IN SIMPE TERMS: Nigeria’s President Bola Tinubu faces challenges in economic overhaul

Nigeria's President Bola Tinubu Faces Challenges in Economic Overhaul
Man counts Nigerian naira notes. Photo: Reuters

President 's initial efforts to reform 's economy have faced difficulties as the country grapples with economic challenges. Key components of his economic overhaul, including freeing the naira exchange rate and allowing fuel prices to increase, have encountered obstacles.

Nigeria's President Bola Tinubu Faces Challenges in Economic Overhaul 2

The naira reached a record low of 1,000 to the on the black market, exacerbating the gap with the official rate, which stood at 785. Meanwhile, petrol pump prices have remained unchanged since July, despite a more than 30% rise in oil prices.

Economists and analysts express concerns that President Tinubu may struggle to implement the necessary reforms to attract investment and stimulate economic growth. David Omojomolo, Africa economist at Capital Economics, noted that the reform momentum appears to be losing steam.

Nigeria's President Bola Tinubu Faces Challenges in Economic Overhaul 1

Rising inflation and a looming indefinite strike by Nigeria's two largest workers' unions add to public frustration. Tellimer analyst Patrick Curran remarked that sentiment toward Nigeria has soured as initial reform momentum has faded.

The divergence between official and black market naira rates, driven by Nigeria's control of the official rate, has hindered access to dollars for businesses and investors. The central bank's import restrictions further limit dollar demand.

President Tinubu's move to weaken the official naira rate initially narrowed the gap between official and black market rates. However, it has since widened, and sources report challenges in obtaining dollars from the central bank.

Investors face hurdles beyond the exchange rate issue. Negative real bond yields, a sluggish central bank response, and the previous administration's financial legacy have also deterred investment. Additionally, the central bank has maintained restrictions, such as a ban on using central bank foreign exchange for importing 43 items.

The delay in removing fuel subsidies exacerbates the dollar shortage. Nigeria, a major oil exporter, imports most of its fuel, depleting its U.S. dollar reserves. It continues to use oil cargoes to pay for previously imported fuel, while a state-set pump price limit makes it the sole petrol importer.

Analysts suggest that Nigeria's gasoline prices would need to rise significantly to align with global prices, but President Tinubu faces challenges in implementing such changes, given narrow electoral margins and high inflation.

Concerns persist that the government may backtrack on reforms when facing tough economic conditions, raising uncertainty about Nigeria's economic outlook.

By Macdonald Dzirutwe and Libby George; editing by Dennis Gyamfi

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