Nigeria: Way up for the economy remains as challenging and distant, despite bold reforms by the new regime
The election of Bola Tinubu as Nigeria's president in May 2023 caused significant changes in market sentiment, displaying excitement and caution. Tinubu's administration has implemented critical economic reforms to stabilize and reinvigorate Africa's largest economy. These policies have generated substantial movements in financial markets, changed investor sentiments, and have impacted society in a big way
Key economic reforms
Removal of fuel subsidy: Tinubu's administration has removed the long-standing fuel subsidy. This subsidy tremendously impacted Nigeria's budget, costing the government billions of dollars each year. While its elimination increased fuel costs and general inflation, markets regarded it positively as an essential step towards budgetary sustainability. The government plans to redirect savings from this subsidy towards crucial infrastructure and social services, potentially promoting long-term economic growth and stability
Exchange Rate Unification: Nigeria's exchange rates were merged into a single market-driven rate, a considerable advancement. This plan aimed to eliminate the distortions caused by fluctuating currency rates and make Nigeria more appealing to foreign investors. Although the immediate result was a sharp devaluation of the Naira, the long-term goal is a more transparent and stable exchange rate
2024 Budget and Fiscal Policies: The 2024 budget, known as the "Budget of Renewed Hope," laid out a plan for economic recovery and prosperity. The budget emphasized employment growth, macroeconomic stability, and human capital development. Significant investments in defense, education, and infrastructure were announced, focusing on using public-private partnerships to fund massive projects. The administration wanted to raise the revenue-to-GDP ratio from below 10% to 18% through comprehensive tax changes and enhanced public financial management
Impact of Reforms
Inflation - the most pressing issue - going out of control: Despite a positive market sentiment, the economic climate in Nigeria remains challenging. The high inflation rates, worsened by the removal of fuel subsidies and currency adjustments, are driving up the cost of living for many Nigerians. The Central Bank of Nigeria has taken decisive steps to implement tight monetary policies to combat inflation and stabilize the currency, but the results have been mixed. The Purchasing Managers' Index, a key indicator of corporate activity, has shown significant fluctuations, reflecting both economic growth and volatility
Social changes: Mr Tinubu unleashed a range of reforms for the Nigerians aimed at reviving the economy, investments, and providing food security. However, in the short term, these initiatives have resulted in the opposite: a significant surge in living costs. The wage growth has not kept pace with the inflation and has pushed millions of Nigerians into poverty. A record number of multinational companies left Nigeria, leading to more joblessness. Food inflation touched a record-high level of 40.8% in April 2024 due to fuel subsidy removal and increased taxes, which did not spare the commodities dear to people experiencing poverty. This has led to changes in the social structure of the country and increased poverty and impoverishment
Stock Market Surges: The Nigerian stock market has been among the direct beneficiaries of the new administration's measures. Following Tinubu's inauguration, the Nigerian Exchange All-Share Index (ASI) showed remarkable stability and growth. According to PM News Nigeria and Newsroom Nigeria, the ASI climbed by more than 76%, rising from 55,738.35 points in May 2023 to over 98,383 points by May 2024. This increase is emphasized by growing investor confidence in the government's economic strategy, notably those aiming at fiscal discipline and economic diversification