June 16, (THEWILL)- It is most auspicious at this time, exactly one year after the inauguration of the Bola Tinubu Administration (May 29, 2023), to do an appraisal of how well or otherwise the Nigerian economy has fared. This performance assessment also gives the opportunity to gauge the direction, if any, that the economy is headed. In doing this, it is most fitting to use appropriate barometers, to portray the extent of progress (or lack of it) in the past twelve months.
It is apposite to mention here that the two arrow-head policies of the administration had been the removal of fuel subsidy, which Mr. President announced in his inaugural address; and the Naira floatation effectuated by the Central Bank of Nigeria (CBN) mid-June 2023. Although there have been ancillary and kindred policies by the administration, it has been the wide-ranging and far-reaching impacts (mostly unintended and negative) of these two key initiatives that have shaped the economy in the past one year.
One of the immediate effects of fuel subsidy removal was the unprecedented jump in the pump price of Premium Motor Spirit (PMS): from about two hundred naira per liter to between six hundred to eight hundred naira per liter within one week of the subsidy withdrawal. The impact and import of this pump price spike soon percolated and spread economy-wide, pushing up the prices of food, transportation, and all consumer items practically through the roof. This soon began to reflect in consistent spikes in inflation rate.
Thus, while the rate of inflation (measured by Consumer Price Index, CPI) stood at about 22.22 percent as of April 2023, by April 2024, it had hit 33.69 per cent, according to data from the National Bureau of Statistics (NBS). This runaway inflationary trend has since translated into thoroughly weakened consumer purchasing power. It has also resulted in mounting stock of inventories for many business, especially in the manufacturing sector.
Almost simultaneously, the floating of the Naira, in a bid to unify exchange rates in the foreign exchange (FX) market, led to a massive devaluation of the national currency. While the rate of exchange (officially) was about N462/$ as of May 2023, by March 2024, it was almost hitting N1900/$. From this nadir, however, the exchange rate has remained volatile, moving from a new strength of almost N1000/$ in April to hover around N1400/$ in the last week of May 2024.
All these have translated into worsening trend of FX scarcity in the forex market, and endless devaluation of the Naira. As a largely import-dependent economy, massive importation of all manner of goods and services by Nigerians also meant imported inflation. This filters in through rising cost of importing PMS (almost 100 percent of local need), machineries, raw materials, other intermediate goods and sundry items for conspicuous consumption.
As the rising inflationary trend kept ravaging the economy and impoverishing the citizenry, the apex bank adopted a tight monetary stance to checkmate it. Thus, in an unprecedented monetary policy initiative, the CBN through its monetary policy committee (MPC) raised the indicative interest rate (monetary policy rate, MPR) by a cumulative 750 basis points in a space of three months (February to May). MPR got hiked from 18.75 per cent in February to 22.75 per cent; got raised further in March to 24.75 per cent, and yet further to 26.25 per cent in May 2024.
Alongside the hike in MPR, the apex bank also raised the Cash Reserve Ratio (CRR) to 45 per cent: essentially to drain (and ‘sterilize’) more loanable funds of the deposit money banks (DMBs). This, plus the over 35 percent effective interest rate on bank loans, following from the MPR at 26.25 per cent, meant shrinking access to credit for businesses in the economy. On its part however, latching onto the high interest rates environment it created, the apex bank wooed and attracted some foreign portfolio investors (FPIs) and sold them Government Treasury Bills in an Open Market Operation (OMO).
Apparently, the OMO and the ‘hot money’ generated therefrom, was deployed by the apex bank in the FX market (at some point) to achieve a temporary strengthening of the Naira. This ‘gain’ was however very short-lived, and sooner than later, volatility resumed in the FX market. This then underlined the long-known fact that the FX market is bedeviled more by dollar scarcity than any other challenge. At all times, demand for the US green back far outstrips its supply in the forex market.
Crude oil production and export from which improved FX inflow should have been realized, remained dogged by a multiplicity of issues. These include the lingering bizarre phenomenon of oil theft that has since been depleting Nigeria’s realizable FX earnings. From all indications, the economic sabotage (oil theft) did not abate one bit in the past one year. If anything, the Government has been engaging and sponsoring non-state actors as security providers for oil operations. This has, however, been generating more tension and acrimony among stakeholders than the desired results.
The upshot of this is that Nigeria’s crude oil production and export have consistently remained far below its allocated quota by the Organization of Petroleum Exporting Countries (OPEC). While the nation’s OPEC quota stands at about two million barrels per day, Nigeria’s actual production has been hovering around one million barrels per day.
This level has only inched up to about 1.3 million barrels per day few months ago. Yet, the nation’s 2024 Appropriation Act is couched on assumed oil production level of 1.78 million barrels per day.
Surprisingly, and unfortunately too, as the Tinubu administration clocks one year, the damaging effects of the fuel subsidy removal policy are yet unresolved. Today, neither the privately-owned Dangote Refinery nor any of the Government-owned ones is producing/supplying the badly-needed PMS. This accounts for why, in the past two months or so, acute scarcity of the product has remained virtually in all nooks and crannies of the country. There is only the hope/promise that the Port-Harcourt Refinery would re-commence production ‘soon,’ after years of lying moribund.
Another ripple effect of the key policies of the Government in the past one year (with the attendant impoverishment of the citizenry) has been the raging demand by workers for improved salaries and wages. Indeed, it has been a dingdong between the Government and the organized labor (NLC and TUC)—manifesting in sporadic protests by labor unions in various parts of the country. There have been several failed negotiations between Labor and Government; even today, the stalemate yet subsists over what will constitute the minimum or living wage in the country.
In the face all these, rather devising any prompt and concrete solution to the pervading misery and hardship in the land, Government came up with palliatives. In cash and kind, the Government doled out palliatives to Nigerians, apparently targeting to assuage the sufferings and impoverishment of the ‘wretched of the earth.’ But the abuses and corruption in the system largely defeated the objectives of the initiative. And so, till date, especially at sub-national levels, most palliative measures are being mistaken for real economic development. And the game goes on!
Even as the Government marks its one year anniversary, it is yet to present its overarching economic roadmap and development trajectory. Only wooly statements such as proposal to come up with a 2024 supplementary budget and self-adulation of having undertaken ‘bold’ reforms are all the scorecard in the public space.
To this could be added the fanfare around Mr. President going to the National Assembly (NASS) to sign into law Nigeria’s re-adopted ‘old’ national anthem. And then, the palliative of allowing Abuja (Federal Capital Territory, FCT) residents ‘free’ use of the city monorail for next six months. And so on. Alas, whither the Nigerian economy?
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