June 23, (THEWILL) – “Nigeria is facing its worst economic crisis in decades, with skyrocketing inflation, a national currency in free-fall and millions of people struggling to buy food. Only two years ago, Africa’s biggest economy, Nigeria was projected to drop to fourth place this year”
This was how The New York Times opened its economic update on Nigeria, on Tuesday, June 11, 2024. The newspaper titled the piece: ‘Nigeria Confronts its Worst Economic Crisis in a Generation.’
It said: “The pain is widespread. Unions strike to protest salaries of around US$20 a month. People die in stampedes, desperate for free sacks of rice. Hospitals are overrun with women wracked by spasms from calcium deficiencies.”
It further said: “The crisis is largely believed to be rooted in two major changes implemented by a president elected 15 months ago: the partial removal of fuel subsidies and the floating of the currency, which together have caused major price rises.”
Still going granular, the paper stressed: “A nation of entrepreneurs, Nigeria’s more than 200 million citizens are skilled at managing in tough circumstances, without the services states usually provide. They generate their own water; they take up arms and defend their communities when the armed forces cannot; they negotiate with kidnappers when family members are abducted.”
Without a doubt, The New York Times’ work on Nigeria is a dispassionate and illuminating update on the state of the country’s economy. It serves as a veritable gauge and guide to discerning stakeholders in the Nigerian polity.
Boldly and accurately, the paper situated Nigeria’s current economic debacle on the twin key policies of the President Bola Ahmed Tinubu administration: fuel subsidy removal and Naira floatation.
It is truly apposite and politic to ask: would the Nigerian economy have turned out the way it is today, if those twin policies were not put in place by the government? Are the outcomes of those policies what the government intended to achieve?
The answer to both questions is NO. So, the subsisting hyperinflationary trend in the past one year is really policy-induced. The same with the free-fall of the national currency (the Naira) as well as the impoverishment of millions of the citizenry in the past 12 months.
In point of fact, the rate of inflation (measured by Consumer Price Index, CPI) was at just about 22.40 per cent as of May 2023.
But as at end-May 2024, it had gone up to 33.95 per cent. Also, the official exchange rate of the Naira against the dollar by May 2023, was about N465/$. This has since deteriorated to close to N2000/$, before hovering around N1500/$ that is the situation today.
By the same trend, the pump price of fuel (Premium Motor Spirit, PMS) which was below two hundred naira per liter in May 2023, has since June 2023 shot up to N700 per liter (and much higher in many locations).
It has been argued ad nauseam that the immediate past administration of President Muhammadu Buhari had ‘removed’ fuel subsidy at the point of handing over to the current administration. Proponents of this view maintain that the National Assembly (via 2023 budget) had put the end of fuel subsidy payment at June 2023. But President Tinubu’s pronouncement of “fuel subsidy is gone” was actually made in May 2023; one month before Buhari’s deadline. Could President Tinubu have delayed the subsidy removal fiat, if he had properly assumed office before the policy pronouncement?
Were there not other pieces of legislation that President Tinubu used his good offices to postpone their implementation soon after he was sworn-in? The answer is YES! There were many. Therefore the take-off of the termination of fuel subsidy could have been suspended or postponed, to enable Mr. President to ‘understand’ the terrain more intimately. Same goes for the floatation of the Naira.
Bad as the existence of multiple exchange rates were, the other extreme of fully floating the Naira should have been implemented ‘very gradually.’ Not in one fell swoop. Gradual floatation should have been the approach.
These peremptorily imposed policies have no doubt taken the Nigerian economy farther into the woods in the past 12 months. In this regard The New York Times said: “More than 87 million people in Nigeria, Africa’s most populous country, now live below the poverty line—the world’s second-largest poor population after India, a country seven times its size. And punishing inflation means poverty rates are expected to rise still further this year and next…”
Unfortunately, the dissonance between the fiscal and monetary authorities’ stances in the past one year in Nigeria has not helped in addressing the deleterious consequences of government’s economic policies. In pursuit of its stated goal of curbing high inflation rate, the Central Bank of Nigeria (CBN) has opted for continued raise of interest rates in the financial system.
Thus, between February and May this year, the apex bank had raised its indicative (benchmark) interest rate (Monetary Policy Rate, MPR) from 18.75 per cent to 26.25 per cent—a whopping 750 basis points.
This, among other measures, have seen effective interest rates on bank facilities climbing as high as 35—40 per cent. With this, genuine businesses—especially, the Small and Medium Scale Enterprises (SMEs)—have been crowded out of the credit market. Loans are being priced beyond their reach.
The few (mainly trading) businesses that take the loans, have their cost of operations driven up, and have to transfer such to the ultimate consumers—as higher prices. This keeps driving up inflation, rather than the other way round.
Also, because of the hugely depreciating local currency, importers of raw materials, machineries and goods end up deploying so much Naira to procuring dollars in the forex market. This high cost also gets factored into their pricing, and ultimately transferred to consumers.
This is also responsible for the consistently high and rising prices of PMS in the past one year. Rather than expediting efforts to refine crude oil locally, the government resorted to licensing more importers of the commodity; this has been putting pressure on the Naira in the forex market.
In this regard, The New York Times said: “Nigeria is a country heavily dependent on imported petroleum products, despite being a major oil producer. After years of underinvestment and mismanagement, its state refineries produce hardly any gasoline.
For decades, the national soundtrack has been the hum of small generators, fired up during daily power outages. Petroleum products move goods and people around the country.” The consequence of all this is that one year into the tenure of President Tinubu, no local refinery in Nigeria is in operation.
The much-touted Dangote Refineries commissioned by President Buhari in the last days of his administration in May 2023, is yet to produce a drop of PMS. The repairing of government-owned refineries (four in number) has remained a forlorn hope.
For the umpteenth time, officials of the government have promised the recommencement of oil refining at the Port-Harcourt Refinery. This promise has since turned into a joke that deepens loss of confidence in government by the citizenry.
On the worsening food insecurity in the land, The New York Times said: “Nigeria cannot produce enough food for its growing population; food imports rise eleven per cent annually. The currency devaluation caused those imports—already expensive because of tariffs—to explode in price.” And the newspaper went on and on to point out more worrisome details of an economy that seems ineluctably heading for an abyss.
But, coming just on the first anniversary of the Tinubu administration, The New York Times’ treatise on Nigerian economy must be seen, rightly, as a wake-up-call on government to truly commence an effective turnaround of the economy.
While some of the issues raised in the publication mock Nigeria and Nigerians, they are pointers to the ‘faulty’ foundation upon which the Nigerian economy is being built by the powers that be. But it is not too late to beat a retreat!
•Okeke, is a practicing economist, business strategist and ex-Chief Economist of Zenith Bank Plc
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