Economic policymaking in Nigeria is often framed as a series of targeted interventions: adjust the exchange rate, increase non-oil revenue, liberalize a sector, remove a subsidy. Each move is introduced with the hope that it will produce measurable gains. Yet time and again, such measures fail to deliver durable improvements, or worse, they set off new disruptions elsewhere in the system.
This is not simply a failure of execution or political will. I believe it is a failure of thinking. Most policies in Nigeria rely on a linear cause-and-effect model. But economies are complex adaptive systems characterized by feedback loops, delays, and interdependent variables.
Linear Thinking Meets System Reality
Consider the use of monetary policy to manage inflation and attract foreign portfolio investment (FPI) flows. Policymakers often raise interest rates with the expectation that tighter monetary conditions will reduce inflationary pressures and make naira-denominated assets more attractive to foreign investors, thereby bolstering foreign exchange reserves and stabilizing the currency.
However, as Wynne Godley and Marc Lavoie emphasize in Monetary Economics, the effectiveness of such measures depends on the stock-flow dynamics of the economy: the interactions between domestic credit, sectoral balances, and external capital flows.
In practice, elevated interest rates may succeed in attracting short-term FPI inflows, but they also raise the cost of domestic borrowing, depress investment, and slow economic growth. Meanwhile, reliance on volatile capital flows introduces external vulnerability, as shifts in global risk appetite or investor sentiment can trigger sudden reversals, leading to exchange rate instability, the very outcome policymakers sought to prevent.
The linear model (raise rates → stabilize prices and FX → strengthen reserves) breaks down because it ignores the system’s feedback architecture and the trade-offs between domestic growth dynamics and external stabilization efforts.
What Systems Thinking Offers
Systems thinking offers tools to address these structural blind spots. Drawing on the insights of Forrester, Beer, and Godley, systems thinking encourages policymakers to shift attention from events to structures i.e. the patterns of relationships that generate observable outcomes. Specifically, systems thinking helps identify:
- Reinforcing and balancing feedback loops: where actions amplify or dampen effects.
- Time delays: where the consequences of a policy take longer to materialize than expected.
- Compensating behaviours: where the system’s internal adjustments work against imposed change.
Without accounting for these features, even technically sound policies can fail or backfire.
The Case of Fuel Subsidy Removal
Nigeria’s struggle with fuel subsidy removal illustrates the stakes. The logic is straightforward: subsidies are a drain on public finances that the nation can no longer afford and a cesspit for corruption, so removing them should free up much needed resources for productive investment.
But the system’s compensating responses undermine the expected benefits. Subsidy removal immediately leads to hikes in the prices of transport and goods, which sparks inflation, reduces household purchasing power, and provokes public backlash. Politicians, facing pressure, often respond by increasing public sector wages or introducing cash transfers, eroding the fiscal gains they sought.
As Stafford Beer observed in his work on the Viable System Model (Brain of the Firm), complex systems often display homeostasis (a tendency to maintain internal stability even in the face of external change). Without designing reforms to account for the system’s self-regulation, interventions tend to be absorbed or neutralized.
From Policy Firefighting to System Stewardship
What Nigeria needs is not just more reforms, but a fundamentally different approach: one that treats policy as system design rather than isolated event management. This means:
- Developing models that map cross-sectoral flows and feedbacks (drawing on stock-flow consistent frameworks, such as those championed by Godley).
- Stress-testing policy under different scenarios (using system dynamics, like Forrester).
- Designing institutions that can maintain adaptability and coherence over time (using principles from Beer’s Viable System Model).
Such approaches can help Nigeria move from reactive firefighting to proactive system stewardship, managing not just outcomes, but the underlying conditions that produce them.
Conclusion
In future posts, I will explore how systems-based tools can be applied to Nigeria’s fiscal strategy, external balances, credit structures, and institutional frameworks. My aim is not to offer quick fixes, but to deepen the conversation around structural coherence because without it, no policy can endure.
“For Nigeria to endure, its institutions must stop managing events and start managing structures.”
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