Nigeria’s shock therapy

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

For years, Nigeria has been not so much a sleeping giant as a comatose one. Home to nearly one in five sub-Saharan Africans, its market of 230mn people should be an engine of continental growth. Instead it has been a drag, stuck in an oil-dependent rut, plagued by banditry and run by a political elite bent on self-enrichment. It is hardly surprising that all but a few investors may have missed the fact that Nigeria has turned a corner.

Halfway through the first presidential term of Bola Tinubu, who completes two years in office this Thursday, Nigeria is in better shape than at any time in the past decade. That may come as a surprise — or even sound like a sick joke — to tens of millions of Nigerians who are suffering the worst cost of living crisis in a generation.

Yet Tinubu, a former governor of Lagos and the country’s wiliest politician in a generation, has stabilised the economy and laid the groundwork for a broader recovery. This year, the World Bank expects growth of 3.7 per cent, in what would be Nigeria’s best performance since 2014 save for a post-Covid rebound. Most ordinary Nigerians won’t feel that yet. But it is a decent performance when oil prices are weak. The tiny green shoots have come because Tinubu’s government has tackled — albeit in often haphazard fashion — debilitating structural distortions.

On day one Tinubu removed a ruinously expensive fuel subsidy. More important still, the central bank has restored monetary policy orthodoxy after a shambolic era in which only cronies with access to cheap dollars benefited. After a dangerous overshoot, the naira has stabilised, with the gap between the official and black market rate shrinking to almost nothing.

The central bank has stopped printing money to pay for government profligacy. Politicians still spend too much, often on fripperies like an extravagant presidential jet, but at least the government has begun to increase tax receipts.

Investors do not live in constant fear of a devaluation and can readily access dollars. That may eventually help Nigeria to diversify, but shorter term it is positive that oil production has recovered from a nadir of 1mn barrels a day to nearly 1.5mn last month. Oil theft has been reduced and local companies are squeezing more out of marginal fields.

That so much has been achieved by a government stuffed with cronies — and, to be fair, one or two competent technocrats — shows how much could be achieved if Nigeria really got its act together. There are plenty of ways for Tinubu to build on a promising start.

First, his government has to tackle inflation — still running at 24 per cent — with more urgency. Food is the biggest driver. State governments need to increase supply by providing farm inputs, security and better access to market.

Second, it must build on tax reform by achieving its stated aim of doubling the ratio of tax collected to 18 per cent of GDP. Some of that should be spent on woefully neglected schools and clinics — even more urgent given foreign aid cuts. That will bring benefits of its own but, just as importantly, will also help to establish a social contract, which has been dangerously lacking.

Third, and perhaps most crucial, the government must confront banditry and terrorism with the same single-mindedness as it did distorted monetary policy. The army needs cleaning up as urgently as did the central bank.

As Nigeria’s election cycle edges towards 2027, Tinubu may be tempted to slow the pace of change. That would be a mistake. He should forge ahead, with the overriding aim of making ordinary Nigerians — not just investors — feel the benefits of shock therapy.