Nigeria’s faltering reform drive ‘is almost in reverse’

• Public anger grows as inflation spirals higher with biggest unions planning an indefinite strike

Nigerian President Bola Tinubu’s lightning-fast reform push after taking office in May sparked hope that his administration would be a business-friendly antidote to mounting economic troubles facing his country.

Fast forward to more than 100 days in office, and the key planks of Tinubu’s economic overhaul — unshackling the naira from its rigid regime and allowing fuel prices to rise — are coming loose.

The naira hit a record low of 1,000/$ on the black market this week, widening the gap with the official rate, which stood at 785 on Thursday.

Petrol pump prices, meanwhile, have not budged since July — despite a more than 30% rise in oil prices.

Some now fear Tinubu will not be able to wean Africa’s largest economy off the costly policies that have stymied investment and throttled economic growth.

“Momentum seems almost in reverse,” said David Omojomolo, Africa economist at research firm Capital Economics.

Public anger is swelling as inflation spirals higher. Nigeria’s two biggest workers’ unions are planning an indefinite strike next week to protest over a cost-ofliving crisis.

“Sentiment towards Nigeria has been continuing to sour as the initial reform momentum under President Tinubu’s administration has faded,” said Tellimer analyst Patrick Curran.

For years, Nigeria has tightly controlled the official naira rate, even amid declines in the price of oil, sales of which bring in 90% of the country’s foreign currency supply.

But providing dollars at an artificially low rate has led to a yawning gap between official and black market rates, leaving businesses and investors unable to access dollars. The central bank has also created import restrictions aimed at reducing dollar demand.

Tinubu’s decision to let the official naira rate weaken saw it briefly converge with the black market. Last week, he assured investors they could take money out, touting a “reliable, one figure exchange rate of the naira”.

But the gap widened to almost 30% this week, and four sources told Reuters it was virtually impossible to get dollars from the central bank on an ad hoc basis.

The incoming central bank chief said on Tuesday that policymakers faced a $7bn backlog in foreign exchange demand; foreign airlines alone had $783m in ticket sales trapped, the International Air Transport Association said.

This is one major factor keeping investors from putting money to work in Nigeria. Another is negative real bond yields and the slow central bank response: 10-year local government bonds yield less than 15% while inflation is running above 25%.

“What they have done so far is not enough to attract domestic debt holders or foreign investors into their domestic debt market,” Vontobel Asset Management portfolio manager Carlos de Sousa said.

The tattered finances left by the previous administration have also been no help.

In August, the central bank published audited accounts for the first time since 2018, revealing its $33bn in forex reserves included a $19bn commitment in derivatives — slashing the liquid amount of reserves.

JPMorgan calculated net forex reserves stood at $3.7bn as of the end of 2022, “significantly lower” than previous estimates. That news sent Nigeria’s international bond tumbling.

“Lower net FX reserves reduce the willingness to introduce a flexible exchange rate regime in the near term,” said JPMorgan’s Gbolahan Taiwo.

The central bank has also kept other restrictions that businesses say make life tough, including a ban on using central bank foreign exchange to import 43 items.

“The government may have intended to make it a free market, but the central bank isn’t allowing it to be one,” said a Nigerian private equity investor who did not want to be named.

The delay in scrapping fuel subsidies is worsening the dollar crunch. Last year, subsidies cost 2% of GDP, according to Fitch.

Despite being Africa ’ s largest oil exporter, Nigeria imports almost all its fuel as it does not refine nearly enough to meet the demand of its 200-million citizens. In recent years, it has swapped crude for fuel, depriving it again of a source of US dollars.

It is still using oil cargoes now to pay for fuel it imported previously, and a de facto pump price limit set by the Nigerian National Petroleum Corporation’s sale price means it is again the sole petrol importer.

Tellimer said Nigeria’s petrol prices would need to rise 73% to align with global prices.

Analysts say Tinubu, elected with the narrowest margin since Nigeria returned to democracy in 1999 and facing inflation at nearly two-decade highs, lacks the social capital and mandate to push any harder.

“There is the concern that when the going gets tough they will walk back on the reforms,” Omojomolo said.