Elections come and go, but their outcomes play a significant role in shaping the trajectory of a nation, both politically and economically, at least for the tenure of the elected. The February 25th, 2023 presidential election stands out as arguably the most fiercely contested in Nigeria's democratic history due to the emergence of a formidable third force that disrupted conventional voting patterns. Although INEC’s introduction of the Bimodal Voters Accreditation System (BIVAS) aimed to enhance transparency, the electoral process was marred by various irregularities, including voter intimidation, suppression, and technical glitches. 

Bola Ahmed Tinubu secured only 36.6% of the total votes, marking the lowest winning margin in this republic, as reported by the Centre for Democracy and Development. As President Tinubu marks his first year in office, the nation stands at a crossroads, grappling with the stark realities of his governance. Nigerians retrospectively look at the past 365 days to see if Tinubu’s leadership has sparked a new dawn of promise or if it has cast shadows of doubt on the hopes of over 200 million Nigerians. Join us as we delve into Tinubu’s one-year scorecard as Nigerians pose the question: Is hope truly being renewed or shattered?

Yanking off all subsidies, any reward in sight?

“Fuel subsidy is gone” was probably the most unexpected statement from Mr President on his inauguration day, May 29th, 2023,  proclaiming the end of decades-long subsidies on PMS, which took effect in the 1970s. The emergence of fuel subsidies in Nigeria dates back to the military regime of Olusegun Obasanjo in 1977. The policy was formalised through an official gazette that sought to set a cap on the sale price of petroleum products to ease the burden of high fuel prices on citizens, particularly low-income individuals, and ensure some level of social stability. About 46 years later, Tinubu seemed to have succeeded with the bold step of halting PMS subsidy.  He made it clear on that fateful day that the provision for fuel subsidy was only made for the first half of the year in the 2023 budget of fiscal sustainability and transition, apparently to clear the air that it was Buhari’s administration and not his, who implemented the removal. 

According to the erstwhile minister of finance, Zainab Ahmed, subsidy payments for PMS would have cost the government about N6.7 trillion in 2023, but only N3.35 trillion was provisioned. Recall that in 2021, the Buhari administration passed the Petroleum Industry Bill into law, of which the complete deregulation of the downstream oil and gas sector was a constituent and necessitated the halt of PMS subsidies. The announcement of the removal of PMS subsidies followed but was later postponed on the grounds of what was regarded as a lack of political will, considering that elections were coming up the following year and the possibility that such a decision could ruin the ambition of the ruling party to maintain its stronghold in the seats of power. The justification for eradicating PMS subsidies was the glaring unsustainability, considering the fiscal strains on the federal government, which has continued to grapple with revenue shortfalls, a widening fiscal deficit, and increased borrowings. As shown in the graph below, the mind-boggling subsidy payments rose from N667.1 billion in 2010 to N4.4 trillion in 2022, reflecting an astronomical increase of 558.1% over the period that would have been up by 904%.

While enlightened Nigerians favoured subsidy removal amidst the availability of resources for other critical sectors of the economy, the brazen corruption of smuggling already subsidised PMS to sell in neighbouring countries was another factor to consider. Unfortunately, the hike in prices has skyrocketed the already existing inflation pressures. 

Nigerians have had a rough year without the promised efficiency that should come with a market-driven PMS price.  We have had nothing less than three fuel shortages in the past year. A few months after the announcement, the subject of electricity subsidies and the need to get the burden off the shoulders of the federal government became a talking point for the fiscal authorities. In April this year, the Nigerian Electricity Regulation Commission (NERC) announced a 231.0% (from N68 per kilowatt-hour to N225) increase in the electricity tariff for band A customers, i.e. those with a minimum of 20 hours of electricity supply per day. According to the commission, subsidy payments for electricity needed to be taken off, considering that the government has spent N6 trillion in the past decade, while the total estimated electricity subsidy cost (on FGN) for 2024, without tariff adjustment, was to amount to N2.9 trillion (N240.0 billion per month). Although the NERC made it clear that the hike only affects 15% of consumers within the electricity supply chain, the reality is that Nigerians have had to deal with two significant subsidy removals over the past 12 months, leading to further strain on the already weakening purchasing power. As such, the question remains: have Nigerians benefited from the removal of fuel and electricity subsidies? Will we see higher budgetary allocations to critical sectors of the economy like education, health, agriculture, and transportation? Moreover, when will Nigerians begin to reap the benefits of increased FAAC allocations that have consistently hovered around the N1 trillion mark?

Foreign Exchange Market: Naira’s Stability Remains Embattled

The Nigerian economy has been confronted by various challenges in recent years, particularly concerning foreign exchange scarcity amidst weak external reserves, underwhelming crude oil output and low foreign capital inflow. However, most market participants had high expectations for the Tinubu-led government, given the view that the long-standing volatility in the market was due to inappropriate policy implementation by the previous administration. Recall that under the Buhari administration, through the Emefiele-led Central Bank, Nigeria adopted a fixed exchange rate system with multiple windows in the official market, which required consistent intervention from the apex bank to maintain the prevailing rate. 

Consequently, the Naira hovered around N460/$ for a sustained period till the end of the administration. This stability was due to a form of subsidy that the CBN was paying to support the Naira and ensure that it was pegged at that level. Major multilateral organisations like the IMF and World Bank widely criticised this policy. The policy was reversed following the suspension and eventual dismissal of the former CBN governor, Godwin Emefiele, after President Tinubu came into office. Thus, the Naira dipped by about 30% in one trading session in the official market after the policy move was made in June 2023, leading to a contraction in the discrepancy between the official window and the parallel market. 

However, the gap between the rates in both markets began to widen significantly owing to the pressure from high demand and persistent illiquidity constraints despite the policy change. As a result, 2023 ended with a parallel market premium of about N291, reflecting the long-standing supply and demand imbalances.

This development raised questions amongst key stakeholders in the Nigerian economy as nothing appeared to have changed in the dynamics of the FX market despite the notable policy adjustment, which was targeted at curbing arbitrage opportunities and currency speculation. Things went from bad to worse from January 2024 after the Naira experienced substantial pressure, depreciating to an all-time low of N1,880 against the US Dollar in the parallel market on the 21^st of February. At this time, the parallel market premium had reached N337.

However, the tide turned, and the Naira appreciated after losing about 36% against the US Dollar. This gain was buoyed by several factors, such as the clampdown on Binance, clearance of outstanding FX backlogs, and FX inflows through issuances of Open Market Operation (OMO) bills, which led to an increase in FX reserves and periodic sale of US Dollars to verified BDC operators. The Naira, therefore, traded as high as N1,072 and N1,136 in the official and parallel market, respectively, midway through April.

It is worth noting that despite efforts from policymakers, both on the fiscal and monetary side, fundamental headwinds in the foreign exchange market are still prevalent. Despite the policy adjustment concerning market liberalisation, liquidity concerns have persisted, and the naira appears to be worse off now trading above N1500/$ in the parallel market. 

For context, oil export constitutes about 81% of Nigeria’s total exports, underscoring the imperative role of oil output in the country’s FX earnings. However, oil production has remained underwhelming in recent months and below the pre-covid pandemic average of 2 million bpd.

The figure above shows the dwindling state of crude oil production in Nigeria in recent months, a testament to the FX challenges in the country, considering the enormous contribution of oil earnings to total FX inflow. Furthermore, gross external reserves have exhibited volatility this year, given the notable increase to $34.45 billion on March 18, after the persistent downward trend when it closed 2023 at $32.91 billion.  The reserves declined to $32.10 billion on April 19 and have since maintained an upward trajectory, settling at $32.64 billion as of May 16, 2024. This reserve instability is due to foreign debt repayments, FX swap obligations and other FX liabilities, as the CBN governor, Mr Olayemi Cardoso, alluded to.

It is essential to highlight that most policies addressing Nigeria's FX challenges are quick fixes that cannot stand the test of time as lingering fundamental constraints persist. Therefore, policymakers must prioritise long-lasting solutions to fix the supply and demand imbalances by sustainably improving oil output and diversifying FX earnings through other sectors, among other policy implementations.

Inflation: Price Pressures are being Exacerbated by Tinubu’s Policy Reforms

Nigerians have grappled with an unprecedented cost of living crisis since President Tinubu assumed office in May 2023. Prices have gone over the roof, worsening the double-digit inflation prints that became a norm under his predecessor.  When President Tinubu came into office in May 2023, headline inflation was at 22.4%. Prevailing conditions have pushed this number to a historic high of 33.69% in April, with a likelihood of further uptick.  This trend reflects the spillover effect of high energy costs driven by President Tinubu's removal of the petrol subsidy and the already elevated diesel price. As a result, the cost of transportation, household items, food, and other services have increased significantly to unbearable levels for vulnerable citizens. The depreciation of the local currency has also contributed to the sporadic rise in the cost of living as most vendors pass the weight of high production costs to the final consumer to stay afloat in the harsh macroeconomic environment.

A meticulous look into Nigeria’s inflation narrative shows food prices have been the big elephant in the room. Considering that food inflation constitutes over 50% of the overall consumer price index (CPI), the direction of food prices significantly affects inflation. According to the latest figures from the NBS, food inflation stands at 40.53% as of May 2024, compared to 24.8% when the President assumed office. This rise is due to the structural issues affecting food production and persistent insecurity in food-producing parts of the country. High costs of transport, dilapidated roads and transportation networks and rising production costs have also worsened the situation. However, inflation has proven stubborn and unresponsive to monetary policy tightening actions by the CBN, given that significant inflation drivers are structural and supply-side driven.

The major highlight of this spiralling inflationary pressures trend is the effect on the masses in terms of shrinking disposable income and lower purchasing power, which is also FX-induced. Some citizens can no longer afford basic needs as prices exceed household income. This situation calls for an urgent wage increase to ease the burden on barely surviving consumers. Notably, discussions are ongoing between the labour union and the federal government to increase the minimum wage from the current N30,000. Although this could adversely impact inflation,  it is noteworthy that current income levels are unsustainable, and the prevailing inflationary environment is not mainly due to excess consumer demand.

Capital inflow: Tinubu’s Multiple Trips and the Craving for FDIs

One of the primary focuses of the Tinubu administration is attracting foreign investors into the Nigerian economy, primarily through foreign direct investments (FDIs). The administration knows that FDIs are a more sustainable path to capital inflow than FPIs, commonly called “hot money.” This has prompted the President to visit various parts of the world to interact with investors and woo them into investing in Nigeria. 

Visit to India;

During the G20 leaders' summit in India in September 2023, President Tinubu met with Indian billionaire Prakash Hinduja, the chairman and CEO of the Hinduja group of companies, a conglomerate with total assets worth over $100 billion. President Tinubu attempted to woo the investors, saying Nigeria would be a conducive place for investments. In response, the industrialist attested to the President's prowess as Lagos state governor and expressed his willingness to partner with Nigeria through bus and automobile manufacturing.

Visit to UAE;

The president also visited the United Arab Emirates in September 2023 when he met the president of UAE, Mohamed bin Zayed Al Nahyan. Their discussion cut across various diplomat issues, but more importantly, an agreed framework which will establish several billions of US Dollars worth of investments across multiple sectors. The Nigerian president also successfully negotiated a foreign exchange liquidity programme between both governments, details of which will be announced later.

Discussion with Maersk;

More recently, in April 2024, President Tinubu held talks with Robert Uggla, Chairman of Danish shipping and logistics company A.P Moller-Maersk, on the sidelines of the World Economic Forum Special meeting in Riyadh, Saudi Arabia. The president reportedly secured a $600 million investment in Nigerian seaport infrastructure. However, this has sparked controversy in the media after the company refused to confirm the reported agreement.

Indeed, these travels and engagements with foreign investors underscore the president's keen interest in attracting investors, which the country desperately needs to achieve its ambitious $1 trillion economy. However, whether these bilateral investment agreements materialise depends on how well the Tinubu administration makes Nigeria an attractive destination for foreign capital.

One year after the Lagos ‘city boy’, Bola Ahmed Tinubu, became the new sheriff in town, Nigerians have embraced the outcome of his unravelling leadership, be it as it may, with fingers crossed hoping that the one who exclaimed the words “emi lo kan," meaning “it is my turn,” at the campaign, grounds will indeed serve the interests of the people and rekindle the long-lost home of the average Nigerian.

In this pivotal moment, as we assess Tinubu's first-year scorecard, the question looms large: has he lived up to the people's expectations? While the answer may vary depending on who you ask, one thing remains certain—the journey towards a better Nigeria is ongoing, requiring all vigilance, engagement, and collective action. As we move forward, it is expedient that Nigerians hold President Tinubu accountable while also extending support and cooperation in pursuing our shared aspirations. Whether hope is renewed or shattered ultimately depends on our collective efforts to shape the future of our nation.

References

Business Day. “Here is how electricity subsidies gulped N6trn in ten years.” https://businessday.ng/energy/power/article/here-is-how-electricity-subsidies-gulped-n6trn-in-ten-years/  

Channels TV. “Tinubu Meets With Indian Billionaire Hinduja In India” https://www.channelstv.com/2023/09/05/tinubu-meets-with-indian-billionaire-hinduja-in-india/ 

National Bureau of Statistics. “CPI and Inflation Report April 2024” https://nigerianstat.gov.ng/elibrary/read/1241497 

Nigeria Extractive Industries Transparency Initiative. Cost of Fuel Subsidy to the Nation: Option for Policy Review” NEITI https://neiti.gov.ng/cms/wp-content/uploads/2022/12/Cost-of-Fuel-Subsidy-to-the-Nation-Options-for-Policy-Review.pdf 

NUPRC. “National Liquid Hydrocarbon Prosuction Report” https://www.nuprc.gov.ng/oil-production-status-report/ 

Premium Times. “Tinubu suspends Emefiele as CBN Governor.” https://www.premiumtimesng.com/business/business-news/603540-updated-tinubu-suspends-emefiele-as-cbn-governor.html?tztc=1

Proshare. “Fuel Subsidies - Gone at Long Last?” https://proshare.co/articles/fuel-subsidies-gone-at-long-last?menu=Economy&classification=Read&category=Oil%20%26%20Gas  

Statehouse Press Release. “President Tinubu Secures Landmark Deal with United Arab Emirates Across Sectors; Visa Ban on Nigerian Travelers is Lifted Immediately”

https://statehouse.gov.ng/news/president-tinubu-secures-landmark-deal-with-united-arab-emirates-across-sectors-visa-ban-on-nigerian-travelers-is-lifted-immediately/ 

The Daily Trust. “Buhari, Not Tinubu Removed Fuel Subsidy” https://dailytrust.com/buhari-not-tinubu-removed-fuel-subsidy/  

The Punch. “Maersk declines to confirm presidency’s $600m seaport investment claim”. https://punchng.com/no-comment-maersk-declines-to-confirm-presidencys-600m-seaport-investment-claim/