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Nigeria’s New President: We Hear The Talk, But Where Is The Walk?

08 November 2023   |  

President Bola Tinubu won Nigeria’s presidential election in February 2023 and was faced with the seemingly impossible task of improving the battered economy he inherited. While the legitimacy of Tinubu’s win was contested by many voters, investors welcomed the new administration with open arms as key tenants of Tinubu’s campaign rested on making Nigeria a friendlier investment destination. Tinubu wasted no time getting to work, but a few months into his term, he was falling flat on his promises… or at least that is what it seemed. So, the EMsights team traveled to Nigeria twice in the past few months to learn more!

During his inauguration speech in May, Tinubu announced that he was removing the decades long fuel subsidies. These have been a growing burden on the government, surpassing other types of welfare spending such as education and healthcare. Even though Nigeria exports crude oil, their independent refineries cannot keep up with domestic demand, forcing the government to subsidize imported petrol. Removing the subsidies increased the credibility and fiscal health of the government, but at the cost of higher petrol prices, strengthening inflation, and a weaker naira.

While Tinubu’s fuel policies were a step in the right direction, it appeared like many investors were staying on the sidelines until they saw an improvement in the liquidity and valuation of the naira. Since 2015, the naira had been pegged to the dollar, giving way to a parallel market that traded at a steep discount to the official exchange rate. This regime created a playground for arbitragers and an illiquid official exchange market. To address these concerns, President Tinubu abandoned the currency peg and allowed the naira to float freely. He also suspended the Central Bank of Nigeria’s governor, Godwin Emefiele, who served for nine years and was commonly associated with unconventional monetary policies and efforts to prop up the value of the naira. These developments resulted in a welcome devaluation of the naira and a collapsed spread between the official and parallel exchange rates.

Within the first few months of his presidency, Tinubu was seemingly delivering on all his promises! But where were all the investors?

Tinubu’s policies were too good to be true! After removing fuel subsidies in May, petrol prices in Nigeria tripled and inflation accelerated, eroding the quality of life for middle class Nigerians. In August, Tinubu announced that current petrol prices will remain unchanged from their current levels - which ostensibly will be achieved through subsidies – the one he eliminated just months ago. On the currency front, a continued lack of liquidity in the market has precipitated yet another divergence between the official and parallel rates. Additionally, Tinubu had yet to appoint a new central bank governor, leaving the country with a growing inflation problem, unconventional monetary policies and temporary central bank leadership for months. 

Time to give up on Nigeria?

Not so fast! Things have started to look a little brighter in recent weeks as Tinubu appointed a new central bank governor, Olayemi Cardoso. Unlike the former central bank governor, Cardoso has expressed his desire to achieve a “willing buyer-willing seller” system for the naira and to ease inflation through traditional monetary policy implementation. A few short weeks into his appointment, Cardoso seems to be able to walk the talk. The central bank began tightening monetary conditions through aggressive naira sterilization operations and have also started clearing the backlog of foreign exchange obligations.

Progress is being made, but will it be enough to bring investors back?

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