President Bola Ahmed Tinubu began the long, difficult process of rescuing the economy yesterday by announcing the end of gasoline subsidies and urging a “thorough house cleaning” in monetary policy.
Tinubu has been clear on these two issues as a candidate. In his first speech as Nigeria’s 16th president yesterday, he reiterated his long-held convictions.
As most fueling stations ceased dispensing in Lagos, marketers responded with a subsidy reduction. No panic buying was reported, but Kemi Ashefon noted a gradual decrease in fuel station openings. Some marketers closed, causing huge lineups in Abuja and other parts of the country.
Without a cabinet to explain subsidy elimination, marketers may hoard products, causing turmoil. After the president’s inaugural speech, vehicles could not fill their tanks at fuel stations. Stakeholders supported Tinubu’s intention to remove subsidies and triple the country’s electricity supply but warned that doing so without sufficient engagement and preparation could backfire.
Stakeholders urged thorough stakeholder involvement, warning that a gradual and phased approach and key pricing planning might plunge the country into disaster.
Fuel subsidies cost N17.5 trillion in the eight years under former President Muhammadu Buhari, with N10.5 trillion of that spent in the last 18 months.
Energy expert and former Shell legal lead Ameh Madaki claimed Tinubu’s abrupt declaration would set off a chain reaction and cause millions of Nigerians to suffer in the short to medium term.
He predicted that marketers would quickly hoard products to maximize their margins, making the next few days very difficult.
“Having been sustained for this long, a phased approach that takes cognizance of all its ramifications would have been a better option to not disrupt an already impoverished citizenry and a fragile economy. “Subsidy is not bad, and governments around the world subsidize critical economic sectors. Subsidies have always been applied in a way that distorts the economy and shortchanges it. If done properly, Madaki argued, petroleum product subsidies may be eliminated without raising pump costs.
Adeola Adenikinju, a University of Ibadan energy economics professor and director of the Centre for Petroleum, Energy Economics, and Law (CPEEL), said Tinubu’s decision demonstrates his willingness to address Nigeria’s economic issues. If national and subnational governments were allowed to generate, transfer, and distribute energy utilizing hydro, coal, gas, oil, solar, wind, and waste, electricity supply would improve significantly.
Adenikinju, a member of the Monetary Policy Committee (MPC), said the President’s promise to provide a conducive environment for local and foreign investors to play would also help drive investment in the electricity sector, adding that an improved macroeconomic environment like low inflation, low interest rates, a harmonised exchange rate, and the ability to repatriate dividends and profits would change Nigeria’s investment climate.
Adenikinju said fuel subsidies must end since they have deprived the economy and petroleum sector of substantial investments, employment, and earnings.
Our neighbors have higher fuel prices, lower inflation, and poverty. Nigerian fuel prices are substantially higher than official prices. No evidence shows greater inflation rates in those areas.
To ease gasoline price adjustments, the government could boost mass transit and provide disadvantaged people with financial transfers. He stated that the Nigerian economy would benefit in the long term. The professor urged labor unions to support economic growth, noting that the poor pay market prices for kerosene and diesel, as do the transport and manufacturing industries.
Wunmi Iledare, a Louisiana State University Center for Energy Studies professor emeritus in Petroleum Economics and Policy Research, stated subsidy elimination could not be done by proclamation. This requires revolutionary leadership and strategic thinking. To succeed, the president must pick energy professionals apolitically. Iledare stated that reward-based appointments will not solve energy sector issues.
Three years ago, the Central Bank of Nigeria (CBN) committed to harmonizing the highly varied foreign exchange rate. Investors cited market rigidity and extensive arbitrage as important disincentives, keeping their promises.
Tinubu declared, “The Central Bank must work towards a unified exchange rate.” This will redirect arbitrage funds into real-economy plant, equipment, and jobs.
“Interest rates must be lowered to boost investment and consumer spending to boost the economy. Given the number of unbanked Nigerians, the CBN imposed the currency swap excessively brutally. My administration will accept both currencies for now.”
Prof. Ken Ife, an economist, praised the President for his “housecleaning” to stabilize prices: “Obviously, he dropped the hint on arbitrage.” Arbitrage, which implies that some are profiting from the current system, will be cleaned up.
He wants something. My sole advice is that monetary policy issues are inflation, high exchange rates, high interest rates, and high monetary policy rates in the economy. Rates and pricing. “Demand and supply must be examined. Nigeria gets 70% of its foreign exchange from NNPC Limited and 10% from gas. Portfolio and foreign direct investments make up 10%.
Ife, a member of MOFI’s governing council, claimed Nigeria’s inability to meet OPEC and falling earnings are due to increasing indebtedness and oil theft.
Kelvin Emmanuel, CEO of Dairy Hills Limited, praised the President’s foresight, saying collapsing all forex intermediation windows at the Central Bank and allowing banks to set rates through a float would attract foreign direct investors, export proceeds without rebates, and higher diaspora remittances. “A single exchange rate will enable market makers in the Nigeria Autonomous Foreign Exchange Fixings (NAFEX) to find the forward curve required to structure medium- and long-term contracts to hedge currency risk for long-term non-speculative foreign direct investments,” he said.
However, he added, “This is because the real driver of inflation and the reason inflation is unresponsive to MPR hikes is the distortion in the FX markets.”
Dr. Muda Yusuf, CPPE CEO, commended the president’s roadmap. “Achieving a unified exchange rate is not tantamount to a devaluation proposition; it is a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market and allows for rate adjustments as and when necessary,” he said.
Yusuf said it would eliminate uncertainty and investor confidence and reduce discretion and arbitrage in the foreign exchange allocation mechanism.
“A unified exchange rate regime will increase foreign exchange market liquidity. It minimizes market uncertainty and boosts investor trust by making forex allocation more transparent. It also minimizes discretion in forex distribution, corruption risks, round-tripping, and other sharp practices,” he said.
The CPPE Chief Executive claimed subsidy reduction would release N7 trillion into the federation account, lowering the fiscal deficit and debt burden.
This will boost investment. Due to the unsustainable subsidy scheme and restrictive regulatory environment, private investment in our petroleum downstream sector is challenging. He said subsidy reduction will decrease distortions and boost investment.
The Center for Social Justice (CSJ) Lead Director, Eze Onyekpere, said the President made two important commitments. “The fuel subsidy, which he said is gone, was the first thing I saw in the speech. “The second one is the unification of the exchange rate, which will be good for the economy in terms of liberalizing the exchange rate regime and introducing liquidity into the foreign exchange market,” he said.
The Nigeria Employers’ Consultative Association (NECA) also encouraged Tinubu to ensure that at least two refineries start producing in his first 100 days in office, but organized labor disagreed. The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) said their subsidy position will stay unchanged until he engages the labor movement.
Dr. Tommy Okon, TUC National Deputy President, remarked, “It is a statement he made. We won’t speak until he does. He needs stakeholders, including labor, to reduce subsidies.
“Labour is a progress partner; he must involve us and consider our decision. We still support subsidy withdrawal. On the promise to create one million jobs through the digital economy, Okon said youths are already thriving and making waves in the digital industry. He suggested the government foster the informal economy.
“Bill first. We support any measure that creates jobs without educating people about the digital economy. How will 1,000,000 jobs be created?
“The civil service has not recruited for many years now; why doesn’t he say he wants to create some number of jobs in the public sector to energize the sector and create a conducive environment for the informal economy to thrive and boom, where a lot of people will have the opportunity to engage themselves, that will reduce crime and criminality?” he said of the Omnibus Jobs and Prosperity Bill.
The Human Rights Writers Association of Nigeria (HURIWA) also denounced the incoming president’s dictatorial, autocratic, and unconstitutional announcement yesterday. Emmanuel Onwubiko, the group’s national organizer, called the decision insensitive, irrational, and risky.
Thus, HURIWA called on the organized civil rights community and labor unions to mobilize Nigerian workers and all proletarian people to engage in an indefinite strike and civil disobedience if President Bola Ahmed Tinubu does not reverse his decision to end the subsidy regime when inflation and poverty are tearing millions of Nigerians apart and sending many to their early graves due to intractable economic adversities.
In the suit marked FHC/AWK/CS/58/2023, Justice Riman ordered Usman Alkali to stop parading as the Inspector General of Police of the Federal Republic of Nigeria or commanding or controlling the Nigeria Police Force.
The court also ordered the President of the Federal Republic of Nigeria to immediately convene a meeting of the Nigeria Police Council to appoint a new Inspector-General of Police who can serve for four years unhindered by Section 18(8) of the Nigeria Police Act, 2020, and in accordance with Section 7.
Okechukwu Nwafor sued the President of the Federal Republic of Nigeria, Usman Baba Alkali, Attorney General of the Federation and Minister of Justice, and the Nigeria Police Council, 1st to 4th defendants, for dismissal.
Seye Oyeleye, Director General of the Development Agenda for Western Nigeria (DAWN), advised NLC and TUC leaders to sit down with the new administration to find a way to ease the removal’s temporary pains.
The DAWN Commission chair said the subsidy must go because Nigeria cannot continue to subsidize fuel with $9.6 billion every year.
He urged the NLC and TUC to let reason prevail instead of protesting Tinubu’s boldness. Wyoming Capital & Partners CEO Tajudeen Olayinka believes the speech signals a shift from public sector growth to private sector growth in Nigeria.
He believes fuel subsidy elimination and fast exchange rate harmonization are crucial to sustainable growth. He predicted a substantial financial market reaction to interest rate moderation and decreased capital costs. However, the decision demands orderly commodities, finance, and foreign exchange markets.
As investors and public firms take advantage of a new era, the capital market will expand. Capital inflow and private-sector economic activity should improve. But we must wait for more announcements,” he continued.
David Adonri, Vice President of Highcap Securities, said the president addressed three pain points: rural economy insecurity, fuel subsidy cessation, and currency rate unification. He believed his solutions could enhance the economy and attract investors.
He said the president failed to address the onerous debt burden, which has driven inflation and interest rates. He stated that his GDP growth objective of 6% could be an illusion if he prioritizes secondary infrastructure over fundamental infrastructure, like the previous administration.
“If he continues with President Buhari’s excessive borrowing spree, the GDP increase will just remain inflationary growth or motion without movement,” he warned.