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What to do as Tinubu’s economic foundation crumbles 05 Sep 2024

In his address to the nation in the middle of the EndBadGovernance protest last month, President Bola Tinubu noted that the economic challenges the country was facing had built up over the last decades. No one who has followed the governance of the country over this period, especially after 2007, will disagree with him on this assertion. But the President was quick to add that his administration “has made significant strides in rebuilding the foundation of our economy to carry us into a future of plenty and abundance.” This claim of economic rebuilding deserves critical examination to determine if the foundational policy actions are on course to take the country to the projected future of prosperity.

The foundational policies of the administration are the removal of petrol subsidies and floatation of the naira. This view is based on the early timing of their introduction, the ideological shift they represent, and their potential for systemic impact.

While Tinubu announced the removal of petrol subsidies in his inaugural, the Central Bank of Nigeria (CBN) introduced market exchange rate two weeks later. On the surface, these policies were a strong pivot towards market fundamentalism, which keeps faith in the infallible beneficence of the free market ideology. And while opinions were divided on the precise nature of the potential impact of the policies, it was understood that they would generate strong and mutually reinforcing ripple effects in the economy.

Fourteen months on, the policies have delivered on the fear of their inflationary impact. Between June 2023 and July 2024, the headline inflation rose by 10.61 percentage points. The expected volatility in the exchange rate has surpassed all the initial projections as the naira has depreciated by circa 245% in the same period. Whereas the government projects the exchange rate of N750/US$1 in the 2024 budget, the naira was trading below half the value throughout last month. The ripple effects of these have been devastating for businesses and the people. According to the 2023 Global Hunger Index, which ranks Nigeria 109th out of 125 countries, hunger is on the rise in the country. The grim situation was more poignantly stated by the “ebi pawa” chant, meaning “we are hungry”, and providing the rallying point for last month’s protest.

What could be wrong with Tinubu’s economic foundation? Virtually everything. The policies are about the pricing of foreign goods – petrol (in the absence of local refining of crude oil) and the dollar. An appropriate foundational economic policy would address domestic production of goods, not the local pricing of foreign goods. The levers for the determination of the prices of foreign goods are with the producers; external risk events could also impact supply and, therefore, increase the prices globally or in specific local markets.

Having failed to set the right base policies, the government has also faltered in taking measures to ameliorate the negative impact of its policies. For the umpteenth time now, domestic refining of petroleum by the government’s own refineries has been delayed as their interminable repairs and turnaround maintenance, which has gulped billions of dollars, continue. Yet, the government has dragged its heels in supplying the Dangote Refinery with crude oil through the state-owned energy company, NNPC Limited. So doing, the government has continued to rely on importation of petrol, instead of local refining of the product to harness the economic benefits of this for the country.

Even now the removal of petrol subsidies has been enmeshed in a contrived controversy. While NNPCL says it has not been paying subsidy to anyone in the last nine years, it affirms that it sells petrol it imports at half the landing cost on the directive of the government on behalf of the federation. Financial reimbursements are subsequently made to the NNPCL. This practice, which has continued, means the subsidy was never ended despite the grandiloquent presidential proclamation of “subsidy is gone.” The subsidy programme is only now opaquer than it has ever been.

While the situation begs for transparency, petrol has become scarce in the country. Since last year, episodes of the product’s unavailability have become regular around the country. This has pushed the price of petrol to as high as N1,200 per litre. This situation is expected to continue to limit the expected downward trend in inflation rates, after the high and rising inflation of the past 12 months has reset the base for year-on-year general price increases in the next one year.

It is time for President Tinubu to own up that he was wrong on the foundational policies of his administration. The burden of the policy failure is being felt by the people and businesses. It has also been generating political tensions in the country. The palliative measures he announced and the plethora of programmes he has introduced will not cut it.

The solution to the country’s economic slide may still reside with alternative policies. But the view that it is political – via a constitutional restructuring of the country – is regaining popularity. Some immediate policy actions that can help the current situation include bringing transparency to the activities of the NNPCL, supply of Dangote Refinery with crude oil on open and beneficial terms for the economy, renewal of the administration with competent people in key areas, and addressing systemic corruption in government and the civil service.

Jide Akintunde is Managing Editor, Financial Nigeria publications, and Director, Nigeria Development and Finance Forum.