Hard Lessons for Tinubu on Tough Reforms

Postscript by Waziri Adio

President Bola Tinubu delivered probably one of the most consequential adlibs in the history of presidential inaugurations. “The fuel subsidy is gone!” he thundered on 29th May 2023 at the Eagle Square in Abuja, totally off-script, and reportedly catching even his closest advisers by surprise. In the same speech, he foreshadowed another major reform. “The Central Bank must work towards a unified exchange rate,” he intoned. By 14th June 2023, the Central Bank of Nigeria (CBN) obliged: it floated the Naira. On the days that Tinubu’s two signature reforms took effect, the price of petrol jumped by at least 195% and the national currency tumbled by 38% in the official market. 

Both forces—and the attendant pain points—were unleashed within Tinubu’s two weeks in office. This was quite a plucky thing to do by a president elected with a mere 36.61% of the total votes cast, the slimmest slice of votes secured by a Nigerian president since 1979 when late President Shehu Shagari was elected with just 33.77% of the total votes in our first, and still the most keenly contested, presidential election. For his daring take-off, Tinubu was largely hailed, not assailed. There was opposition, no doubt, but it was muted. The media, international investment advisors and development partners heaped generous praises on the ‘audacious’ and ‘reformist’ president. A reputable international news agency even lionised him as Baba-Go-Fast.

Within nine months, the picture has changed. The forces that Tinubu set in motion have put households and businesses under intense stress. Companies, especially small businesses, are taking severe hits, with more than a few skipping town or going under, and with grave implication for jobs, prosperity, and social order. The majority of Nigerians are struggling to feed themselves and their families as food prices keep rising, ominously in a country that has been struggling with food security for a while and where citizens, on the average, spend 59% of their incomes on food alone. There have been a few protests about high food prices and even a few sporadic attacks on warehouses and trucks harbouring food items.

Tinubu’s two reforms—or more rightly their manner of implementation—cannot be divorced from the worsening economic indicators and the growing hardship in the country, despite the clever attempts by some in the government to create distractions and scapegoats. But as the pains expand without any respite in sight, Tinubu’s avid praise-singers of just a few months ago have, in a manner of speaking, changed their mouths. Those who just yesterday saluted his audacity are now accusing him of being whimsical. Some of his ardent supporters are wavering, and the opposition to him is spreading beyond the legacies of the fractious elections of a year ago. One of the signature reforms has been paused, and sensibly so. The other reform also stands the risk of unravelling. Tinubu and his inner team must be wondering how things fell apart, and so quickly.

This is not a turn not foretold. In at least two separate interventions on this page in the early days of the reforms (‘Tinubu: Looking Beyond Initial Adulation’, published on 18th June 2023; ‘Need to Risk-proof Nigeria’s Fragile Reforms’, published on 2nd July 2023), I submitted that hard reforms must be handled with tact, that not much store should be placed on early adulations (given the reality of the ‘Hail-Ceasar, Nail-Ceasar’ phenomenon), that reliefs for the poorest of the poor should be frontloaded or swiftly sorted out, and that the reforms should be underpinned by a sound and clearly communicated strategy. 

On 18th June 2023, I wrote: “… no honeymoon lasts forever. Initial surprise and excitement will fade, especially as short-term gains may not outweigh lingering and additional pains. Tinubu needs to anticipate this phase and stay ahead of the curve… As Tinubu enjoys the praises, he needs to speed up action on how to cushion the attendant pains of the reforms and impose greater clarity on these policies.”

I elaborated further on 2nd July 2023: Reforms, especially the contentious types, can be fragile. They need careful nurturing, protection even, to yield results and in the desired quantum. Reforms are rarely painless and the gains may be late or elusive. When the definite pains of change linger, the promise of a brighter future is hardly strong enough to checkmate pushbacks. Unravelling is likely to follow, at greater cost to the society. This is a probability that should keep reformers and reform advocates constantly awake.

“President Tinubu has been drenched in praises, including from unusual quarters… He has been described as audacious and sagacious. He should soak in the adulation, but should not get carried away. As I mentioned in my last piece on this page, public adulation (both domestic and external) can be fickle. Besides, announcing a removal or suspension is not all there is to reforms. What has happened at best is a good start. But then, reform is not a sprint. It is a marathon. So, after starting out well, President Tinubu needs a robust plan that will see him through the tortuous and sometimes lonely and slippery terrain to podium success. He needs a comprehensive reform strategy.

I am tempted to use the title of the latest album by an Afrobeats artiste, but gloating is of no utility in this instance. It is important to get this clear: I think the two reforms are important and necessary. Spending $10 billion on petrol subsidy in one year, as we did in 2022, is simply not sensible nor sustainable. The arbitrage-ridden multiple exchange rates were also a disincentive to capital flows and investment, which our floundering economy badly needed. So, I supported the two reforms, and I still support them. However, this is my point of departure: it is possible to do the right thing in a wrong way or/and in the wrong order. This is the central problem with the Tinubu reforms.

The first hard lesson for Tinubu is that while courage is very important for undertaking tough reforms, courage is simply not enough. There is no substitute for a well-thought-out and thoughtfully-implemented reform strategy. When Tinubu decreed the end of petrol subsidy, it was assumed that he had a robust and comprehensive plan that anticipated all the channels through which Nigerians, especially the poor, would be immediately impacted and reasonable ways to mitigate the pains. It was also assumed that he and his team had thought through all the scenarios and how the different parts connected and that they had put in place risk-mitigation plans, including if there would be circuit breakers in case the price of crude oil doubled or tripled. More than nine months after, we are still discussing the content and the implementation of the relief package.

But more disturbingly, we are back to status quo ante on petrol subsidy, and in a disorderly fashion. After regular increases in pump prices of petrol, both the Presidency and the national oil company announced a stay on further increment. Contrary to President Tinubu’s declaration, the reality is that petrol subsidy is back. NNPCL has gone back to being the sole importer of petrol, as it is the only entity with the capacity to accommodate unbudgeted subsidy. We are back to the spot where petrol sells for considerably cheaper in Nigeria than in our neighbouring countries and to the opacity of subsidy management, and we all know what both developments mean. We don’t have official figures of the current size of the petrol subsidy, but it is conceivable that it is considerable, probably higher than it was pre-Tinubu’s declaration at Eagle Square.

The second hard lesson for Tinubu is the place of sequencing in reforms. To be sure, there is a school of thought that canvasses for ripping off all the bandages and bringing on all the pains to address all the ailments. But even if we stay with that analogy, there is a limit to how much pain the human body can tolerate. The same with the body polity. Removing petrol subsidy (with or without a plan) is a massive shock on its own. Layering that with a currency float multiplied and compounded the shock in a country that still imports almost all its refined petroleum products and where constant Naira depreciation would further and constantly shoot up prices of imported items, including prices of refined petroleum products. 

Petrol subsidy is back precisely because the Naira was floated, not because of even a major increase in the price of crude oil (imagine if that happens too). Higher prices of petrol and diesel (which is not paused and now sells for about N1600 per litre in Abuja) have translated to higher transportation costs and higher food prices, the two items that our large army of poor people spend most of their incomes on. The rapid depreciation of the Naira has led to sharp and consistent increase in the prices of imported items (in a country that imports a lot, including intermediate goods and farm inputs). Prices of other things, including locally produced food items, logically moved in tandem on account of inflation expectation, rising cost of production and expected value exchange.  All these came together to produce the worst cost of living crisis in recent memory, a crisis that has almost pushed the country to the edge.

This may be a counterfactual, but things wouldn’t have taken this sour turn if Tinubu had adopted a gradualist and better phased approach. He could have allowed the country to fully absorb the shocks of petrol subsidy removal before embarking what clearly is an open-ended devaluation of the national currency. And even with that, the CBN could have started with eliminating the many official exchange rates, then moved on to a gradual and orderly devaluation. But we went for the big bang of a free float possibly to please investors. We need the investors and their investments no doubt, but we don’t have to set our country on fire for them.

The third hard lesson is that tough reforms should not be implemented on mere hope and assumptions. It is now apparent that we floated the Naira without full knowledge of the true state of our external reserves and without sorting out needed forex liquidity. We also acted on the hope that direct and portfolio investors would flood into Nigeria and that development partners, international financial institutions, and deep-pocket countries that have been urging us to undertake difficult reforms would reward us with the needed support. But the investors hesitated and the so-called partners started speaking in tongues. The president has visited three highly liquid petrostates, but no one has supported us with the required forex supply yet.

We are taking a humbling lesson in geo-politics, as we now realise that our size and self-perception do not necessarily put us on the same strategic footing of Egypt and Turkey to the Arab petrostates or of Israel and Ukraine to the US and other western powers. We are on our own, the more reason we should have managed our affairs more properly in the first instance. We are also getting to learn the hard way that we are competing with others for investors’ funds. The overarching lesson here is to realise that no one owes us anything, and we should anchor difficult and potentially destabilising reforms on what we are sure of or what we have secured, rather than on mere hope. As is often said, hope is not a strategy.  

It is not too late to return to first principles. The Tinubu flagship reforms should have been preceded by comprehensive reform strategies, including robust implementation plans and communication strategies. A skilful and agile reform team should also have been in place not only to lead the implementation but also to ensure proper coordination (which is coming off as one of the weakest points of this administration). There is a lot to learn from the initial missteps, if we are open to learning. There is still a major opportunity to put the reforms of stronger footing. Even this late in the day, it is not too late to go back to the building blocks.  

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