There are indications that the economic reforms embarked upon by the current administration may have turned into mounting economic troubles and a reversal of fortunes for the country.
At his inauguration as the President and Commander-in-chief of Nigeria, President Bola Tinubu pledged to unify a complex system of exchange rates and scrapped a costly years-old system of fuel subsidies, sending Nigerian markets soaring.
However, economic analysts noted that as a result of the general feeling of disillusionment caused by issues like the unrelenting fall in the value of the Naira and the attendant high cost of living, prompting organised labour to declare an indefinite strike this week, it is very clear that the reform momentum has entered a reversed gear.
There are also indications that the Federal Government may have returned subsidy on petrol, using the supposed commercialised Nigerian National Petroleum Company (NNPC) Limited to manage the market shocks and maintain a monopoly of the downstream segment of the nation’s oil and gas industry.
According to a Reuters report, the naira value was at its lowest, going for as low as N1,000 per $1 at the black market, widening the gap with the official rate which stood at N785 per dollar last week, despite President Bola Tinubu’s promise to unify the foreign exchange windows during his inaugural speech on May 29.
Meanwhile, petrol pump prices, have not budged since July despite a more than 30 per cent rise in crude oil prices.
Many analysts fear that the president may not be able to wean Nigeria off the costly policies that have stymied investment and throttled economic growth and according to an African economist at research firm, Capital Economics, David Omojomolo, “Momentum just seems…almost in reverse.”
However, public anger is swelling as inflation spirals higher, and Nigeria’s two biggest workers’ unions, the Nigeria Labour Congress (NLC), and Trade Union Congress (TUC) are planning an indefinite strike from Wednesday to protest a cost-of-living crisis.
An analyst with Tellimer, Patrick Curran said: “Sentiment towards Nigeria has been continuing to sour as the initial reform momentum under President Tinubu’s administration has faded.”
Tinubu’s decision to let the official naira rate weaken saw it briefly converge with the black market. Recently, he promised investors they could take money out, touting a “reliable, one-figure exchange rate of the naira.”
But the gap widened to nearly 30 per cent last week, and four sources told Reuters it was virtually impossible to get dollars from the Central Bank of Nigeria (CBN) on an ad hoc basis.
The new CBN Governor, Olayemi Cardoso disclosed last week that policymakers faced a nearly $7 billion backlog in foreign exchange demand.
Foreign airlines alone had $783 million in ticket sales trapped, the International Air Transport Association (IATA) said, with analysts saying this is one major factor keeping investors from putting money to work in Nigeria.
The report said providing dollars at an artificially low rate has led to a yawning gap between official and black-market rates, leaving businesses and investors unable to access dollars.
The CBN has also created import restrictions aimed at reducing dollar demand.
The problem is said to have been exacerbated by the negative real bond yields and the slow response by the apex bank.
Portfolio Manager at Vontobel Asset Management, Carlos de Sousa, was quoted as saying “What they have done so far is not enough to attract domestic debt holders or foreign investors into their domestic debt market.”
Analysts said part of the blame should go to the immediate past administration which left tattered finances for the successor to deal with. For instance, in August, the CBN published audited accounts for the first time since 2018, revealing that its $33 billion in FX reserves included a $19 billion commitment in derivatives – slashing the liquid amount of reserves.
“Lower net FX reserves reduce the willingness to introduce a flexible exchange rate regime in the near term,” said JPMorgan’s Gbolahan Taiwo.
Analysts also fear that the delay in scrapping fuel subsidies is exacerbating the dollar crunch. Last year, subsidies cost two per cent of gross domestic product, according to Fitch.
“There is the concern that when the going gets tough…they will walk back on the reforms,” Omojomolo said.