Nigeria’s newly elected President Bola Tinubu has wasted no time in implementing a series of much-needed reforms aimed at realising the potential of Africa’s largest economy, after a decade-long swing between slowdown and inflation.
Nigeria economic reforms: What do Tinubu’s reforms entail?
The reforms have been cited as bold and comprehensive.
They include the elimination of a costly fuel subsidy, the replacement of the country’s central bank governor, and the initiation of a deep overhaul of Nigeria’s power industry described as chronically inadequate in recent memory.
Nigeria economic reforms: What do they mean?
The measures have garnered a positive response, with Nigeria’s dollar bonds experiencing a rally and stocks reaching a 15-year high as per a Bloomberg report. The economic reforms have been reported as Nigeria’s shift towards economic orthodoxy – unconventional leadership decisions taken with an aim towards overall betterment of the economy in the face of scarcity.
While there remains skepticism on overall implementation of the reforms given the country’s tumultuous history of leaders failing to scale through the initial economic optimism, investors view these policy changes as the beginning of a broader economic transformation.
The shift also aligns Nigeria with other countries like Turkey and Colombia, where similar policy changes have generated market enthusiasm after authorities signaled a departure from investor-unfriendly economic practices.
In a Bloomberg report, Amaka Anku, Africa director at Eurasia Group, commended the swift implementation of challenging reforms during the initial period of Tinubu’s presidency.
This demonstrates determination and creates momentum and goodwill, which in turn boosts both domestic and international confidence and encourages investment, he noted.
Nigeria economic reforms: Ordinary Nigerians face burden
Meanwhile, the negative effects of these adjustments are primarily affecting the currency and the Nigerian population itself. The currency naira has significantly depreciated against the dollar since Tinubu assumed office, while the price of petrol has tripled.
This combination is expected to burden ordinary Nigerians, who are already grappling with widespread unemployment and soaring inflation.
Consumer inflation rate could climb as high as 29.8 per cent in June, from 22.4 per cent in May, as rising gasoline prices lift the cost of food and transport, according to Rand Merchant Bank analysts cited in Bloomberg.
This could force the central bank to raise its policy rate to 22 per cent in the second half, from 18.5 per cent, they said.
Nigeria economic reforms: Stocks rise after firing of central bank governor
Nigerian stocks and Eurobonds have continued to rise since the ousting of Godwin Emefiele, the former head of the Central Bank of Nigeria, on June 9.
Investors interpret his dismissal, along with his subsequent arrest, as an indication that President Tinubu will adopt a more market-friendly approach compared to his predecessor, Muhammadu Buhari.
Buhari’s multiple exchange rate regime, which hindered the economy, was largely attributed to Emefiele, making him unpopular among the new president’s allies.
Gordon Bowers, an analyst at Columbia Threadneedle Investments, described that the removal of the fuel subsidy and foreign exchange reforms will positively impact Nigeria’s fiscal and external accounts, reducing long-standing distortions.
These reforms were considered essential minimum requirements, allowing Tinubu to shift his focus to growth-oriented and productivity-enhancing reforms that can substantially raise Nigeria’s potential growth rate.
Nigeria economic reforms: Where would the currency settle?
The ultimate settling price for the naira under the new administration remains uncertain. But a pre-election report from a Tinubu advisory committee suggested a target range of 550-600 naira per dollar, with commercial banks acting as primary dealers through a willing-buyer-willing-seller model.
Experts anticipate further depreciation of the currency before it stabilises at a significantly weaker level.
Also watch | Nigeria’s Naira hits record low
JPMorgan analysts cited by Bloomberg previously indicated that the exchange rate should be adjusted to approximately 700-750 naira per dollar.
Despite concerns about the government’s ability to maintain momentum, markets have responded positively to Tinubu’s ambitious policy shift.
Tinubu is currently working alongside his chief of staff, advisers, an interim central bank chief, and a trusted informal team, having not yet appointed ministers.
Nigeria economic reforms: What else is on cards?
In addition to the aforementioned reforms, Tinubu’s team is advocating for significant changes in Nigeria’s oil and gas sector, aiming to reduce the role of the state energy company, which had expanded under Tinubu’s predecessor.
Last week, Nigeria’s national assembly passed legislation that’s expected to set off the biggest shakeup of the West African nation’s chronically inadequate power industry in almost two decades.
Further reforms will be necessary to get Nigeria’s economy back on track, experts say.
According to Amaka Anku, Africa director at Eurasia Group, the Tinubu administration will have to “focus on the harder, more long-term stuff, especially boosting revenue generation.”
