Nigeria’s reform drive falters, threatens economy – Reuters
After taking office in May, President Tinubu’s lightning-fast reform push sparked hope that his administration would be a business-friendly antidote to the mounting economic troubles facing Nigeria, Africa’s biggest economy.
Fast forward to more than 100 days in office, and the key planks of his 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 to the dollar 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 be unable to wean Nigeria off the costly policies that have hindered investment and throttled economic growth.
“Momentum just seems…almost in reverse,” said David Omojomolo, Africa economist at Capital Economics.
Public anger is swelling as inflation spirals higher, however, and Nigeria’s two biggest workers’ unions are planning an indefinite strike next week to protest over a cost-of-living crisis.
“Sentiment towards Nigeria has continued to sour as the initial reform momentum under President Tinubu’s administration has faded,” said Tellimer analyst Patrick Curran.
Dollar delay
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 artificially lowly 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 weaken the official naira rate 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 has widened to nearly 30% this week, and four sources told Reuters it was virtually impossible to get dollars from the central bank on an ad hoc basis.
On Tuesday, the incoming central bank chief said that policymakers faced a nearly $7 billion backlog in foreign exchange demand; foreign airlines alone had $783 million 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 above 25%.
“What they have done so far is not enough to attract domestic debt holders or foreign investors into their domestic debt market,” said Carlos de Sousa, portfolio manager at Vontobel Asset Management.
The tattered finances left by the previous administration have also been no help.
