The year 2023 is nearing its end, but its economic imprint will endure in the lives of many Nigerians. Three major policies implemented by the federal government – currency redesign, fuel subsidy removal, and exchange rate liberalisation – have affected consumers and businesses in a significant way.
The latest edition of the Nigeria Development Update (NDU), a biannual report series of the World Bank, said 14.2 million Nigerians have become poor this year.
Currency redesign
The Central Bank of Nigeria (CBN) announced the naira redesign policy in October 2022, and its full implementation began in 2023.
The CBN announced the introduction of the redesign of the N200, N500, and N1,000 banknotes. The then CBN governor, Godwin Emefiele, said the new notes would begin circulation on December 15, 2022, while the old banknotes would remain legal tender and circulate together until January 31, 2023. The old notes were to cease to be legal tender on January 31. However, the deadline was later extended until February 10, after a public outcry.
The currency redesign turned out to be currency confiscation because the money in circulation was drastically reduced as Nigerians deposited their old notes in banks with little new currency in circulation. The deadline was eventually shifted to December 31.
The cash in circulation fell by 69 percent to a low of N982.1 billion in February.
The cash crunch took a heavy toll on many businesses as Nigerians resorted to buying cash from point-of-sale operators for daily transactions.
According to a report by Financial Derivatives Company, the cash crunch experience in the first quarter of this year led to a decline in productivity (estimated 120 lost man-hours per month), lower GDP growth (down 0.79 percent to 2.31 percent in Q1 2023 from 3.1 percent in Q4 2022), multiple pricing, and delayed internet transactions due to increased volume of transactions and network glitches.
Nigerians have seen the return of cash scarcity, which the central bank has attributed to hoarding, warning banks and Point-of-Sale operators against acts undermining availability and flow of the naira across the country.
Fuel subsidy removal
Still trying to recover from the effects of the naira crunch, the removal of fuel subsidies in June triggered immediate price hikes, adding to the already rising inflation. This disproportionately burdened low-income households, pushing even more people into poverty.
For years, petrol subsidised in Nigeria was smuggled across the border, which meant that Nigerians were subsidising the product for neighbouring countries. Within Nigeria, this subsidy was mostly going to those who used more petrol and not to poorer Nigerians, as contained in the World Bank report.
“Fuel subsidy is gone.” This was the bold statement made by President Bola Tinubu during his inauguration address on May 29, 2023, declaring an end to the long-existing and costly subsidy.
Though the removal of petrol subsidy was necessary, according to many experts, its spiral effects have been felt by many Nigerians, leading to a persistent rise in inflation.
Before the removal of the subsidy, the average retail price paid by consumers for Premium Motor Spirit (petrol) in May 2023 was N238.11 per litre; it stood at N648.93 as of November, according to the National Bureau of Statistics (NBS).
Petrol prices have tripled, hitting millions of households and small businesses that rely on the product for their daily survival. Transport fares have equally soared for workers and farmers taking produce to market.
The removal of the fuel subsidy in May saw inflation quicken to an 18-year high of 28.2 percent in November from 22.4 percent in May, according to the NBS.
“Rising inflation has increased poverty from 40 percent in 2018 to 46 percent in 2023, pushing an additional 24 million people below the national poverty line,” the World Bank said.
Exchange rate liberalisation
The policy aims to unify various exchange rates for greater transparency and to attract foreign investment. While promising long-term benefits, it initially led to currency depreciation, further fuelling inflation and reducing purchasing power.
The naira depreciated significantly as a result of the policy, which the CBN announced in June. According to the FDC, a dollar, which was N422 before the announcement, moved to N589 on June 24, N770.88 in July, N783.17 in November, and N885.88 last Friday.
The depreciation of the naira led to FX losses and gains for businesses and caused a surge in import costs.
Balancing policy with public impact
While the government’s policies aimed to address legitimate concerns and stimulate economic growth, their immediate effects proved challenging for many Nigerians.
In 2024, the government needs to implement more measures to cushion the impact of policies on low-income families and individuals.
There must be detailed plans by the government to improve power, transport, infrastructure, public service delivery, security, and the business environment.
In addition to the aforementioned, there must be a reduction in trade restrictions, a review of tariffs to reduce costs of key inputs for producers, a simplified and harmonised import and export procedure, and the removal of bottlenecks to boost the economy and improve the standard of living.
By acknowledging the challenges faced by Nigerians and actively working to address them, the government can strive towards a future where economic policies benefit everyone.
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