RIYADH, SAUDI ARABIA – APRIL 28: Nigerian President Bola Ahmed Tinubu participates in a panel discussion on … [+] Special meeting of the World Economic Forum. (Photo: Fayez Noureldin/AFP) (Photo: Fayez Noureldin/AFP via Getty Images)
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Nigeria is currently in the midst of major economic transformation brought about by a series of bold reforms introduced by President Bola Ahmed Tinubu.
In response to Nigeria’s deepening economic problems, Finance Minister Tinubu has approved a $2.25 billion economic injection. According to the Associated Press, the funding, provided by the World Bank, is intended to boost revenues and support economic reforms amid a severe cost-of-living crisis. As part of a rapid stabilization and development strategy, the emergency financial support is intended to quickly revive the economy. The funds are intended to lower interest rates, especially in key sectors, and provide credit lines to support small and medium-sized enterprises and large corporations.
LONDON, UK – JUNE 14: Newly appointed Professor of Human Sciences, Chidiebere Ogbonnaya, has… [+] Professor of Resource Management at King’s Business School, King’s College London, interviewed about UKRI funding
Chidiebere Ogbonnaya
To further support Tinubu’s plan, Chidiebere Ogbonnaya, a newly appointed professor of human resource management at King’s Business School, King’s College London, will use his research to develop policies that can effectively drive economic recovery. In an interview with me, Ogbonnaya said, “In 2020, I received a grant of over $240,000 from UKRI to investigate how effective policies can support economic growth and address the root causes of poverty in Nigeria.” He added, “This year, I received over $510,000 as part of the UK government’s Official Development Assistance (ODA) research funding to support international development and address global challenges.” Ogbonnaya explained that he hopes to use these funds to collaborate with international researchers, government agencies, and policy experts to develop actionable policies. It is clear that these collaborations will be crucial as Nigeria navigates its complex economic landscape. After all, the challenges are vast and multifaceted, and both short-term and long-term strategies are needed to stabilize and rejuvenate the economy.
In this context, the reason behind Tinubu’s large investment is rooted in the conviction that fiscal reforms are essential to instill market discipline in Nigeria’s struggling economy. Nigeria is facing serious economic difficulties, exacerbated by both international and domestic factors. Global economic turmoil such as the conflict in Ukraine has contributed to the crisis, but domestic policies have greatly amplified the problem.
The fuel subsidy gamble
The most impactful of these domestic measures was the removal of gasoline subsidies last year, which marked the beginning of Tinubu’s bold reform plan. These subsidies had kept fuel prices in Nigeria among the lowest globally but were a significant expense, accounting for 15 percent of the national budget. The sudden removal of the subsidies led to a surge in gasoline prices and higher transportation and production costs that companies quickly passed on to consumers.
As a result, the cost of living has skyrocketed, with gasoline prices tripling and food prices increasing by 35%, the BBC reported. The sudden implementation of the policy, especially Tinubu’s unexpected declaration that fuel subsidies would be eliminated in his inaugural address in May 2023, caused instant panic, leading to long lines at gas stations and exacerbating the economic shock, CNN reported. In response, protests are set to begin on August 1, according to the Daily Post.
In a related move, the government also abandoned its policy of pegging the naira to the US dollar, allowing its value to be determined by market forces. This decision caused the naira to depreciate by more than two-thirds, significantly increasing the cost of imported goods and worsening the country’s economic burden. These policies combined to send inflation soaring to a 30-year high of nearly 34%, and poverty levels soaring.
Reflecting on these rapid changes, Ogbonnaya said, “These policy changes were inevitable, but the speed and manner of their implementation could have been better managed.” He backed up this argument by citing his own research, which highlighted the importance of structured institutional support and careful policy development in mitigating economic shocks and promoting social welfare.
Proponents of “Tinubunomics” argue that these reforms will be painful but are essential to achieving long-term stability and growth. They stress that removing gasoline subsidies will be tough initially, but will ultimately free up important resources for infrastructure development and social services, laying the foundation for sustainable economic development. Proponents also believe that allowing the naira to float will create a more accurate and stable exchange rate, which will attract foreign investors who have been hesitant to invest due to artificial currency controls.
The urgency of these reforms is further underscored by Nigeria’s rapidly changing economic landscape. For years, Nigeria has prided itself on being Africa’s largest economy. But it has now slipped to fourth place in dollar terms, Bloomberg reports. Without a decisive and robust recovery, Nigeria is likely to slip to fifth place by the end of 2024, behind South Africa, Egypt, Algeria and Ethiopia, according to the IMF. This significant drop not only highlights the immediate impact of Tinubu’s policies, but also highlights structural weaknesses that have long plagued the country’s economic fabric, the Financial Times reports. Clearly, Nigeria, once a formidable powerhouse, now needs to acknowledge its vulnerabilities and work toward a comeback that can restore its place on the African continent.
Signs of economic recovery
Still, there are some silver linings: The government’s efforts to attract foreign investment are showing signs of success, with investment flows improving slightly compared to last year, according to CNBC, but the impact on the overall economy remains unclear.
With this cautious optimism, Ogbonnaya predicts that if current reforms are effectively implemented and supported by sound policies, Nigeria will see a stabilization and eventual improvement in its economic situation. “These measures, while painful now, could lay the foundations for a more resilient economy,” Ogbonnaya said. However, the associate editor of Human Relations magazine cautions that short-term pain may continue for some time until the benefits of these reforms become evident. “The road to recovery will be difficult, but with persistence and strategic planning, Nigeria can emerge stronger.”
The Road Ahead
The resilience and adaptability of Nigeria’s people will therefore be crucial as the country weathers these challenging times. While the government’s long-term vision for economic stability remains unclear, the immediate needs of the people demand immediate attention and effective intervention.
The resilience and determination of Nigerians will undoubtedly play a pivotal role in building a prosperous future. With perseverance and a collaborative strategy, Nigeria can not only regain its position as Africa’s largest economy, but also build a more inclusive and resilient economic framework for future generations.
