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Bola Tinubu, Nigeria’s new president, started off with a bang. In removing a costly fuel subsidy and in shifting towards a market-driven exchange rate, which has sharply weakened a previously overvalued currency, he has gone some way towards persuading investors he is serious about reform. But four months into his presidency, there are signs of things going awry.
The new president moved quickly to raise expectations. In his inauguration speech in May, he used five words — “the fuel subsidy is gone” — to scrap a policy that had cost the Treasury $10bn in 2022. Previous administrations had tried, and failed, to remove it.
His instincts were right. Because Nigeria imports most of its refined petroleum products, the subsidy had become a licence for middlemen and crooks to profit from arbitrage. Middle class car owners were the biggest beneficiaries. Perversely, the higher the oil price, the higher the subsidy — and thus the greater the drain on the Treasury.
Now that the government is $10bn better off, it needs to explain how it is going to use the money to improve people’s lives. It could make direct payments to the most vulnerable or set out plans to bolster public services such as health and education. So far, it has been silent. Tinubu has not done nearly enough to explain the rationale of a policy that, to many Nigerians, seems like the withdrawal of the only thing the state had ever done for them. As petrol prices rise, millions of people — already under pressure from rising food prices — are having to walk miles to work.
Changes at the central bank are similarly half-cooked. The removal of Godwin Emefiele, the previous governor, was overdue. But its manner, initially via a charge of firearms’ possession, was odd and smacked of political revenge. More substantively, the new exchange rate regime has yet to be properly explained. After a signal was given in June that banks could bid freely for foreign currency, the naira fell nearly 30 per cent, pushing inflation up still further to an 18-year high of nearly 26 per cent. Still, the move to a more realistic exchange rate was a vital step in persuading investors that they could obtain dollars, either to invest in manufacturing inputs or to repatriate as profits.
But dollar liquidity has since tightened as investors seek to clear a backlog of $7bn in previously unsatisfied demand. After a convergence of the official and black market rate, a gulf has reopened: the parallel rate has fallen to N1,000 versus an official rate of N785. Opacity about the true level of net foreign reserves — by one estimate as low as $4bn — has exacerbated the problem. So has Nigeria’s inability to sell its full Opec quota because of chronic oil theft. Curbing the looting of Nigeria’s patrimony is one of Tinubu’s most urgent tasks.
The Senate confirmation last week of Olayemi Cardoso as central bank governor may steady the ship at that institution. Markets consider Cardoso, a former Citibank Nigeria chair, to be a sound appointment. (The same cannot be said of all of Tinubu’s picks.) The incoming governor will probably need to raise rates at the next policy meeting to establish his inflation-busting credentials. It is vital that Tinubu restores institutional independence by leaving the bank to get on with its job.
In other areas the president needs to be more active — and more articulate. He should spell out his policies to a sceptical public. He should also refrain from announcing plans — including the restoration of democracy in Niger — without any real idea of how to implement them. Execution is key. Only four months into his presidency, what started out with a bang risks becoming a whimper. Tinubu needs to regain the momentum.