BY SIMON KOLAWOLE
BREAKING News: The World Bank has endorsed President Bola Ahmed Tinubu’s economic policy, suggesting that Nigeria must maintain its current reforms for the next 10 to 15 years in order to be able to transform its economy. Dr. Indermit Gill, the chief economist and senior vice-president of the World Bank Group, said and I quote: “If these reforms are sustained, Nigeria will transform its economy and become an engine of growth in sub-Saharan Africa. It is very difficult to implement such reforms, but the rewards are massive.” He was speaking in Abuja at the 30th Nigerian Economic Summit with the theme: “Collaborative Action for Growth, Competitiveness, and Stability.”
Me: Thank you very much, Dr. Gill, but how many Nigerians will still be alive in the long run at this rate? With the massively falling naira, growing foodflation, explosive fuel costs, and shocking electricity tariffs, how many Nigerians will make it to the Promised Land? Nigerians have been experiencing the pains of various economic reforms for decades but it has been eons since they have had to endure this rate of price increases all coming within one year. As they are struggling to process one development, another one comes. They are asking: when will there be a respite? Petrol price alone has jumped from roughly N185/ litre to around N1,000. This was previously unthinkable.
When President Olusegun Obasanjo was about to be inaugurated in 1999, Channels TV did a vox-pop of people on the streets, asking them their expectations of the new government. “I want Obasanjo to bring the economy down,” one market woman yelled into the microphone. Don’t laugh. As far as she was concerned, the “economy” means prices of goods and services. You know everything about the macro-economic and micro-economic theories, GDP, M1, M2, M3, balance of payments, capital flows and fiscal consolidation — but the market woman knows something about the price of garri theory. No matter the imperative of reform, therefore, there is a human element that cannot be ignored.
Economic reforms are mostly presented as a technical activity. You want to attract foreign investments? Remove the artificial peg of the naira, lift barriers to free trade and don’t place a lid on capital repatriation. You want more funds for education, healthcare and to build critical infrastructure? Get rid of subsidies. You want more revenue? Increase your tax/GDP ratio — your rates are too low and enforcement too weak. You want to curb inflation? Reduce money supply by raising interest rates. On paper, these policies are no-brainers. There is just one problem: at the receiving end are human beings — and the poorest of them are always disproportionately affected.
Across the country today, Nigerians are groaning over the impact of the reform being embarked upon by Tinubu, who has been nicknamed “T-Pain”. The reform has seen to the total or partial removal of three subsidies: petrol, FX and electricity. The “technical” results are what the World Bank is celebrating: debt service as percentage of revenue is falling, meaning there will be more money to fund the budget; FX reserves are growing, meaning we can now meet our international trading obligations better than before; and federation account is getting fatter partly because of the removal of the implicit FX subsidy. But here is the ultimate test: what is the “is equal to” on the price of garri?
On the upside, the removal of petrol subsidy will end the scam that has been enriching a few. We were to spend about N5.4 trillion on subsidy in 2024, having already doled out N4.2 trillion from January to July. No such claims can be made again and there should, thus, be more money going into the treasury. On the downside, though, petrol price has been rising and making life miserable for Nigerians. It is complicated by the fact that we are not used to buying petrol at a market-determined price, so it is a culture shock. When prices were increased in the past, they usually stayed on the same spot for years no matter the ex-depot cost. This brought some stability to consumer prices.
Until recently, we were importing petrol at N1,200/litre and selling at N600. The Nigerian National Petroleum Company (NNPC) Ltd started owing suppliers and was, in no time, struggling to keep importing. Word went round that Dangote Refinery, being home-based, would soon start selling petrol for N200, but that was not to be. After all, the refinery also has to buy crude at the market price (whether in naira or dollars) — like any other refinery — before it can produce petrol. We have now entered an era where petrol, like diesel, will be priced like any other commodity as it is done in most countries around the world. The new order, unfortunately, means more pains for Nigerians.
Meanwhile, the removal of FX subsidy has brought hardship — in fact, it is the root of the biggest sufferings Nigerians have had to bear, including the hike in fuel prices and electricity tariffs. FX is the baseline for virtually everything in Nigeria, directly and indirectly. The official exchange rate was around N460/$ when Tinubu became president. It is now about N1,600/$. In the parallel market, it was N750/$ and now N1,700. We held on to the artificial/official peg for so long that the gap kept widening. Only those with “long legs” could buy FX at the official rate. The most pronounced consequences were the diversion of FX into parallel market and the backlog of unmet demands.
By allowing the naira to depreciate, Tinubu can claim to have achieved a few things. One, the incentive for arbitrage — buying at official rate and selling in the parallel market — has reduced. Some of our celebrated billionaires were milking the country dry through arbitrage: getting FX from the Central Bank of Nigeria (CBN) at N460/$ via fake transactions and roundtripping to sell at N750/$ in the parallel market. The margin was mad. The margin is thin now, making arbitrage less attractive. Two, Tinubu can also say that our dollar reserves are growing again, partly because FX inflow is now going through official sources. Now we are settling our FX obligations faster, compared to the past.
But the downside is devastating. We import most of the essential things we consume in Nigeria, including fuels, clothing, medication and intermediate goods. Any slight upward adjustment in the exchange rate will cause a ripple effect on general prices. In fact, it was when the exchange rate went gaga that it finally dawned on me that it is far more impactful on the poor than the price of petrol. Actually, the fuel prices are largely dependent on the exchange rate. In turn, the cost of transportation is determined by fuel prices. And the pricing of foodstuff, particularly in the southern part of Nigeria, is largely affected by transportation cost. It is like everything happened to us at once.
Tinubu also partially removed electricity subsidy. According to reports, the subsidy bill was estimated at N2 trillion for 2024. But through the creation of the “Band A” nomenclature and the shifting of most of the subsidy burden there, Tinubu cut the bill by half. The general economic argument is that where there is no subsidy, there is no subsidy scam. Agreed. But the impact has been equally devastating. By the time the tripled tariff landed on businesses and schools (tertiary institutions in particular), it was all tears. In sum, the removal of the three subsidies — despite all the highlighted benefits — has taken the cost of living skywards and eroded the purchasing power of Nigerians.
Where do I stand? To be sure, I am not against reform. The economic hardship is global. Our economy was racing towards the abyss. We were spending most of our revenue on servicing debts, printing money to pay salaries and failing to meet our FX obligations. We were living on borrowed time. We were getting to a stage when our letters of credit would no longer be honoured — meaning we would not be able to import basic stuffs again. It has happened before: in 1983, the Shehu Shagari administration had to set up a task force to import rice. In 1984, we were queueing to buy “essential commodities” as they were not available in the open market because of FX scarcity.
In one word, we did not have many options when Tinubu came on board. In fact, the reform should have started as far back as 2014. We did not want Nigerians to suffer, so we delayed and dilly-dallied. We started borrowing and also rationing FX to paper over the cracks. Some of the measures actually held down consumer prices for a while and I was partially in support because I believe reform has to be paced. But when the problems became overwhelming, we delayed action on many fronts. It is like a man with kidney failure dilly-dallying on dialysis until he now has to do a transplant. Nigeria is now undergoing a transplant because of its failure to do the painful but necessary dialysis for years.
Having said that, however, I still do not have nice words for the Tinubu administration. For one, it is clear that the reform was poorly conceived and harshly implemented. You can devalue the naira, yes, but no country floats its currency recklessly as we did. It was a kamikaze. Above all, the measures to cushion the pains are mostly audio. Ages ago, the Tinubu administration announced a planned suspension of tariffs on food items. Maybe it will start implementation this morning.
