Nigeria’s Evolving Outlook
New Politics, Old Outcomes
Cameron Hudson | 2024.05.17
Nigeria is plagued by governance challenges, especially in its oil sector, where entrenched interests have impeded reforms despite the passage of the Petroleum Industry Act in 2021.
Introduction
Nigerians like to say that when their country sneezes, the rest of Africa catches a cold. Whether by dint of the size of its economy or its population, Nigerians are rightfully proud of their country and its influence within the West African region and the wider world. And yet, many would also say that in recent years that influence has waned as Nigeria has struggled to rise above its internal challenges. Beset by poor governance, weak institutions, deteriorating security conditions, spiraling economic decline, and uninspired leadership, Nigeria’s current conditions present it as more of a sick man of Africa. For these reasons, many saw the country’s 2023 presidential elections as a chance to reset the narrative, begin the necessary process of reforming what ails the country, and chart a new course for the future of Africa’s largest country.
This paper, researched and drafted in the opening months of the new Bola Tinubu government, considers some of the early policy choices the president has taken and his governing style thus far to develop expectations regarding the pace and quality of economic and governance reforms in the years to come. In particular, this paper focuses on the hydrocarbon sector, which has traditionally been Nigeria’s engine of economic growth and largest provider of hard currency. As the face of extractive industries in Nigeria evolves, along with global attitudes toward fossil fuels and green energy, this paper assesses how Nigeria is positioned locally to both benefit and be buffeted by this rapidly evolving landscape.
Tinubu Administration
More of the Same?
Bola Tinubu assumed the presidency of Nigeria in May 2023 with his back already firmly against the wall. Court challenges to his electoral victory hung over his first five months in office, creating distractions and defusing the kind of meaningful momentum that electoral victories often bring and which are important for new administrations to build the necessary energy for change and reform. Beyond the allegations of a fraudulent election, Tinubu was further saddled with the reputational harm that comes with being the first Nigerian president elected with without receiving a majority of the popular vote. Winning only 36 percent of cast ballots, Tinubu’s mandate coming into office could not have been weaker. Compounding this trust deficit, he took over Aso Rock, the presidential villa, with no grand vision for how he would administer the government and address the nation’s many challenges, nor a defined policy ag enda.
Described by many as a consensus builder and dealmaker, he ran on his reputation as a results-oriented administrator capable of assembling teams of competent lieutenants able to achieve results — a reputation he made for himself as the governor of Lagos State from 1999 to 2007. But given the nearly two decades since he has held elected office, his detractors note that there is a substantial difference between making Nigeria’s complex patronage network function and being able to or interested in reforming it. In terms of reform, perhaps Nigeria’s most pressing and challenging priority, his early record suggests that he is likely to continue the tradition of prioritizing politics over governance, or as one local analyst remarked, “making things work despite government involvement, not because of it.”
Aside from the many structural challenges facing Nigeria’s economy and governance structures, Tinubu has shown in his first 10 months in office that his focus is likely to be much more on outcomes than on process, with many suggesting an “ends justifies the means” attitude toward governing. Several early policy pronouncements illustrate this style of governing and imply an impetuous and even ad hoc style of leadership.
First, Tinubu’s cabinet choices have disappointed many who had hoped to see the kind of young, dynamic, and technocratic government officials he reportedly assembled during his time as Lagos State governor. Instead, his record number of ministerial appointments has created a bloated and unwieldy cabinet that again suggests that politics will trump public policy, as more party stalwarts and political allies have been rewarded with prized ministerial posts in lieu of more qualified reformers or technical experts, with only a few exceptions.
Second, Tinubu’s decision to keep the position of petroleum minister for himself, as all previous Nigerian presidents have done, was clearly a missed opportunity to break from tradition and signal that a reform of Nigeria’s sclerotic revenue generator might be coming. Perhaps more importantly, it signals a business-as-usual approach to the sector, where the presidency maintains a firm grip over all contracts and investments in the country’s oil industry.
Third, hasty announcements of reforms to remove a national fuel subsidy and float the foreign exchange rate appear to have been done with little consultation with economic advisers and without any kind of short- or long-term strategy to mitigate the unintended consequences of his decisions. While many in Nigeria acknowledge that these moves were entirely necessary to begin to right the country’s economy, the dramatic devaluing of the naira and the soaring cost of everyday staples has set back the economy even further and disproportionately hurt average Nigerians, who the actions were intended to help. That these weighty decisions were enacted with no social safety net in place and without sufficient warning to Nigerian businesses has squandered an opportunity to demonstrate true political courage and instead made the policy change appear foolhardy and chaotic.
And finally, Tinubu’s robust defense of regional democracy in the face of Niger’s military coup and threats to employ Nigeria’s thinly stretched military to mount an invasion of Niger to restore to power its erstwhile president, Mohammed Bazoum, presented Tinubu as impetuous, uncalculating, and underprepared to manage the country’s complex foreign relations and internal security challenges. Nigeria’s military leaders were particularly angered at reportedly not having been consulted before Tinubu made his threats of military force against a nation that had largely been trained by Nigeria and with whom many of Nigeria’s Hausa officer corps share deep cultural and familial bonds. In the words of one retired general, “It was tantamount to declaring civil war.”
Many analysts, politicians, and business leaders argue that Nigeria possesses the requisite laws and institutions for the effective functioning of an efficient state, but also that it has mostly lacked the kind of steadfast leadership required to challenge entrenched patronage networks.
Many analysts, politicians, and business leaders argue that Nigeria possesses the requisite laws and institutions for the effective functioning of an efficient state, but also that it has mostly lacked the kind of steadfast leadership required to challenge entrenched patronage networks that continue to undermine the best intentions of even the most committed reformers. It is still too early to predict what direction Tinubu will choose. There is still a large amount of triage to undertake on the economy before larger structural reforms can be imagined, especially given the deleterious effects of his early economic choices. In short, if he can get there, a second term would be a more likely opportunity for President Tinubu to pursue true reforms, should he choose to do so.
The Future of Nigerian Oil
There is perhaps no greater example of Nigeria’s unrealized potential than its oil industry. The well-documented failures and shortcomings of Nigeria’s hydrocarbon sector are a direct reflection of the inability and unwillingness of successive Nigerian governments to address debilitating governance challenges, rampant insecurity, and endemic corruption — all of which today form a vicious cycle that inhibits simple solutions. International oil companies (IOCs) are increasingly exploring options for leaving Nigeria’s onshore oil areas and concentrating in the deep offshore — or even departing Nigeria altogether. Along with mounting pressures from the global “net-zero” movement to shift away from fossil fuels and lower carbon emissions, Nigeria faces the critical question of whether oil can or should maintain its relative importance to the country’s economy.
The election of Tinubu has carried with it some hope, and even more promises, that renewed efforts will be taken to address the sector’s deficiencies and reinvigorate the hydrocarbon sector to once again be a driver of growth and much-needed foreign exchange. The president has proclaimed a desire to see the country boost its production to 4 million barrels per day, nearly tripling its present-day production level, which is itself well short of the country’s quota established under the Organization of the Petroleum Exporting Countries. Many see Tinubu’s personal experience working for an IOC and his family’s deep ties to the industry as giving him special insight into the sector and motivation to fix it. Today, the industry is viewed as much maligned, which one industry insider described as “broken at every level.” But such herculean ambitions require a genuine commitment to upending Nigeria’s vast oil-related patronage network, starting at the highest levels of the federal government and extending all the way down to the creeks of the Niger Delta’s expansive inland waterways. But a number of impediments stand in the way.
Governance
First, many argue that the oil industry itself is simply too big to disrupt and has too many entrenched interests embedded throughout for one person to address, even if that person is the president. Underscoring this point, many refer to Tinubu’s decision to reserve the position of petroleum minister for himself as a signal that he has no real interest in reforming the system he oversees.
Others point to passage of the landmark Petroleum Industry Act (PIA) as further proof that even legislative and regulatory tools are too little, too late in seeking to reform the sector. The PIA, at its inception, was intended to provide a comprehensive set of legal, governance, regulatory, and transparency measures to address many of the sector’s endemic challenges and to open Nigeria up to a new generation of investment. But few believe that the legislation, conceived of 20 years ago and passed in 2021, has arrived in time to either reverse the slow and steady decline of the oil sector or signal to outside investors that Nigerian leaders are in fact interested in transforming the industry into a model of growth and efficiency. Indeed, while Nigerian lawmakers were busy spending two decades debating how to transform and govern the industry to ensure its health well into the twenty-first century, the sector and the world changed around it.
When debate started on the PIA, Nigeria was Africa’s oil behemoth, producing roughly 2.5 million barrels per day. Despite low-level insecurity and operational challenges associated with managing complex community relations, as the majority of Nigeria’s oil infrastructure crisscrosses literally thousands of local communities, oil majors had few other alternatives to Nigerian oil. That is no longer the case. As oil discoveries have been made all along the West African coast, not to mention major new discoveries in places further afield such as Uganda and Mozambique, IOCs now have a wealth of investment opportunities from which to choose. And importantly, those locations appear to be more secure and easier in which to operate — and seem to offer greater returns on investment. In particular, deeper offshore oil investments in Nigeria have emerged as more attractive to international investors for their higher revenue margins, absence of local community groups to manage, and lower vulnerability to unrest and insecurity, resulting in fewer production delays and higher profits.
The other element of the PIA’s development that has clearly backfired is the notion that the legislation would open the door to new investment to reinvigorate the sector. Instead, oil majors, preferring to see what direction this landmark legislative effort would take, have delayed for decades the kinds of necessary investments in upkeep, maintenance, and expansion of oil infrastructure that would allow Nigeria to even meet its existing production quotas. The result has been increasingly unreliable and faulty infrastructure, some of which is 50 to 60 years old, that is easily tampered with and prone to leakages and other failures.
This fundamental weakness in current onshore oil infrastructure has been exacerbated by fraught community relations as more and more responsibility for local development and service delivery has been foisted onto IOCs in the absence of tangible and sustained efforts at the local or federal levels. A vicious cycle currently exists whereby oil infrastructure is either vandalized or breaks down, creating environmental damage and exacerbating grievances with local communities. This in turn prompts lawsuits and clean-up efforts, which IOCs are left to negotiate with communities and largely occur absent any government oversight or intervention. It is perhaps no wonder that in this operationally challenging and litigious environment that oil majors in recent years have been choosing to defer promised onshore investments for which they hold exclusive licenses; in some cases, they have even chosen to return those licenses back to the government.
In the words of one Nigerian oil analyst, “Nigeria expected the rest of the world to wait for them to get their house in order, and instead [the world] got tired of waiting and moved on.”
In the words of one Nigerian oil analyst, “Nigeria expected the rest of the world to wait for them to get their house in order, and instead [the world] got tired of waiting and moved on.” However, it is not only the governance of the sector that has left so many actors, from the IOCs all the way down to the community level, so disillusioned and disheartened about the sector’s future. Even if President Tinubu committed to implementing the PIA and its many provisions governing community-IOC relations, the sector would still exist in the context of Nigeria’s wider governance failings, all of which require a top-down, comprehensive set of measures to address. Short of wholesale elite buy-in, this is difficult to envisage happening.
Security
Nowhere is this governance failure on sharper display than in Nigeria’s overall lack of security, not only in the Niger Delta but across the country’s 36 states. Currently, Nigeria’s military, which is responsible for the country’s internal security, is deployed on security operations in 34 states, each of which has sustained a minimum of at least 20 conflict-related fatalities, though most cases involve far more. This is despite having fewer than 200,000 active-duty troops and only two functioning C-130 transport aircraft to move those forces. Chronically understaffed and undermotivated, they are also underfunded. The administration of former president Muhammadu Buhari reportedly needed to borrow funds externally to pay army salaries, with as many as one-third of army salaries being paid to ghost workers.
Security in the Niger Delta largely has been predicated on the notion that some combination of money and the military would fix the ailments of both the hydrocarbon sector and the local communities in which those operations take place. In reality, the opposite appears to be true.
And yet, security in the Niger Delta largely has been predicated on the notion that some combination of money and the military would fix the ailments of both the hydrocarbon sector and the local communities in which those operations take place. In reality, the opposite appears to be true. The more money and forces deployed to the delta, the worse the security situation has become in recent years. Though assessments vary, at least one-quarter and as much as one-half of Nigeria’s daily oil output is being stolen by militant groups across the six states of the Niger Delta, to the point that the government has lost track of the number of pipeline attacks because there are so many.
This sustained militancy in the delta is a function of both the absence of development dollars, which typically fail to make it to the community level, and the lack of jobs and economic opportunity for the increasingly young population. Despite the chronic insecurity this militancy engenders, oil theft creates higher-paying jobs than can be found on the local job market, fills the region’s energy gaps through small-scale refining, and has become the grease that literally helps the region to function — prompting one local community leader to assess, “Oil theft is state sanctioned instability.” With most of the Nigerian army and navy’s deployed forces in the region coming from northern and western states, delta militants remain at a distinct advantage in knowing the spiderweb of creeks and roads across the region. This local knowledge enables militants to evade even serious attempts at capture and has left the military looking feckless in its inability to effectively respond to this threat.
These trends are all epitomized in the announcement last year that former Niger Delta militant and kingpin of the illegal oil market Government Ekpemupolo, or “Tompolo,” had been granted a ₦48 billion (approx. $60 million when signed) annual contract by the federal government to provide pipeline security across the Niger Delta. Many saw this deal as a quiet, yet public acknowledgement by the state that it had been bested and is unable to provide effective pipeline security. Billed by the government as an amnesty and a works project for delta youth, it is hard to view this “fox guarding the henhouse” scenario as anything other than another government abdication of its responsibilities in the region — the first being the foisting of development responsibilities onto IOCs. This sad admission — that the best the government can do is award lucrative contracts to those responsible for inflicting pain on the nation — is not just a recognition that Nigeria is plundered, but that it is also rewarding criminals, bandits, and groups that take up arms against it. Unsurprisingly, despite the high levels of violence and militancy, the Niger Delta is not even Nigeria’s most unstable and violent region.
One local community leader lamented that, “Everything about oil production is violent: from the discovery, to the extraction, to the refining and the flaring. You cannot escape it.” And with local security being turned over to militants — essentially paying bad actors to refrain from further attacks — the government seems to be both rewarding bad behavior and acknowledging their inability to stop it. With such a bleak security picture of and disheartening commentary on government capacity, few local leaders are surprised that commitment from IOCs to onshore production is in doubt and that the outlook for the sector appears bleak.
Environmentalism and a Green Future
In the 20 years that the oil industry has waited for the government to address the challenges facing oil production, trends were also emerging outside of the oil industry which are today similarly having a profound effect on the sector’s future in Nigeria. The race to net-zero carbon emissions and campaigns against fossil fuels are beginning to have profound effects on the industry in ways that will affect future investments and seemingly depress enthusiasm for new oil projects. But for communities in the delta, environmentalism has less to do with protecting the environment and reducing emissions and is much more focused on getting paid for past or ongoing environmental damage caused by vandalism or failing infrastructure.
For communities in the delta, environmentalism has less to do with protecting the environment and reducing emissions and is much more focused on getting paid for past or ongoing environmental damage caused by vandalism or failing infrastructure.
While the net-zero movement exists within some community and advocacy circles, local politicians have appeared largely unmoved by the global climate change debate. In fact, many point to the fact that Western countries are continuing to make substantial new investments in fossil fuels as a sign that international calls by those countries to begin a shift toward more expensive green energy is little more than a new tool of colonialism. Instead, the priority in Nigeria has remained developing a greater abundance of affordable energy for the local market, though not necessarily from green sources. But many acknowledge that Nigeria may be approaching the stage where pursuing a greener future may in fact create opportunities for “leapfrogging,” especially as the cost of renewables inches closer to the price of oil.
Many officials and business leaders acknowledge that “Nigeria is really a gas country,” in recognition of the fact that the country’s natural gas supply far surpasses its future oil reserves. They argue that a transition to gas for internal energy uses, as much as for export, is precisely the kind of initiative the government needs to jumpstart the economy and bring in a new source of foreign exchange. Similarly, others argue that Nigeria’s famous innovators and entrepreneurs would be well placed to help develop the sector if the government did more to incentivize innovation and create a market for its monetization.
But this kind of energy transition discussion has been slow to take hold among leaders and the population at large because of the stranglehold that big oil has on the economy and governance of the country. Nigeria, it is argued, is a rentier state that revolves around oil. Shifting away from that, or creating a new reality around gas or renewables, would mean undoing an entrenched, and in many ways perverse, incentive structure from the top down that politicians have neither the courage nor willingness to take on. Beyond that, it would also mean changing the popular conception that the country is an oil economy. In the delta in particular, local activists argue that, given the harm and destruction the oil industry has wrought on the region, communities are unwilling to abandon it without first seeing some of the benefits that they have long been promised from the resource. Indeed, many locals express concern about a de-emphasis on oil or the rumored departure of IOCs, arguing that it is not fair to suffer the negative impacts of the industry for so long without reaping sufficient benefit. With President Tinubu’s removal of fuel subsidies, this argument is even more resonant today as communities throughout Nigeria are now forced to pay the equivalent of a month’s salary for a tank of gas.
Aside from a handful of civil society organizations and delta-based NGOs, there has been no strong indigenous advocacy movement from key actors in Nigeria pressing for a transition to clean energy or a move away from oil production. This lack of political leadership or organized public demands has made progress slow. But President Tinubu’s recent appointment of a minster of gas is seen by some as a potentially hopeful sign. To operationalize those efforts, others have argued for a gas master plan that puts in place a gas policy and strategic development plan for the sector’s future. Beyond that, many argue that if gas is to be developed, the government must do a better job from the start of maximizing the benefits for local communities during the development of the asset. Unless equity is established between local communities and gas production, Nigeria risks recreating the toxic and unstable environment that is already entrenched in the oil sector.
The Growth of Indigenous Firms
Given the many challenges of governance, security, and community relations faced by IOCs in operating in the onshore Niger Delta, coupled with the increasing global pressures to disinvest from fossil fuels, it is no wonder that many of Nigeria’s oil majors are discussing or actively seeking to pull out of Nigeria’s onshore environment. And yet, most of the major oil industry stakeholders, whether business executives, local communities, politicians, or civil society groups, all appear sharply divided over what the net effect would be of having indigenous Nigerian oil companies assume the assets and production capacity of international operators.
Some argue that the departure of large international oil operators presents a historic opportunity to develop local talent, keep Nigeria’s vast oil wealth in Nigeria where it can better benefit the Nigerian people and economy, and become more responsive to the needs and demands of the communities where the oil is extracted. But arguing, as many do, that traditional IOCs have always overpromised and underdelivered on their local commitments excuses many of the structural impediments to efficient operations that companies of any national origin will face in Nigeria’s rough and tumble delta.
A Mixed Picture
On a number of points, the argument often made by the sector’s stakeholders — that indigenous operations would have the inherent tools to succeed — can in fact cut both ways. Many argue that Nigeria possesses the requisite pool of local skilled talent after decades of oil production to run the industry from the wellheads to the boardroom. But others point to the endemic corruption and inside information that comes from many of those same locally employed staff. How, it is argued, can upwards of half of Nigeria’s daily production output be stolen without the leakage of inside information to militants regarding where and when to strike? Will these relationships recede when Nigerian ownership is installed?
Similarly, the argument goes that there is enough security in the delta, with large-scale deployments of federal army and naval forces. But again, many assume that those forces will be more dedicated to protecting locally owned and operated assets than foreign-owned ones. This assumption similarly ignores the basic reality that delta militants remain substantially better armed, better informed, and better motivated than federal security forces.
On the development front, operators contend that there are sufficient development resources already in the delta to counter the threats to operators and vandalism of infrastructure. They argue that violence will be minimized against local operators, pointing to the provision of the PIA requiring oil operators to pay 3 percent of profits into a local community development fund. However, previously unpublished audits of those trust funds suggest that development dollars are being siphoned off before making it to local communities.
SOME LOCAL ADVANTAGES
The most obvious and significant advantage observers point to that locally owned Nigerian firms would have over their international counterparts is simply that they are local. Western multinationals are seen as deep pocketed and as susceptible to the kinds of pressures that local communities, militant groups, and politicians can bring to bear. These leverage points against IOCs have grown even more pronounced against the backdrop of global climate change discussions and environmental justice debates.
Local operators, it is argued, will be seen as having fewer resources to pay militants or corrupt politicians; as unwilling to buy off local communities with gifts or development projects to create goodwill or compensate for environmental damage; and as less of a security target for militant groups. Being Nigerian, these operators are also seen as likely to be less susceptible to the kinds of shareholder pressure and bad press that impacts IOCs located in Houston, London, or the Hague. Such IOCs are constantly spending to ward off bad press associated with local lawsuits related to everything from environmental damage to unfair labor practices to unmet promises to local communities.
Communities seeking to gain leverage over locally owned and operated Nigerian operators would have to sue them in Nigerian courts, seek compensation in naira, and work through Nigerian politicians and the Nigerian press to plead their cases. This is decidedly a far less appealing, less effective, and less lucrative avenue for seeking redress, which many believe will dissuade such formal legal proceedings from becoming as widespread as they are today with IOCs.
Lastly, because local firms are understood to be more resource constrained than major multinationals, many believe that violence, vandalism, and environmental damage will go down markedly as soon as it is understood that the prospect of a substantial payday is not waiting for malign actors in the way it may have been before. However, not all Nigerian operators are monolithic, and some may feel that having fewer activist shareholders and being free from the constraints of Western anti-corruption legislation, such as the United States’ Foreign Corrupt Practices Act, will give them many of the benefits of being both a smaller target and more able to respond in ways that continue to challenge IOCs.
SIGNIFICANT DOWNSIDES
As much as local firms present some obvious advantages to their international oil counterparts, it may become quickly apparent that having a smaller size and capitalization comes with a number of distinct disadvantages as well that are unlikely to benefit the local communities or wider economy. This is especially true when it comes to the kinds of leverage local groups might have over oil companies to press demands, which will have to be channeled through local, state, and federal politicians and institutions, including the courts. These indigenous firms are unlikely to be as responsive as IOCs, which have activist shareholders and boards seeking to minimize bad press and operational risks. Similarly, without foreign courts adjudicating disputes, many fear that more pressure will be put on Nigeria’s weak judicial and law enforcement agencies to govern the sector more actively. Given the overall governance challenges already endemic in Nigeria, this suggests an environment where local voices have less ability to hold decisionmakers accountable for the matters that affect them directly. Some local activists are worried that local operators would take shortcuts on issues such as health, safety, security, and workers’ rights because they do not fear the same repercussions that an IOC might feel.
Otherwise, some local oil operators suggest that the biggest challenges they face, which are felt locally, are the cost and availability of the capital necessary to maintain and even grow their operations. One operator calculated that the cost of capital for hydrocarbon projects in the United States is 6 percent, compared to 13 percent in Nigeria, thus putting a 7 percent risk premium on any project for which they seek to raise funds. In addition, they noted that the overall race to net zero is hindering the global capital flow to hydrocarbon projects. If a local project is not self-financed, it would have to pursue large decarbonization offsets and substantial environmental, social, and governance (ESG) components in order to raise money from Western sources.
In this resource-constrained environment, where environmental concerns often trump demand, indigenous firms are likely to have fewer resources on hand to operate and maintain the existing, and failing, infrastructure networks they have bought into, let alone the substantial new resources needed to bring online Nigeria’s remaining reserves. Instead, what many expect to see is indigenous firms looking to squeeze what is left of a dying industry in a bid to maximize profits but not production. As a result, many suspect to see a proliferation of small and resource-constrained local operators entering the onshore market, surrendering the production efficiencies of large firms and accelerating production declines.
An Economic Study in Contradictions
President Tinubu came into office with sky-high expectations for reviving the economy and delivering an economic miracle to the country, as people recall him doing for Lagos State during his time as governor. Eight years of statist policies and interventions in the economy under the previous Buhari government — defined by capital controls, heavy government borrowing, and costly subsidies on everything from foreign exchange to fuel and electricity — have left the economy in a historically bad position. And while Tinubu is looking for quick wins to stem the hemorrhaging of the economy, he is not seen as a reformer. People are expecting to see more liberalization and less intervention from the government in the economy. At the same time, he has given little indication that he is likely to do much to break the current patronage system so central to the Nigerian economic model and rebuild it more efficiently under the rule of law. Absent such reform, Nigeria’s economic outlook will remain highly unpredictable.
Nigeria’s economy is rife with contradictions that President Tinubu appears, so far, ill-equipped to reverse.
Indeed, Nigeria’s economy is rife with contradictions that President Tinubu appears, so far, ill-equipped to reverse. First, although the president came into office on the tail of multiyear rises in the global price of oil, Nigeria finds itself in the unenviable position of watching its own internal fiscal situation deteriorate precipitously. Similarly, the quick wins promised by Tinubu in the campaign have translated quite simply into quick losses. His inaugural announcements to end costly fuel subsidies and float Nigeria’s currency, the naira, had the near-immediate effect of accelerating the country’s economic decline, to the point that the naira has lost nearly 100 percent of its value against the U.S. dollar since the float was announced.
On paper, Nigeria has the potential to be Africa’s economic powerhouse. It already has the continent’s largest economy and population and is expected to have the third-largest population globally by 2050. Fed by a large middle class, the president’s business-friendly rhetoric and promises to usher in a new era of deregulation, private sector–led growth and development, and job creation have struck many as the right message at the moment. But once again, his early economic choices have hurt those he claims to be trying to help the most. With real inflation running somewhere between 50 and 75 percent each month, overall consumption is starting to fall, further contributing to the downward economic pressures and beginning to shrink the much ballyhooed middle-class segment. That shrinkage is only further exacerbated by a rising, record-level brain drain, as many Nigerians with better options are voting with their feet and leaving the country for easier and more prosperous lives in the diaspora.
Against this backdrop of economic decline, oil majors and the middle class are not the only ones seeking an exit from Nigeria’s economy. Large providers of consumer goods, such as the South African retailer Shoprite and Western giants such as Proctor & Gamble and Unilever, have also decided to end efforts to manufacture in the country and have instead shifted to a distributor model for selling goods in Nigeria. This move away from value-added production — owing to severe capital controls that mean it can take as long as six months to repatriate hard currency earnings — and the precipitous decline of the naira are sure to push Nigeria further down the economic ladder.
This unmet potential and Nigeria’s declining economic fortunes have been compounded by Tinubu’s rash economic decisionmaking and seeming lack of a comprehensive economic plan. But one trait the country’s detractors can rarely explain and are challenged to quantify is its resiliency. This resiliency has enabled the country to survive and succeed sometimes despite itself. But for too long, as one local business analyst noted, “Nigeria walks and talks like a country that is wealthy, but it’s not. The image that Nigeria has of itself is not the truth.” The question remains whether the departure of decades-long pillars of Nigeria’s business community will be enough to speak the kind of truth to power in Abuja that can initiate much-needed governance reform and institutional strengthening. Thus far, too few have been willing to undertake the changes needed to help Nigeria develop into the economic powerhouse it can be and thinks it already is.
Regrettably, President Tinubu’s early economic missteps suggest that he might draw the wrong lessons from his bold economic choices. Instead, Nigerians are hoping he learns from that hasty start and sets upon a trajectory of thoughtful and deliberate economic reforms that tap into the country’s natural advantages. Short of that, Nigeria’s economic and political fortunes are likely to remain unpredictable and contradictory.
Cameron Hudson is a senior fellow in the Africa Program at the Center for Strategic and International Studies (CSIS). He was previously a senior fellow at the Atlantic Council’s Africa Center, where his research focused on the democratic transitions and conflict in the Horn of Africa.