Digging the country out of the hole it fell into during the Buhari years required an ingenuity never made available under Tinubu's economic shock treatment programme.
President Bola Tinubu emerged as Nigeria's President on the back of election results that gave him the weakest presidential mandate since the return of democratic civilian rule in 1999. At his inauguration on May 29, 2023, he announced, among a package of austerity measures, the immediate removal of the fuel subsidy, a longstanding economic policy introduced to protect the citizenry against high import prices given Africa's biggest petroleum producer's chronically low processing capacity.
The decision to remove the fuel subsidy was driven by the rising costs required to maintain it. Between 2005 and 2021, Nigeria spent over N13 trillion on fuel subsidy payments. In 2022 alone, it gulped 40 percent of the country's revenue. "Subsidy can no longer justify its ever-increasing costs in the wake of drying resources," Tinubu announced in what was a surprise move to citizens watching the inauguration from across the country. "We shall, instead, re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions."
While the removal of subsidy was the headline move, the Tinubu administration followed it up with a series of classic 1980s-style shock treatments. The country's currency was floated, a presidential fiscal policy and tax reforms committee was constituted to widen the tax net and increase revenues, and, paradoxically, a state of emergency was declared to arrest the rising cost of living - itself a direct consequence of Tinubu's 29 May announcement.
One year later, the shock treatment is not working. By the IMF's own estimation, contained in a report issued in early April 2024, "[...]per capita income has stagnated. Real GDP growth slowed to 2.9 percent in 2023, with weak agriculture and trade...despite the improvement in oil production and financial services." In addition, "Inflation reached 32 percent year-on-year in February 2024, driven mainly by food price inflation (38 percent)."
The country's economy is in its poorest state in decades - in a worse state than it was during the Buhari era when rampant insecurity hit oil production and agricultural activity even as the Central Bank of Nigeria's policy to defend the Naira distorted the forex market and artificially shored up the currency. Attempts to contain inflation by mopping up liquidity - there was a recall old currency notes and issuance of new ones - led to countrywide riots.
In April, the country's inflation rate climbed to 33.69 percent, its highest since March 1996 according to the National Bureau of Statistics. The latest rate marked the 16th consecutive month the country's inflation rate increased. The cost of food has soared to 40.53 percent, a massive jump from the 25.25 percent it was in June 2023.
In a May 2024 report, the IMF indicated that the Nigerian government had restored the fuel subsidy. This implicit return, according to the Fund, explains why the cost of fuel in the country which tripled last year, remains capped in spite of fluctuations in the global crude oil market. Multiple citizens told African Arguments that they consider this situation an indication that the government's economic policies over the past twelve months have failed.
However, experts believe the situation must be approached with proper nuance and an outright condemnation of all the economic policies is too simplistic. Seun Onigbinde, Executive Director of Nigerian fiscal accountability platform, BudgIt, argues that the current state of the country's economy is primarily a product of the poor pattern and timing of the execution of some of the policies. "I feel like a lot of decisions were rushed. It felt more like the administration moved from politicking to governance without properly understanding and getting a proper awareness about the true situation of things," he said.
While noting that the presence of an implicit subsidy as identified by IMF is an indication that the removal of fuel subsidy has not served its purpose, Onigbinde describes the government's overall economic policies over the past twelve months as one that did not come as a whole. "The policies were expected but the orderliness of the policies, the wholeness of the policies and how they were implemented was not well thought through."
In June 2023, a few days after the removal of fuel subsidy, the Central Bank of Nigeria (CBN) officially floated the country's currency after years of pegging the rate. This reform was pushed by the administration to ensure a unification of the exchange rate on the official and parallel markets. By February, the value of the naira had depreciated by 70 percent against the dollar, forcing the CBN to resort to unprecedented measures including the use of guns, through law enforcement agencies who raided currency exchange spaces popularly known as bureau de change, across the country.
The bank also pinpointed cryptocurrency exchange platforms, primarily Binance, as a factor responsible for the devaluation of the currency, leading to the arrest of two of the company's executives and its withdrawal from the country. This series of clampdowns by the CBN led to a temporary gain in the value of the currency in April, leading to a declaration by the apex bank that the currency was the best performing in the world. But less than a month later, this gain has been reversed. By the time of writing on 26 May, the currency had lost 27 percent of its value , becoming the worst-performing globally according to a Bloomberg report.
Zero preparation
The trickle-down effect of the country's economic woes is multidimensional. To cope with the deteriorating state of the economy, Nigerians have resorted to extreme measures. University undergraduates are cutting down on the number of times they eat daily and trekking to classes. The rising cost of products has forced small-scale businesses to close-up and pushed larger ones to the brinks.
For example, the floating of the exchange rate means the country's monthly minimum wage of N30,000 which was equivalent to $84 when it was introduced in May 2019, $65 when Tinubu became President in May 2023, is worth only $20 today. This reality is exacerbated by the import-reliant state of the country's economy as the majority of essential commodities, including food and medicine, that Nigerians consume are imported.
This situation has triggered a cost of living crisis that has forced some parents to send kids to bed without food, reduced access to healthcare due to rising cost of drugs like Glucophage, used in the treatment of type 2 diabetes, which now costs more than four times the amount it did a year ago. The crisis has also triggered multiple protests from residents, especially labour union workers, leading the African Development Bank to express concern about possible social unrest in the country.
This explains why even though inflation has spiked significantly over the past twelve months, experts believe the figure does not paint a full picture of what Nigerians face. About 75 percent of electricity supply in the country comes from diesel and petrol-powered generators. The removal of subsidy means the percentage of Nigerians who can generate power supply through this means is now limited. The implicit subsidy to keep the price of fuel at triple its cost a year ago does not change this reality for many.
Unaffordable food prices, rising transport costs, and struggling businesses are some of the biggest effects of these economic policies. In the first quarter of the year, the country's Gross Domestic Product (GDP) growth rate declined to 2.98 percent from the 3.46 growth rate recorded in the previous quarter. Overall, the country's economy remains heavily reliant on the oil sector which accounted for 81 percent of exports in the final quarter of last year alone.
Even though the government announced efforts designed to cushion the effects of its economic policies, notably a social cash transfer programme and a one-off wage increase for civil servants, there is little to show for it. The inability of the government to effectively implement these measures is responsible for the continuous decline that the shock treatment has caused the economy, Razak Fatai, the research and advisory lead at Lagos-based consultancy firm, Vestance, explained.
"He (Tinubu) said he was going to bring in CNG [public transport] buses, come up with policies that would help reduce all these burdens, reduce cost of transportation especially... but what we've seen has been empty promises. So, for me, it felt more like they were not prepared to deal with the aftermath of that policy. And that's why we have them here today," he said.
Despite these challenges and the unfavorable economic condition citizens now live under, the IMF in its Post Financing Assessment (PFA) published in February continued to back the government's decision to remove fuel subsidy, emphasizing the need to eliminate the electricity subsidies and implicit fuel subsidy that currently exist. At the same time, the Fund acknowledges that the compensatory measures designed by the Nigerian government to cushion the adverse effects of these policies on the poor did not do much because they were not scaled up promptly and subsequently paused over corruption concerns.
Clapping with one hand
To curb the rising inflation rate and stabilize the Naira, the CBN has increased interest rates three times in the past four months. This month, the apex bank hiked the rate to 26.25 percent, setting a new record for the country. In spite of these moves, the country's inflation rate has continued to rise and the value of the Naira continues to fall in the exchange rate market.
However, experts believe that these efforts have failed to achieve the desired economic outcomes because of the disconnect between the government's fiscal and monetary policy, a development that they consider central to the inability of Tinubu's administration to deliver on its economic promises in its first year.
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"The CBN has done what it could in terms of trying to tweak the fundamentals by raising the rates, telling banks to sell their position on fx [foreign exchange market]," Seun says, noting that the fiscal end has been relatively silent. "It's clapping with one hand. It will never be enough."
In July 2023, Tinubu constituted a Presidential Fiscal Policy and Tax Reforms Committee to design a new framework for the country's fiscal policy, taxation, and revenue administration. Even though the committee has a one-year timeframe to deliver this task, Onigbinde believes the current state of the economy means political authorities must act faster.
"Even the budget that is supposed to be an instrument of fiscal control, the government did not do proper due diligence in that regard. That's why when the rate fell to around a thousand and everyone felt maybe it's working. But it has now crawled back around 1,500 just because the resource authorities on the fiscal side are not doing what they are supposed to do," he added.
Meanwhile, Razak added that overall, the government has been too reactive in its policy response. "This government, they talk too much and they do less. I think they are mostly concerned about how they are perceived which is why we see that a lot of their policies have been quite [reactive]."
However, as Nigerians continue to deal with the effects of these economic reforms, Seun argues that the true determinant of economic transformation for the country lies in the government's handling of four fundamental pieces: fiscal discipline, productivity, human capital investment and prioritization of long and medium term effects in policy-making. "People (public officials) keep thinking about what do I want to do to satisfy the populace in the next election. We have done that for years and we know it has not served us," he added.
Adebayo Abdulrahman is Nigerian journalist, fact-checker, climate justice ambassador, and multiple-award-winning public speaker. A graduate of Mass Communication from The Polytechnic, Ibadan, he's currently pursuing a Bachelor's degree in Political Science at the University of Ibadan.
