In his inaugural address on May 29, Nigeria’s new president, Bola Tinubu, promised to work to rebuild a “Nigerian ideal” that goes beyond “merely improving economic statistics.” But it is on this front that the leader immediately threw his forces. Dismantling of fuel subsidies, devaluation of the national currency, dismissal of the very controversial governor of the Central Bank… During his first month at the head of the most important economy of the African continent, Bola Tinubu demonstrated an activism that surprised most observers.
“So far it has done more and faster than anyone expected,” confirms Tokunbo Afikuyomi, an economist for Nigerian publication Stears. A change of course, analysts hope, after eight years of presidency of Muhammadu Buhari marked by immobility. Expectations were however modest with regard to the former governor of Lagos, who, like his predecessor, came from the Congress of Progressives (APC). An aging leader (71 years old), elected with only 8.8 million votes in a country of 220 million inhabitants, and symbolizing for many an old political guard unable to manage the political and security crisis.
The head of state set the tone from the day he took office, announcing the imminent abolition of fuel subsidies, a popular device but costing 10 billion dollars each year to public finances. The measure, advocated for a long time by the International Monetary Fund (IMF) and the World Bank, figured well in the program of Bola Tinubu.
“But the risk was that he would delay a bit too long and end up giving [it] up. However, this subsidy has enormous disruptive effects on the economy and it has been going on for half a century,” said Amaka Megwalu Anku, Africa director at the consulting firm Eurasia Group. In 2012, a first attempt to end it triggered a wave of strikes and demonstrations, leading the authorities to back down.
A country at bay
This time, the announcement did not throw crowds into the streets, despite a tripling of the price of gasoline at the pump. “I recognize that the decision will place an additional burden on the population,” Mr. Tinubu said on June 12, promising in return to invest “massively” in education, health and access to electricity. The head of state did not unveil a compensatory measure but engaged in negotiations with the main unions in Nigeria to find an agreement by mid-August aimed at increasing the minimum wage.
“If he had been hesitant about his desire to end it, there would probably have been more social pressure,” said Ms. Megwalu Anku. But deep down, the middle classes – those who benefited the most – know that there is no alternative. Because the country is today in dire straits, weighed down by a debt whose repayment absorbs the equivalent of more than 90% of state revenue.
A few days after this shock announcement, Bola Tinubu was just as enterprising in deciding to suspend and then arrest the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele. The monetary official was the craftsman of an exchange system made up of multiple regimes and restrictions on capital movements. Built to artificially maintain the stability of the naira, the Nigerian currency, this device was accused of fueling corruption by allowing certain well-connected people to obtain dollars from the Central Bank to resell them at a higher price on the black market.
Following Mr. Emefiele’s dismissal, the monetary institution announced that it would adopt a unified exchange rate and let the naira fluctuate according to the market rate. This decision caused a drastic devaluation of the currency, which fell by more than 60% in one month. Its official exchange rate, around 770 naira for 1 dollar, is now roughly in line with that prevailing on the black market. “These changes correct market distortions that discouraged investment. No one wanted to come to a country with such a complex foreign exchange system, with a currency overvalued by at least 50%,” said Charlie Robertson, economist for emerging markets investment fund FIM Partners.
Endemic insecurity
The arrest of Godwin Emefiele, currently detained by the intelligence services, did not arouse indignant reactions in public opinion. No doubt because the Nigerian population considers him responsible for having led the country to the brink of chaos at the start of the year: the governor had caused a serious shortage of liquidity by orchestrating a monetary reform supposed to replace in record time almost all the banknotes in circulation.
Initially, Bola Tinubu’s economic audacity was hailed by investors who favored Nigerian bonds like shares on the Lagos Stock Exchange. “But it may take a while before investors decide to come back for good, because the projects that Nigeria has to tackle are gigantic”, notes Charlie Robertson.
In fact, the new president will find himself facing much more complex challenges if he is determined to eradicate endemic insecurity and stimulate growth in a country where 40% of the population lives in extreme poverty. When he was sworn in, he pledged to increase activity at a rate of 6% per year (compared to an average of 1.4% over the past eight years) and to double electricity production.
But, in the immediate future, its first decisions are above all likely to fuel inflation which already exceeds 22%. By soaring, the prices of gasoline have already brought in their wake those of transport, electricity and foodstuffs. “The reforms he initiated are good in the long term but painful in the short term,” insists Tokunbo Afikuyomi. Its priority today is to take care of the most vulnerable by taking measures to alleviate their difficulties. »
