Earlier this year, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, paid a 4-day working visit to Nigeria and the long-standing distrust of Bretton Woods’ institutions was again brought to the fore.

Not even the quick denial of an IMF loan programme by Ms. Lagarde could calm anxious Nigerians from flooding the social media with anti-IMF rhetoric. It’s worthy of note that the bias against the IMF is rooted in the implementation of the Structural Adjustment Programme (SAP).

The oil boom of the 1970s had profound effects on the Nigerian economy.

Government embarked on white elephant projects; the size of government expanded rapidly, with the attendant increase in corruption; rising wage and appreciating Naira made non-oil exports uncompetitive; and most importantly, government revenue base shifted from non-oil—mainly agriculture—to oil.

The boom increased revenue from about N633m in 1970 to over N15bn in 1980 and correspondingly, expenditure grew from ca. N839m in 1970 to N14bn in 1980. Tragically, oil prices and thus oil revenue dropped in 1982.

Government printed Naira and borrowed locally to finance budget deficit while reserves were drawn down to service foreign debt, settle trade arrears and pay current trade bills.

To rein in spending, austerity measures were introduced in 1984 but rather than allow the exchange rate to depreciate as a means of stimulating non-oil growth, government preserved an overvalued Naira. This resulted in the contraction of economic activity. By 1985, fiscal deficit had reached 4% of GDP; exceeding the 3% threshold.

Oil prices declined further in early 1986, escalating current account problems and thus, making foreign help inevitable. SAP was consequently introduced in June 1986 to reduce fiscal instability and achieve a positive balance of payments; restructure and diversify the productive base of the economy; reduce the number of unproductive state firms; and most importantly, settle foundation for sustainable and minimal inflationary economic growth.

Through SAP, Nigeria eliminated import licenses and marketing boards, lifted price control, launched privatization programme and started the deregulation of the financial sector. Resultantly, non-oil exports increased from N552m in 1987 to N23bn in 1995; industry as a percentage of GDP increased from 29.9% in 1985 to 46.0% in 1995; and foreign direct investments increased from $193m in 1986 to ca. $2bn in 1994 before falling to a little over $1bn in 1995.

But the implementation of SAP was haphazard as the crude price increase of 1990 again increased government spending and by 1992, budget deficit had increased to ca. 10% of GDP. “With foreign exchange reserves nearly depleted in early 1993, Nigeria’s authorities switched back to a non-price system of foreign exchange allocations, and the premium on free-market Bureaux-de-Change sales rose to 100 percent above the official exchange rate.

The 1994 Budget formalized this approach to foreign exchange allocations and prohibited free-market transactions at the Bureaux de Change,” the World Bank noted in a 1994 report on SAP.

The current low oil price has led to this ridiculous rationing of foreign exchange in what the CBN terms ‘demand management’. Of course, restricting foreign exchange spending is the easiest thing to but like Ricardo Hausmann once wrote, “the real challenge for a patriot is to obtain the largest amount of pie, not a large share of a small pie.”

The challenge therefore for President Buhari is not on how best to ration dwindling foreign exchange but on how to grow it via increasing non-oil exports, and there are plenty low hanging fruits in agriculture and manufacturing.

Maximizing agricultural output—for local consumption and exports—prevents the frittering of scarce foreign exchange on food importation rather than been spent on technology required for manufacturing.

However, it’s noteworthy that Nigeria’s vast agriculture potentials will remain untapped without land reforms to correct inequality in land distribution, efficient delivery of fertilizer and quality seeds to real farmers, and infrastructural support to facilitate storage, marketing and sales.

Inconsistent and bad government policies and infrastructure bottlenecks frustrate serious entrepreneurs. The current rigid foreign exchange policy is one example. It’s puzzling why President Buhari who promised to create jobs is doing further damage to the economy with his insistence on preserving an obviously overvalued Naira.

The argument against devaluation has always been that Nigeria is an import dependent economy and so, inflation rate will increase. However, it’s important to again remember that Nigeria is in this crisis because of the dependence on volatile oil revenue for foreign exchange and that ‘demand management’ failed in 1984 and 1994.

Devaluation will no doubt make imports more expensive but exports will become more competitive. “China’s leaders kept their currency undervalued, which made exports cheap, and these soared. China’s export had been less than a third of America’s. A decade later, China was the world’s largest exporter,” Evan Osnos wrote in his book, The Age of Ambition.

Devaluation—in the long term—is therefore a monetary tool to increase local production, diversify Nigeria’s foreign exchange base and deliver sustainable non-oil economic growth. Let me quickly state that devaluation is no end in itself. For starters, government must make it easier to do business. Nigeria is currently ranked 169th—out of 189 economies—by the World Bank in its annual Doing Business report. Moving into the top 100 economies by 2020 is a difficult but achievable task.

For years, Nigeria has tried unsuccessfully to achieve industrialization using import substitution. Protectionism has proved largely ineffective as imported goods are smuggled into the country through our porous borders resulting in loss of revenue to neighbouring countries and decline in manufacturing capacity as smuggled goods are often cheaper than locally manufactured products.

Exchange rate devaluation therefore provides that window to transit from import substitution to an export oriented growth strategy. However, government must avoid picking winners, but instead create competition among multiple entrants, tie incentives—cheaper credit, tax breaks, energy subsidy, etc.—to export performance and wean failing businesses off incentives.

Secondly, infrastructure—especially for exports—has to improve. Shawn Donnan, in a Financial Times feature, noted the high cost and long travel time of transporting goods on Nigeria roads: “To transport a 20-ft container from a ship landing at a port in Lagos to Jibiya (in Katsina State) took 14.7 days and cost $3,036.

In contrast, a journey of similar distance from the US east coast port of Newark to Chicago took just five days and cost less than $2,000.” But with an estimated N60trn infrastructure deficit and dwindling revenue, government can only do so much.

Hence, the private sector needs to play a much bigger role via public-private partnerships, but they will only deal if ventures will be profitable and market forces are allowed to operate better.

Furthermore, there are key legislations awaiting passage into law by the National Assembly and one of such is the bill to repeal the Nigerian Railway Corporation Act and enact the Nigerian Railway Act. Essentially, the bill seeks to liberalize the railway industry.

Thirdly, there needs to be consistency in government’s expenditure framework. Linking government expenditure to volatile oil revenue creates expenditure volatility that results in macroeconomic instability and exchange rate volatility, and these discourage investors. Government must therefore resist the urge to significantly increase expenditure—via minimum wage increment and reintroduction of subsidies—when oil price increases.

Boom times are meant for financial housekeeping in preparedness for the next oil bust when government may need to borrow to keep the economy going. But to do this, government has to be seen to be prudent, transparent, competent and futuristic.

Capital is the basis of economic growth. North-east Asian countries—Japan, South Korea, Taiwan and recently, China—understood the importance of aligning their financial systems to agricultural and industrial objectives.

Though the liberalization of the financial system in Nigeria increased the number of banks from 32 in 1983 to 120 in 1992, it however failed to reasonably increase credit lines to the real sector as banks and entrepreneurs typically look at short-term gains and consequently, prefer to invest in non-manufacturing sectors.

Today, Nigeria has prematurely de-industrialized and now become a service economy. Nigeria’s real sector cannot grow with 25% interest rate. Of course, government cannot fix interest rates but it has a duty to interrogate why rates are high and to design systems for the creation of capital.

Integrated legal property system and movable collateral registry are examples of vehicles for government to unlock capital for MSMEs. Elected officials must understand that tax revenue only grows when citizens and businesses grow.

Nigeria is currently in familiar economic terrains and I can’t help but be reminded of the words of Yogi Berra, “It’s déjà vu, all over again!” Inevitably, crude price will rise once more but President Buhari has another opportunity to lay the foundation for the transformation of Nigeria’s oil wealth into sustainable non-oil economic growth. Nigerians have to understand that there are costs to pay for bad economic policies, and that postponing such painful remedies only aggravates the situation.

Indisputably, the austerity measures imposed during the SAP era were punitive—it was the price for years of profligacy—but the haphazard implementation of the programme only worsened the crisis. This is perhaps the most important lesson to learn from our previous economic crises.

The IMF and World Bank are no doubt unrepentant proponents of market economy. Folks however have to understand that Nigeria is poor not because we’ve persistently adopted their tenets. In fact, a research by Rafael Tella and Robert MacCulloch showed that widespread corruption in poor countries like Nigeria results in the heavy regulation of business and government intervention, which ultimately inhibits the flow of capitalism and prosperity.

President Buhari will therefore do well to remember the words of China’s preeminent leader, Deng Xiaoping: “the basic point is: we must acknowledge that we are backward, that many of our ways of doing things are inappropriate, and we need to change.”

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Op–ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija

Lanre Asiwaju tweets from @Eni_Iyi1