Everything Nigerians feared would happen if tough economic decisions were taken in 2016 are happening six years later, yet the worst may be yet to come for the long-suffering people of Africa’s largest economy.
There were widespread fears in 2016 that the exchange rate would depreciate sharply and inflation would surge if the country of 200 million people implemented bold reforms by allowing a genuine managed naira float and eliminating costly petrol subsidies.
Six years later, none of the reforms have been implemented but the outcome Nigerians feared is already at play.
The exchange rate, under renewed pressure from Nigerians trying to ditch expiring naira notes, could be heading for N1,000 per dollar at the more accessible parallel market, after topping N800/$ barely one week after the Central Bank of Nigeria announced the controversial plan to phase out some currency notes within six weeks.
On Friday, traders quoted the naira at N870 per USD.
Inflation is also at a 17-year high with rampaging floods threatening to push the rate even higher from its 20.77 percent level as at September. Added to these, many Nigerians have been buying petrol at around N300 per litre since a scarcity broke out in the commercial capital of Lagos last week.
Compared to 2016, when some of the tough reforms the government was urged to take were first muted, the indices make for an even uglier reading.
The naira, which averaged N381 per US dollar in the black market in 2016, has lost over 100 percent of its value against the dollar compared to the current market rate of N820 per USD while inflation, which averaged 15.68 percent in 2016, has surpassed the 20 percent mark to sit at a 17-year high.
The official retail price of petrol has also gone up more than 100 percent to N189 per litre from N87 per litre in 2016. Incessant cases of scarcity mean many pay even more for petrol.
The naira has remained tightly managed by the central bank and the petrol subsidy regime has not been eliminated despite several false starts.
President Muhammadu Buhari is famed for his statement in 2016 that he did not want to “kill the naira”, yet the exact opposite has happened to the currency, which is down by 123 percent in the official market and 208 percent in the parallel market on the 79 year-old’s watch.
Buhari had said he won’t kill the naira by allowing it to be devalued because a weaker currency will only result in higher inflation and hardship for the country’s poor and middle-class.
“I considered myself a middle-class Nigerian in 2015 but not anymore,” said Efita Ekpeyong, who used to run a clothing business. “I was forced to shut down due to skyrocketing costs of imports and I haven’t been able to find my feet since then,” Ekpeyong said.
Poverty has deepened in Nigeria and the poor and middle-class Nigerians Buhari sought to protect are more exposed than ever. In 2018, Nigeria earned the dubious title of the world’s poverty capital, overtaking India with five times its population.
The economy has been in and out of two recessions in five years and the reforms that could help fast-track robust economic growth are still hanging.
“Had we adopted more sensible policies then, like floating the naira, curbing deficits, reducing inflation, investing in productive assets, removing wasteful subsidies, we would not likely be here and the pain we would have suffered would have yielded a better functioning and resilient economy,” said Andrew Alli, former president and Chief Executive Officer of the Africa Finance Corporation.
“We will likely end up doing those things but under duress with less positive results,” Alli said.
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The controversial petrol subsidy regime has also remained, with the latest end date set for June 2023. In the meantime, the practice continues to dig holes in the government finances and is set to gulp a quarter of the total budget for 2023.
Buhari, who has dilly-dallied on scrapping the subsidy, shocked everyone when he admitted it was unsustainable. That’s after burning N7.3 trillion on the wasteful practice.
Buhari said during the presentation of the 2023 budget in October: “As we seek to grow our government revenues, we must also focus on the efficiency of utilisation of our limited resources. Critical steps we are taking include immediate implementation of additional measures towards reducing the cost of governance and the discontinuation of fuel subsidy in 2023 as announced earlier.”
“It’s an absolute waste to admit this four months to an election that will see him step down as president,” one economist who did not want to be named said. “He will be remembered for failing to end it when he had a golden chance with low oil prices in 2016.”
Each of the major contenders vying to succeed Buhari have all promised to end the petrol subsidy regime including the candidate of the President’s party, Bola Tinubu.
They have also promised to liberalise the FX regime and do away with the current system that has spooked foreign investors and hammered the naira.
