OUR journey begins in a country that is seen as a symbol of both economic opportunities and challenges. Being the most populous nation in Africa, Nigeria’s economic fortunes have been historically connected to global markets, internal dynamics, and the relentless pursuit of progress -there come the shifts and the shocks.
In the context of Nigeria’s economy, “shifts” refer to significant changes or transformations, while “shocks” indicate unexpected and disruptive events or challenges.
The shifts:
Economic reform unveils
The shifts began with the ambitious reforms of President Bola Ahmed Tinubu, aimed at fostering growth and development. On the day of his inauguration, President Tinubu made a bold move, declaring, “the fuel subsidy is gone” just hours into his speech.
This decision aimed to scrap a policy that had cost the Treasury $10 billion in 2022. Past governments had attempted but couldn’t eliminate it. The move was deemed necessary because Nigeria’s reliance on importing refined petroleum products had turned the subsidy into a channel for middlemen and dishonest individuals to profit from price differences.
The government’s proactive measures and policy adjustments in shifting towards a market-driven exchange rate, which has sharply weakened a previously overvalued currency, reflect a commitment to steering the nation toward a more resilient and dynamic future – an approach of ‘getting things done’, so to say.
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Agriculture revolution
At the core of the economic shift is a renewed focus on agriculture, with Nigeria strategically investing in sustainable farming practices. President Bola Tinubu, represented by Abubakar Kyari, the Minister of Agriculture and Food Security, emphasised this commitment at the 15th edition of the National Agricultural Show in Karu, Nasarawa State.
The ministry is dedicated to promoting synergy with the private sector to enhance efforts for food security, economic growth, and job creation.
The event, organised by the National Agricultural Foundation of Nigeria (NAFN), facilitated business linkages, technology transfer, knowledge exchange, and policy discourse among stakeholders. President Tinubu reiterated the alignment of all ministry programs with the four presidential priorities, ensuring a focus on national food security objectives.
The green shoots of agricultural reform are evident, not just in terms of increased output but also in the positive impact on rural livelihoods.
Diversification
The government’s commitment to reducing oil dependency is a crucial element of the economic shift. According to Dele Alake, the Minister of Solid Minerals Development, President Bola Tinubu recognizes the solid minerals sector as a key component in diversifying Nigeria’s economy. Alake revealed this during discussions on deep-sea mining prospects in Nigeria’s coastal waters at the Commonwealth Secretariat in the UK.
The minister outlined a seven-point agenda, emphasising the establishment of a solid minerals company, gathering big data on mineral reserves, and ensuring the socio-economic development of mining communities through community development agreements. Alake urged Commonwealth support for Tinubu’s administration and proposed collaborative efforts with other ministries to study deep-sea mining dimensions.
In the context of Nigeria’s economy, “shifts” refer to significant changes or transformations, while “shocks” indicate unexpected and disruptive events or challenges.
Paul Kautoke, Commonwealth’s Senior Director of Trade, Oceans, and Natural Resources Department, acknowledged Nigeria’s potential in exploring deep-sea minerals like copper, cobalt, nickel, gold, and rare earth elements. He suggested that the Commonwealth could assist Nigeria in developing policies based on the experiences of other member countries in the Pacific region engaged in deep-sea mining.
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Digitalisation
The government’s focus on agriculture is complemented by a move into the digital sphere, aiming to create a favourable environment for innovation and position Nigeria as a regional tech hub. President Bola Ahmed Tinubu’s administration plans to launch the $617.7 million Investment in Digital and Creative Enterprises (i-DICE) program in November 2023.
Vice President Kashim Shettima directed the i-DICE Steering Committee to ensure the programme starts by the end of November, emphasising its significance for the government’s digital jobs initiative. Wale Edun, Minister of Finance, described the project as crucial for creating 1.2 million digital jobs. The surge in technology-related investments reflects a growing confidence in Nigeria’s potential to emerge as a tech-driven economy.
The shocks: Navigating unforeseen challenges
While navigating through the shifts, Nigeria has not been immune to shocks – unforeseen challenges that test the resilience of its economic fabric.
Global oil price volatility: A familiar adversary
The COVID-19 pandemic has made the situation worse for Nigeria’s economy due to unpredictable oil prices. Global demand for oil and gas has decreased, causing a significant drop in Nigeria’s oil revenue. This emphasises the importance of diversifying the economy and investing in other industries to reduce the impact of oil price changes. Energi Talent Resourcing (ETR).
Nigeria has always depended on oil, and the constant ups and downs in oil prices create challenges. More than 87.5% of the country’s export revenue and about 65% of the government’s revenue come from the oil and gas sector (NESG). The instability in oil prices leads to changes in Nigeria’s income, resulting in budget shortfalls and the need for foreign loans to support government spending- (ETR).
Chart on Global Oil Price Volatility and Oil Revenue in Nigeria:
This chart illustrates the correlation between global oil prices and Nigeria’s oil revenue: The oil industry’s volatility, marked by declines in 2015 and 2020 and surges in 2018, 2021, and 2022, has profound implications.
Fluctuations impact revenue, as seen in the clear correlation between oil prices and revenue. Notably, the pronounced 2020 revenue drop, exceeding the oil price decrease, signals broader influences, possibly COVID-19-induced demand shocks. These trends underscore the industry’s cyclical nature and sensitivity to external factors.
The pandemic’s unprecedented impact in 2020, triggering a 34.88% oil price decline and a 40.11% revenue reduction, emphasises the sector’s vulnerability, prompting a reevaluation of resilience strategies amid ongoing uncertainties.
Thus, the fluctuations in revenue mirror the challenges posed by external factors, necessitating a broader revenue base.
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Subsidy shocks
The blunt withdrawal of the petrol subsidy during President Bola Ahmed Tinubu’s inauguration marked a seismic shift, sending shockwaves through the market. Since then, the economic fallout has unfolded, casting a dark shadow on fuel prices that now soar to an average of N620 at various filling stations and about N568 at NNPC stations.
This surge ripples through every sector, notably escalating transportation costs, a critical lifeline for agricultural production.
As the cost of transportation skyrockets, the once smooth flow of agricultural goods from farms to markets now faces turbulence. Farmers, grappling with elevated expenses, find themselves compelled to raise prices for their produce. The consequence is a direct hit on consumers’ pockets, as the cost of food production spirals upward.
The ramifications extend beyond the consumer level. Energy, a pivotal component in agricultural input and production processes, is strained by the inflated costs of transportation. This not only disrupts the efficient distribution of supplies to farmers but also impacts the operation of machinery crucial for food production.
Consequently, the average Nigeria’s welfare takes a beating, caught in the crossfire of skyrocketing prices for staple foods. The subsidy’s removal, once seen as a strategic move, has unfolded into an intricate web of economic challenges, casting a long shadow over the nation’s food security and the financial well-being of its people.
An investment analyst said “Although the removal of subsidy was a good move, the consequences were not evaluated before the announcement which led to the current shocks in the economy.”
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Chart: BusinessDay
BusinessDay analysis reveals that prior to the subsidy removal, the cumulative percentage increase in the food inflation rate over the period from January to May 2023 amounted to approximately 2.042 percent.
This indicates a modest yet discernible upward trend in the food inflation rate during this timeframe, underlining the impact of various economic factors on the cost of essential commodities.
BusinessDay’s comprehensive analysis delves into the repercussions following the subsidy removal. The cumulative percentage surge in the food inflation rate, from June to December 2023, stands at approximately 34.38 percent. This increase underscores the shifting economic landscape, impacting the cost of living.
Alarmingly, these economic dynamics have worsened poverty, with over 71 million of the 133 million poor Nigerians plunged into abject poverty, as reported by the World Poverty Clock. This data emphasises the far-reaching consequences of policy decisions, accentuating the need for strategic considerations in economic governance.
Geopolitical tension
The Russia-Ukraine war has inflicted adverse repercussions on Nigeria’s Oil and Gas and Agricultural sectors. Primarily, the conflict disrupted global supply chains, causing a surge in oil prices from $76 to $130 per barrel.
Consequently, diesel prices in Nigeria skyrocketed from N288 per litre in January 2022 to over N800 by December 2022, and currently, it averages N1,100 per litre in 2024, resulting in increased operational costs and prompting companies to adopt remote work policies due to heightened transportation expenses.
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Moreover, the impact extends to the Agricultural sector, with a Global Agricultural Information Network report indicating that Nigeria is grappling with elevated wheat import costs due to the war.
The FAS noted a negative effect on Nigeria’s wheat supply value chain, particularly citing a significant reduction in durum wheat imports from Russia in 2022, a key source of affordable wheat for the country.
Official records reveal that Nigeria spent N970.22 billion on wheat imports from October 2022- September 2023, reflecting a 15.71% decline compared to the previous year (October 2021- September 2022). This data underscores the multifaceted challenges posed by the geopolitical conflict, affecting both critical sectors of Nigeria’s economy.
As Nigeria grapples with the far-reaching impacts of global and regional political tensions, an agricultural expert has sounded a crucial warning. Emphasising the urgent need for government investment in the agricultural sector, the expert, speaking anonymously, has highlighted the nation’s vulnerability as a net importer of wheat.
Shockingly, only two percent of Nigeria’s wheat consumption is met through domestic production according to AgFlow, exposing the precarious nature of its food security.
