public perceptions and reactions.