10 years ago, it was evident that Nigeria’s economy could not keep up with fuel subsidy. But somehow, the country kept it up until 2023, when the present administration confirmed that subsidy was gone.
Without crafting solutions to ensure that the most vulnerable population is protected from any negative impact of subsidy removal, President Tinubu proclaimed at his inauguration.
According to reports, households in the bottom 40% of the income distribution account for less than 3% of all fuel purchases. So why care about a mere 40% of the entire population? In June 2022, the Managing Director of NNPC Limited indicated that daily consumption of PMS had increased to over 103 million litres per day.
By July 2023, Nigeria’s average daily consumption of Premium Motor Spirit (PMS), or petrol, dropped to N52 million litres, thanks to the removal of subsidy.
However, the main objective of the removal of subsidy is not to reduce daily consumption. It was to ensure that funds were allocated efficiently to developmental projects. Subsidy had a significant impact on funds available for critical infrastructure and other essential sectors such as education, health, and defense.
While presenting the budget proposal of N27.5 trillion to the national assembly for the fiscal year 2024, President Bola Tinubu noted that the budget would cement macroeconomic stability, reduce the deficit, and increase capital spending and allocation to reflect the eight priority areas of this administration.
From the budget, the health sector got N1.33 trillion, equivalent to 4.8% of the federal government’s budget, while N2.18 trillion (7.9%) was given to the education sector. Just a little above the initial sums in the 2023 budget.
Comparatively, federal allocation to states and local government areas increased by 109.74% to N14.04 trillion in 2024.
Floating without a Hedge
In 2022, when President Buhari decided to carry out a currency reform program, the effects were devastating for a lot of Nigerians and Nigerian businesses. It became difficult to believe that the government had any empathy for the people.
In 2023, there was a new currency policy. This time, it was the unification of the FX market, which would see the Naira devalued and plummet against major global currencies. Ordinarily, this would have seen foreign investors flock to Nigeria and become interested in investing in Nigerian businesses, building businesses themselves, and priority the expansion of their wealth in the country. But this has not been the case.
During a keynote address at a conference held by the Institute of Chartered Directors, Minister of Finance Wale Edun, openly acknowledged a concerning trend regarding foreign investment in Nigeria. Despite optimistic expectations that the economic policies implemented by the Tinubu administration would garner favor from Western governments and institutions, there has been a notable hesitancy among foreign investors to commit to the Nigerian economy.
This reluctance from foreign investors poses a significant challenge as it directly impacts the stability of the national currency, the naira. Without a sufficient influx of foreign investment, the naira faces continued devaluation against major currencies, exacerbating inflationary pressures and triggering cascading effects on the broader economy.
The facts and reality say it all: Nigeria’s capital inflows fell in 2023 as foreign direct investments and inflows from portfolio investors declined
According to the National Bureau of Statistics, inflows fell 26% to $3.9 billion in 2023 from $5.3 billion the previous year. Portfolio inflows declined by about a half to $1.1 billion, while foreign direct investments were down 19% to $377 million, it said
Can we panic now?
The implications of this scenario are far-reaching, potentially leading to reduced purchasing power for consumers, increased costs of imports, and heightened economic uncertainty.
Additionally, with the Naira floating without foreign investment, the country’s ability to fund critical infrastructure projects, hampering long-term growth prospects and socio-economic development initiatives, is bound to continue.
Ultimately, the ability to attract foreign investment plays a pivotal role in shaping Nigeria’s economic trajectory and ensuring its resilience in the face of global uncertainties. By proactively addressing the challenges hindering foreign investment, Nigerian policymakers can chart a course toward sustainable growth, stability, and prosperity for the nation and its people.
While President Tinubu’s regime has waxed stronger and stronger in decision-making, current realities, and Minister Wale’s comment assume that interests and goals are not being met, with each decision worsening the situation. So why is it so difficult to navigate Nigeria’s financial economy? This is a question the minister must address.
