Nigeria’s primary economic weakness is vulnerability to oil price shocks, something we experienced most recently in 2014, but the government is yet to implement the reforms needed to remove this vulnerability.
What makes reform so difficult in Nigeria? You can point to a lack of political will or vision, but just as strong is the public resistance to reforms.
Why do Nigerians resist reforms?
When shocks that reduce government revenues occur, it is wise to trim spending by reducing subsidies and increase spending on areas that would boost growth. These policy tweaks are necessary to drive inclusive and sustainable development.
Yet, as reasonable as subsidy reduction may be, it requires people to sacrifice present consumption for future benefits. In short, it tends to inflict temporary hardship. This is a hard sell in a country where people do not trust the government to deliver the future benefits. But without that bold policy choice, we remain stuck in the fuel subsidy and oil price cycle.
The scarcity of public trust
Public trust exists when citizens believe that government will act in their best interest. Without trust, it becomes harder for government to secure public support for reforms.
There is a global trust crisis. In the OECD, a group of developed economies, only 42% trust the government. This explains the broad shift to protectionist economics around the world.
In Nigeria, people do not trust the government. And so, they push back against subsidy removal and electricity price hikes. With good reason too, corruption and incompetence are rampant in Nigeria. The government has failed to protect lives and property, and essential public services like housing, roads, running water and electricity are a luxury. If people cannot trust the government with little, why should they sacrifice more?
Laudable reforms, tame acceptance
The Nigerian government is implementing programs that need public support. In particular, tax reforms intended to boost revenues have gone into overdrive. The Voluntary Asset and Income Declaration Scheme (VAIDS) offers amnesty to tax defaulters in exchange for tax settlement, and in Lagos State, new toll charges and land taxes are part of plans to boost Internally Generated Revenue (IGR).
These make sense, after all, Nigeria’s tax to GDP ratio is 6%, and this affects public service provision. But citizens are unconvinced, and this suggests a new approach is needed. President Buhari recently extended the VAIDS deadline, indicating the scheme has found little success. And in Lagos, the government is facing massive resistance to its new taxes. Without securing public trust, the reforms needed to develop Lagos will continue to suffer.
Credible Institutions come before public trust
Public trust is crucial for successful reforms, but this cannot happen without good governance. Good governance boosts trust in government, making reforms an easier venture. But, taxes are the price of good governance. Without tax revenues, the provision of public services will suffer. The Nigerian government has trudged along since the 1970s without taxes due to buoyant oil revenues. At a time when government revenue from oil has halved, and there is a greater need to provide services to support over 180 million people, taxes are needed to sustain government spending. Unfortunately, just as the government realises it needs its citizens, it has found out that these citizens do not trust it.
Research shows that institutions which promote good governance are necessary for public trust, with openness, inclusivity and accountability particularly important. Infamously, neither the NNPC nor the National Assembly has shown itself willing to open their budgets, and the absence of this public trust affects the implementation of reforms that will sustain the country’s development.
Securing public trust
Other nations show us how to secure public trust.
In South Korea, tax authorities undertook reforms that widened the tax base and secured trust through the Cash Receipt System for the informal economy. In Nigeria, this would mean that each time a person makes cash purchases, the transaction is recorded against the person’s phone number and the FIRS or state tax authorities keep an electronic record. The tax authorities benefit by onboarding new taxpayers, whose income can be profiled. The consumers and businesses gain through tax credits up to a certain proportion of their income.
The start of SURE-P in response to public dissent during the fuel subsidy removal saga of 2012 was an innovative way to show that monies saved will be invested in public services. However, the programme was stained by the same problems that it tried to solve - the lack of trust due to opacity and corruption. Perhaps, SURE-P could have achieved more if it had been independent, instead of implementing projects through MDAs notorious for failed projects.
The long road
The truth is there’s no fast track to achieving public trust. Countries without trust will take longer to build structures and institutions that encourage reform. For instance, an uncooperative legislature may derail efforts to reform institutions through constitutional change. Likewise, civil servants expected to implement these reforms may instead undermine them.
The Nigerian government must work to build credible institutions. Without this, the trust deficit will widen, and all attempts at reform will meet raucous resistance.
Subscribe to read more articles here.