Published on September 29, 2023
In the wake of President Tinubu’s swift reform initiatives upon taking office in May, there was optimism that his administration would usher in a business-friendly era to tackle Nigeria’s mounting economic challenges as Africa’s largest economy.
However, looking beyond the first 100 days of his tenure, the foundational pillars of his economic transformation plan, which included freeing the naira from its rigid constraints and permitting fuel price adjustments, appear to be faltering.
The naira recently plummeted to an all-time low of 1,000 against the US dollar in the black market, further widening the disparity with the official exchange rate, pegged at 785 as of Thursday. Despite a more than 30% surge in oil prices, petrol prices have remained stagnant since July.
Concerns are mounting that Tinubu may struggle to break free from the costly policies that have impeded investment and stifled economic growth. “Momentum just seems…almost in reverse,” remarked David Omojomolo, an Africa economist at Capital Economics.
As inflation continues to spiral upwards, public frustration is growing. Nigeria’s two largest labor unions are planning an indefinite strike next week to protest against the rising cost of living.
Tellimer analyst Patrick Curran noted, “Sentiment towards Nigeria has continued to sour as the initial reform momentum under President Tinubu’s administration has faded.”
Dollar Dilemma
For years, Nigeria maintained a tight grip on the official naira exchange rate, even during periods of declining oil prices, which account for 90% of the country’s foreign currency earnings. However, artificially low exchange rates for the US dollar created a stark disparity between official and black market rates, leaving businesses and investors struggling to access dollars. The central bank also imposed import restrictions aimed at curbing dollar demand.
Tinubu’s decision to devalue the official naira rate briefly aligned it with the black market rate. Last week, he assured investors of the ability to repatriate funds, highlighting a “reliable, one-figure exchange rate for the naira.” Nevertheless, this week, the gap has once again widened to nearly 30%, and sources revealed that obtaining dollars from the central bank on an ad hoc basis had become nearly impossible, according to Reuters reports.
