Previous Quarterly Editions
TREND ▼
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Following his inauguration in May, newly elected President Bola Tinubu lost little time embarking on some of the boldest economic reforms Nigeria has witnessed in decades by immediately scraping costly fuel subsidies — which were costing the country US$10 billion a year — and removing exchange rate restrictions, which acted as a brake on inward investment for much of the former president’s eight years of office. These moves were welcomed by investors but led to howls of protest from ordinary Nigerians struggling in the face of rising food and fuel prices and a mounting cost-of-living crisis.
Nigeria’s oil-dependent economy — the largest and most populous in sub-Saharan Africa — was battered by the post-2014 oil price collapse and the onset of the COVID-19 pandemic, which triggered two consecutive recessions in 2016 and 2020 and led to years of low growth, deteriorating public finances and rising inflation.
President Tinubu has pledged to boost economic growth to 6% of GDP a year (up from an average of 1% for much of the past decade), end wasteful subsidies and remove barriers to growth, boost job creation and improve security.
Finance Minister Olawale Edun, a former investment banker and key presidential advisor, said that Nigeria will seek to encourage foreign and domestic investment rather than rely on borrowing to boost the economy and create jobs.
While the government’s first steps have been hailed by investors as long overdue reforms, it will be months if not years before the high-risk strategy leads to any benefit for Nigeria’s 200 million-plus population. A more somber economic forecast by the World Bank suggests that economic growth is unlikely to exceed 2.8% for 2023. Oil production has seen years of steady decline, although the exchange rate reforms could trigger a new wave of investment by foreign and domestic producers.
TREND ►
Tinubu’s economic strategy of relying on investment flows rather than increased public borrowing to help kick-start the economy can be expected to see a marked reduction in expropriation risk as the new All Progressives Congress government seeks to court international investors and jettison the 1970s-style protectionism and hostility to foreign investment that defined former President Muhammadu Buhari’s eight years in power.
The new government’s fuel subsidy and exchange-rate reforms boosted stocks to 15-year highs and can be expected to be followed by significant improvements to Nigeria’s overall investment climate, designed to put in place the type of attractive macroeconomic framework needed to attract more dollar-denominated foreign direct investment into the country.
Portfolio investors — absent for many years because of former central bank Governor Godwin Emefiele’s highly restrictive exchange rate policies — can be expected to return to Nigeria in the short term. But foreign direct investment flows could increase significantly over the medium term if foreign investor confidence in the government’s economic, fiscal and monetary policy framework rebounds after years in the doldrums.
The abolition of fuel subsidies, which saw pump prices triple within hours, triggered an angry public backlash among ordinary Nigerians who are smarting under the effects of double-digit inflation. Inflation hit 25.8 % in August — a near 20-year high. More than 40% of Nigeria’s 200 million-plus population live in extreme poverty, and the cost-of-living crisis has already resulted in increased levels of deprivation and malnutrition.
Street protests over spiraling food and fuel price rises are now a far higher risk than political violence arising over opposition allegations of vote-rigging in the presidential ballot; such protests are exacerbating existing risks of violence arising out of the secessionist movement in the southeast, rampant banditry in the northeast, persistent Islamic extremism in the northeast, and the conflict between Islamic pastoralists and Christians in the middle belt.
The security services can be expected to mount a heavy-handed response in the face of any street protests triggered by fuel and food price rises, similar to the way the police responded to the popular protests triggered by the central bank’s efforts to replace old naira notes with redesigned ones earlier this year.
Dozens of armed gunmen riding motorbikes kidnapped more than 30 people, including 24 female students, near Gusau in Zamfara state in the northwest of the country in September 2023, in the latest of a seemingly endless succession of sectarian and criminal abductions afflicting the country, which President Tinubu has vowed to end.
Nigerian armed forces engaged the kidnappers, but they arrived hours after the assault began and were unable to free the hostages, highlighting the limited ability of the security services to tackle the multiple security challenges across the vast geographical area.
Tinubu earlier called on the United Nations for more practical help in its efforts to stem the rising tide of insecurity and terrorist incidents in the country, which is expected to host a counterterrorism summit in Abuja in April 2024, focused on the particular security threats faced by African countries.
The abolition of foreign exchange controls saw the naira fall to 750 to the U.S. dollar, pushing up the cost of imports and reducing the cost of exports — except oil, which is priced in dollars — and should see an improvement in the current account deficit. Devaluation will also result in an increase in the government’s naira earnings, which could be used to help to pay off domestic debts and provide additional budget resources.
But the main benefit of abolishing exchange controls is the end of the central bank governor’s rationing of hard currency for importers, which limited their ability to obtain the foreign exchange needed to service their international debts and payment obligations. Governor Emefiele’s exchange rate restrictions led to multiple foreign hard currency shortages, imposing roadblocks for investors seeking to withdraw money from Nigeria. Businesspeople now have no incentive to tap the parallel market, as there is no longer any material difference between the black market and official rates.
Acting central bank Governor Folashodun Shonubi — Tinubu’s nomination has yet to be approved by the Senate — increased benchmark interest rates by 25 basis points to 18.75% in July 2023, insisting that only a moderate increase was required to contain inflation while at the same time not deterring investment.
Nigeria’s total debt burden ballooned under former President Buhari to an estimated US$150 billion, although the country’s debt-to-GDP ratio remains low at below 40%, well below the African mean. External debt, the overall debt servicing burden and the risk of sovereign default remain low.
Oil production has fallen to 1980 levels, severely constraining government receipts from oil sales, largely as a result of the lack of investment in the offshore and onshore sector and rising theft and bunkering that took place during Buhari’s two terms. Plans are, however, underway to boost output to 1.4 million barrels a day in the short term, following a series of emergency talks with major domestic and foreign oil producers.
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