Nigeria’s economy has been in the doldrums for years, hamstrung by an inefficient bureaucracy, policy missteps, runaway public debt, rampant corruption and crime. President Bola Tinubu has pledged to end the malaise and double the annual economic growth rate to 6% — or more. Since succeeding Muhammadu Buhari in late May, he’s scrapped costly fuel subsidies, removed the central bank governor and overhauled the nation’s exchange-rate policies — effectively devaluing the currency, the naira. Tinubu’s initial steps enthused investors but elicited a public backlash over rising food and transport costs — an early warning of the mammoth task ahead in tackling Nigeria’s myriad problems. In a July 31 address to the nation, the president acknowledged the hardship his countrymen were confronting, but said his reforms were unavoidable and pleaded for them to be patient.
1. What’s wrong with Nigeria’s economy?
About 40% of the nation’s more than 200 million people live in dire poverty, according to the World Bank, with half of adults under- or unemployed. Inflation climbed to an 18-year high of almost 23% in June. Corruption is endemic, many state institutions are dysfunctional, and armed bandits and Islamist militants have free rein across large swathes of the country’s north. The government spent 96% of the revenue it collected in 2022 on servicing its loans. Public debt grew seven-fold to about 77 trillion naira ($102 billion) during Buhari’s eight-year rule. Oil production — the lifeblood of the economy — hit lows last seen in the 1980s in late 2022. In June, the World Bank forecast that Nigeria’s gross domestic product would only expand 2.8% this year, barely keeping pace with the increase in the population, and “far slower than needed to make significant inroads into mitigating extreme poverty.”
2. What’s Tinubu’s plan for turning things around?
His priorities include boosting manufacturing, making electricity and public transport more accessible and affordable, simplifying a complicated exchange rate system and increasing investment in road, rail and port infrastructure. He pledged to use the money the government spent on fuel subsidies — $10 billion last year alone — to improve the health and education system and to create jobs. Cheap financing will be provided to 75 manufacturers and 1.1 million small and medium-sized companies to help bolster hiring, while the national minimum wage will be increased. Tinubu has also pledged to recruit more personnel to tackle extremist violence and instability and invest in better military equipment.
Tinubu’s initial steps enthused investors but elicited a public backlash over rising food and transport costs — an early warning of the mammoth task ahead in tackling Nigeria’s myriad problems.
3. How’s it going?
Within days of taking office, Tinubu scrapped the fuel subsidies that had been in place since the 1970s, arguing that they have outlived their usefulness and mainly benefitted a select group of wealthy and politically connected individuals. Pump prices have tripled since then, triggering public anger. The president has asked lawmakers to approve 500 billion naira of spending to cushion citizens from the impact and pledged to intervene further if necessary. In mid-July, the government declared a state of emergency, which allows it to take exceptional steps to improve food security and supply, including clearing forests for farmland and improving access to seed and fertilizers. A report by humanitarian organization Mercy Corps illustrates how hard ordinary Nigerians have been hit by inflation: It found that food prices jumped 36% and transportation fares 78% in the northern Borno state within a week of the fuel subsidies being cut, and that hunger and incidents of petty theft were on the rise.
4. Why did Tinubu remove the central bank governor?
Central Bank of Nigeria Governor Godwin Emefiele, suspended by Tinubu in June, was blamed for a botched program to replace high-value naira notes that hobbled day-to-day business in the cash-dominated economy. Emefiele was subsequently detained by the secret police and charged with the illegal possession of a shotgun and ammunition, a crime that carries a maximum prison sentence of five years. Emefiele has denied wrongdoing and says he is a victim of “a political witch-hunt.” In July, Tinubu ordered a special investigation of central bank operations under Emefiele, whose attempts to manage the naira gave rise to a web of varying exchange rates and drove many businesses and people to the black market. While the practice was aimed at shoring up the value of the naira and the nation’s foreign reserves, Tinubu said it had made a handful of currency speculators “filthy rich, simply by moving money from one hand to another.” Emefiele also approved billions of dollars of loans to the previous government, helping push public debt to a record.
5. Who else has been sidelined?
Tinubu has also suspended Abdulrasheed Bawa, the head of the nation’s anti-corruption agency, following what he described as “weighty allegations of abuse of office.” The president has appointed a raft of new aides and senior advisers, among them some prominent technocrats. He’s also named new heads of the army, navy, air force and police, and asked lawmakers to approve 28 appointees to his cabinet.
6. What’s happening with the naira?
The central bank announced changes to the way the foreign-exchange market operates, saying that the naira would be allowed to trade freely until it finds a new market-related level. Under Emefiele, the bank sold limited amounts of US dollars at tightly controlled rates to companies and individuals. Businesses complained that the system made it difficult to operate and deterred investment. Many resorted to using the black market, where the dollar traded more freely but at about a 60% premium to the official rate. After the changes were announced in June, the naira fell to a record low against the dollar and the central bank intervened in the market to stem further losses amid concerns over the inflationary impact. While there has been some convergence between the official and parallel-market rates, the removal of the currency peg failed to eliminate a backlog of dollar demand and unofficial suppliers of the greenback continue to demand a premium.
7. What reaction has there been to Tinubu’s changes?
Investors, economists, bankers and multilateral lenders have long called for changes to the exchange rate policies and for the central bank to adopt a more orthodox role; they’ve largely welcomed the steps he’s taken so far. Increases in fuel and food costs have stoked outrage, although there haven’t been widespread protests. Tinubu squeaked home in the presidential elections in February with just 35.2% of the vote — and he’ll need to show living standards are improving to garner support for further politically contentious measures. (Bloomberg)
