Nigerian President Bola Tinubu’s reforms, though bold and laudable, have sparked an economic crisis with poverty, hunger and unemployment on the rise.
Experts have said the reforms are needed to put Africa’s most populous nation on track but were hurriedly made without considering its ripple effects on the citizens, especially the vulnerable.
One of the key reforms that Tinubu implemented in his first days in office was the liberalisation of the foreign exchange market which allowed the banks to quote the naira more freely against the dollar.
Monetary experts have roundly commended the move but are of the view that floating the naira should have been preceded by the monetary tightening the CBN is only just embarking on while measures should have also been put in place to boost dollar supply.
“Before floating naira, which by the way is a good move, the CBN should have started mopping the excess naira liquidity in the market,” a leading Nigerian economist who did not want to be named said.
“Secondly, there should have been plans to attract the required amount of dollars necessary to ensure the CBN can intervene in the market whenever the naira was under undue pressure,” the economist said.
Nigerians are bearing the brunt of the poorly planned reforms despite their long term gains, with inflation peaking at a 19-year high of 29.9%, businesses shutting down and unemployment rising.
The tough times won’t last, however, according to Benedict Oramah, president of the African Export-Import Bank (Afreximbank), reforms were necessary to revamp the country’s economy, stressing that things will soon return to normal.
“Nigeria’s choice to float the Naira and remove petrol subsidy are the right decisions,” said Oramah.
“Once you have been able to stabilise the exchange rate, prices will adjust, markets will adjust, and things will return to normal,” he added.
Another reform that has brought pain to long-suffering Nigerians is the removal of the petrol subsidy which experts say should have quickly been followed by palliatives for the vulnerable to cushion the impact of the subsidy removal which led to a tripling of petrol prices.
Since Tinubu announced the petrol subsidy removal during his inauguration on May 29, pump prices have not only tripled, the value of the naira has plunged following the floating of the currency, becoming the world’s worst-performing currency so far this year.
Last June, the Central Bank of Nigeria (CBN) merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The liberalisation of the foreign exchange regime weakened the naira with its rate falling from N463.38/$ to N1, 609.51/$ as of February 28, 2024 at the official market. On the street, the naira, though strengthened against the USD on Wednesday, is now pushing above N1,400/$ from 762/$.
Although the reforms have increased revenue for the government with fuel subsidy removal adding N400 billion monthly to the public purse, they have also worsened the hardship facing the people as the inflation rate has accelerated to its highest level in over 18 years.
Nigeria’s Consumer Price Index stood at 22.8 percent when the reforms started in June, it has increased by 7.1 percentage points, nearing 30 percent now. Cost of food which Nigerians spend a chunk of their money on rose from 25.09 last June to 35.41 as of January this year.
According to Olayemi Cardoso, Nigeria’s CBN governor, factors influencing rising inflation are exchange rate passthrough, rising cost of energy, high fiscal deficit and lingering security challenges in high food producing areas. Also, domestic inflation keeps mounting due to the global economic crisis with regard to trade disruptions in geo-political risk areas.
Meanwhile, even as Nigerians grapple with the effects of rising cost of living occasioned by the record high inflation, the CBN has projected “an upward trajectory in near-term before commencing a descent”.
However, with the recent jumbo hike in the interest rate to 22.75 percent by the Olayemi Cardoso-led Monetary Policy Committee (MPC), experts have said the move, aimed at curbing inflation, will stabilise the economy.
Last year, Tinubu declared an immediate state of emergency on food insecurity to tackle the increase in food prices. He unveiled a comprehensive intervention plan on food security, affordability, and sustainability, by an immediate release of fertilisers and grains to farmers and households to mitigate the effects of petrol subsidy removal. But Nigerians still struggle to get a decent meal, and a balanced diet out of reach of many.
Businesses seen shutting down, unemployment on the rise
As businesses pin hopes on stronger naira and economy with expectations of improved FX liquidity playing a pivotal role in stimulating foreign inflows, the free fall of the naira has dampened their hopes with more than seven multinationals exiting the country.
BusinessDay reported earlier this month that more businesses could shut down because of unstable macroeconomic indicators, which have affected the medium and long-term plans of many businesses.
“Once the exchange hits N1,800 – N2,000 per dollar, you are going to see a crisis. More businesses are going to close shop and the “japa” wave will further surge,” Okafor Tochukwu, a lecturer at Global Banking School, Stratford, London.
Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said everything in the economy has gone from bad to worse. “No company, whether small or micro, can plan or project for the future now because they plan on stable indices.”
As businesses are folding up on the back of an unstable economy, unemployment rates continue to be on the rise.
Data from NBS showed that Africa’s largest economy witnessed a surge in its labour force with people who are unemployed increasing from 4.2 percent in Q2 to 5 percent in Q3.
Similarly, the data revealed that many young Nigerians have become more unemployed with youth unemployment increasing from 7.2 percent in Q2 to 8.6 percent in Q3.
“The rate of unemployment among persons with post-secondary education was 7.8 percent in Q3. The unemployment rate among youth aged (15-24 years) was 8.6 percent in Q3. Increase of 1.4 percent compared to Q2,” it said.
Beyond unemployment, foreign investments into Nigeria dropped to $654.7 million, the lowest level since the statistics bureau started collating the data in 2013.
As poverty increases, social crisis looming
Last year, the World Bank said in its latest Nigeria Development Update report that rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.
Tinubu’s reforms have increased cost of living, pushing the citizens into demonstrations, protesting the economic hardship and demanding immediate solutions to the lingering crisis.
A nationwide protest organised by the Nigeria Labour Congress was staged on Tuesday with protesters wielding placards having various inscriptions as “End hunger”, “Nigeria is hard to live” among others. The two-day protest which lasted a day was called off and a seven-day ultimatum was issued with the labour union calling on the government to reposition the economy.
According to Adeola Adenikinju, president of the Nigerian Economic Society, reforms that have a significant impact on middle and low-income earners should be followed by “income support programmes” that could cushion its effects.
Citing the cash transfer programme in the United States during the COVID-19 pandemic, he stressed that further protests can be avoided if palliatives and other support systems can be made available to poor people.
“Government must find a way to revive the social transfer programmes especially to support the most vulnerable who may have been affected by these crises,” he said.
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