June 2023

Quick Bite

“The new government could unlock opportunities in key sectors of the economy, from energy, through manufacturing, to technology and more. However, it would require thorough reforms, well-designed palliatives to forestall a social breakdown, and the ability to come through a bruising elections appeals process unscathed.”

The New Nigerian Government: Will the reforms go all the Way?

The Meat

The New Nigerian Government: Will the reforms go all the Way? 

“Subsidy is gone!” This sentence would define the new Nigerian government as it deliberately or mistakenly sent shockwaves through the country on its first day in office. One month later, the new government has successfully pushed through a series of reforms, including unifying the diverse exchange rates, removing subsidies on petroleum products, and changing the leadership of the country’s central bank and security agencies. However, these reforms by themselves will do little if other critical decisions are either ignored or poorly made. This article addresses the completed reforms, unfinished business, and how investors should be thinking about the new administration. 

The Reforms

The New president hit the ground running with a series of much-needed reforms that had long been identified as critical to addressing some of the nation’s most pressing challenges. The first decision was a freeing up of the nation’s fiscal resources by ending the controversial fuel subsidy policy. The subsidy program had consumed nearly $10 billion in 2022 and $7.5 billion in mid-2023. At this rate, the country would have seen a 50% rise in its fuel subsidy bill by the end of 2023 if the policy had been sustained. The decision to end the subsidy should provide much-needed fiscal wiggle room considering Nigeria’s high debt service obligations (96% of government revenues). Beyond its ameliorating impact on the government’s purse, the policy removes a key impediment to realizing the full potential of the Petroleum Industry Act (PIA); the key legislation aimed at attracting significant investments into the country’s energy sector. The PIA provided for market-based pricing of petroleum products; a reality that remained elusive as subsidized pricing remained.

Similarly, the new administration took early steps aimed at sanitizing the country’s monetary system by pushing for a unification of the Naira’s multiple exchange rates and draconian capital control regime. The unification, while initially disruptive to the Naira’s value, should help cut out the significant arbitrage opportunity provided to a few Nigerians who got dollars at a favorable rate from the apex bank and resold at a huge profit in the black market. The previous system had significantly discouraged businesses by increasing input costs for businesses that acquired foreign currencies as well as rationed access to dollar profits for foreign investors and companies. More so, the dismantling of the previous capital control policies would help increase investor confidence, facilitate ample inflow of foreign currencies, and help increase ease of trade between local companies and international partners.  

Source: Business Insider

Finally, the new administration completed an overhaul of the nation’s security agencies; a routine decision but one that bears particular importance considering that the aforementioned reforms would only be impactful if key threats are curtailed. Among these are oil theft, banditry, terrorism, etc. It is too early to predict the potential impact of the new security chiefs. However, there is no gainsaying the role of political stability and property protection in attracting investments and spurring economic growth. 

The Risks 

The aforementioned policy reforms have had some impact on the country’s economy and polity. However, they are hardly enough. A key concern includes how far the administration is willing to go in enacting complementary reforms. For instance, the decision to remove subsidy on fuel products, which is one of a series of reforms envisaged in the PIA, should be complemented with related reforms in the energy sector. These include increased transparency in the issuance of petroleum import licenses as well as refining licenses (large-scale and modular) for investors looking to enter the sector. Increased transparency, ease of access to licenses, and elimination of licensing caps would significantly increase investment inflows, spur competition, and ensure relatively lower pricing for consumers; and outcome that’s good for both government (through tax receipts) and consumers (lower pricing). The same transparency and ease of entry should be extended to the upstream sector as well as other sectors such as mining which have been bedeviled by excessive bureaucracy and artificial scarcity of licensing. Whether the new administration would effect these thorough reforms remains to be seen.

Beyond regulatory risks, the worsening socioeconomic condition of Nigerians, which is partly a result of the above reforms, remains. While the reforms, if fully enacted, would significantly boost the economy and improve livelihoods, the short-term impact on Nigerians is undeniable. Coming on the heels of the botched naira redesign policy which further impoverished small businesses and negatively impacted the informal sector, the new policies would further decrease the standard of living for millions of Nigerians and worsen an already bad multidimensional poverty rate. The twin policies of zero fuel subsidy and naira devaluation would increase key costs including transportation, import duties for staples such as wheat, and further worsen local food inflation. Combined with high unemployment/underemployment, stagnant wages, and increased rate of closure among small businesses, the policies could trigger unintended consequences. The administration has promised palliatives for the poor and vulnerable. Its implementation remains to be seen. 

Finally, the presidential election, through which the current came in, remains controversial and in court. The uncertainty surrounding the court’s potential decision hangs over the administration like the sword of Damocles. The entire process, culminating in a supreme court decision, could take nearly six months. This uncertainty, depending on the turn of events in the coming months, could force major investors to take a wait-and-see approach, further frustrating the administration’s promise of rapid economic growth. Furthermore, depending on the apex court’s decisions, there remains a possible threat to social stability, with consequences for the nation’s economy. 


How should investors interpret the whirlwind of events? Two words: measured optimism. The administration started off on a relatively positive foot, albeit without adequate safety nets for the vulnerable. Nonetheless, the new government could unlock opportunities in key sectors of the economy, from energy, through manufacturing, to technology and more. However, it would require thorough reforms, well-designed palliatives to forestall a social breakdown, and the ability to come through a bruising elections appeals process unscathed. Our team stands ready to work with investors in interpreting the plethora of ongoing activities as well as preparing the foundation for harnessing opportunities in key sectors of the economy. Contact us today. 

Crystal Ball

The sudden advance of the Wagner Group towards Moscow last week sent shockwaves through the world. For Africa, the concern is even more acute considering the increasing role of the private military company across the continent. Whatever happens to the group and its founder in the coming weeks could significantly impact the stability of key African countries, including nearby neighbouring countries. We’re closely monitoring the situation. 

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