Nigeria’s Bola Tinubu gets off to dramatic start

New president defies rock-bottom expectations by scrapping fuel subsidy and promising exchange rate reform

If it was the intention of Bola Tinubu, Nigeria’s new president, to attract the attention of investors, he could not have picked five more potent words to achieve his aim.

“The fuel subsidy is gone,” he blurted out during his May inauguration speech — departing from prepared remarks that had spoken merely of “phasing out” the costly policy. Its removal has been the third rail of Nigerian politics since subsidies were introduced in the 1970s.

The impact was immediate. The price of petrol almost tripled to N557 ($1.20) a litre. Bonds rallied. The naira weakened on expectations that exchange rate simplification might follow.

Tinubu had spoken directly about that, too. “Monetary policy needs thorough house cleaning,” he said in his speech. “The central bank must work towards a unified exchange rate,” he added, referring to the 40 per cent spread between the official and the parallel rate. “This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”

Days later came news of the suspension of Godwin Emefiele, the central bank governor who presided over an opaque exchange rate regime for the eight-year tenure of President Muhammadu Buhari. Not long after, news that banks could bid freely for dollars sent the naira falling by more than 30 per cent, its biggest one-day drop in history.

Tope Lawani, managing partner of Helios Investment Partners, an Africa-focused private investment firm, says rationalising the exchange rate and subsidy regimes is vital to making Nigeria investible again. “We haven’t made a new investment in Nigeria in possibly six or seven years,” he notes — adding that, hitherto, the continent’s most populous country had been Helios’ investment priority. The problem, he explains, was that “the policy environment just seemed to make it impossible. “Whether you’re a private equity or a portfolio investor, the thing you cannot price in is an inability to take your money out,” Lawani says. “You can bet on a stronger or weaker currency, but you need some level of liquidity to live with the bet you’re making.”

Worries about getting hold of dollars trumped Nigeria’s positives, he says, from its huge domestic market to its buzzing tech sector — arguably the most dynamic in Africa. “The difficulty of getting your money out inhibits putting your money in,” Lawani points out.

In remarks that sounded positively pro-business compared with Buhari, who had favoured state intervention and protectionism, Tinubu addressed all these private investor concerns: “We shall ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home.”

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Chidi Odinkalu of the Fletcher School of Law and Diplomacy at Tufts University argues that Tinubu has done the minimum necessary given the hand he was dealt: “We shouldn’t be impressed.”

But Bismark Rewane, head of Lagos-based consultancy Financial Derivatives, says Tinubu’s first weeks mark an “inflection point” in Nigeria’s policy framework after the past eight years when growth and investment collapsed, oil theft spiralled, and kidnapping and violence spun out of control.

“Scrapping of the fuel subsidy is good for Nigeria,” he says, noting that it was difficult to manage, politically, given politicians’ low credibility with the public. “There are crony capitalist profits everywhere so, if we can get one big piece of that puzzle out, then all of the other pieces will follow.”

Because much of Nigeria’s debt is denominated in naira, traders believe a devaluation need not precipitate a debt crisis. Converting dollar receipts from oil revenues into a weaker naira would also strengthen government finances undermined by chronically low tax revenue, they add.

This air of optimism in the first few weeks of Tinubu’s presidency comes as a surprise to some. In the run-up to February’s election, many investors had considered Peter Obi, who ended up in third place, the change candidate.

For them, Tinubu, the 71-year-old “Godfather of Lagos”, had started with rock-bottom expectations. Not only was he a political kingpin who critics claim amassed a fortune through the crony capitalism that now needs dismantling, he also forfeited $460,000 to the US government in 1993 after a Chicago court determined he had benefited from drug trafficking. Tinubu strongly denies any accusation of impropriety.

Nor was his election victory a ringing endorsement. According to official results, a challenge to which is trundling through the courts, 8.8mn people voted for him on a woefully low turnout of 27 per cent in a country of about 220mn.

Still, says Kevin Daly of Abrdn, an emerging markets asset manager, Tinubu comes with a reputation for having been an effective two-term governor of Lagos, Nigeria’s buzzing commercial capital. He has a strong coterie of technocratic advisers, Daly says, and, unlike the two other presidential candidates, Tinubu had never flirted with the idea of restructuring debt.

“My view is that we should be overweight Nigeria on prospects of structural reform,” Daly suggests. “Putting those two — Nigeria and structural reform — in the same sentence is something you wouldn’t have been doing for a long time.”

Dipo Salimonu, chief executive of Moteriba, an oil and gas company, says: “Whatever you say about the guy, Tinubu is the most prepared president Nigeria has ever had.”

Before the president took office, Aliko Dangote, Nigeria’s richest businessman and biggest investor, told the FT that Tinubu would be a likely surprise on the upside. Nigeria’s problems from security to its fiscal situation were so bad, that Tinubu would be obliged to end the fuel subsidy, normalise the exchange rate and reverse rampant oil theft: “He has no choice but to do it.”

Dangote, for one, has placed a huge bet on the country with a long-delayed, but potentially transformative, oil refinery and fertiliser plant outside Lagos, which may end up costing as much as $18bn. It could have a huge impact on the country’s fiscal position, even if there is nothing to prevent his company selling the bulk of its output abroad.

Dangote has never wavered from his belief in Nigeria: “But we have always lacked adequate leadership.” Few imagined that Tinubu was the man to reverse that trend. It is the new president’s job to prove them wrong.