As the international order appears to be transitioning from US hegemony to a US-led multilateral system, Bola Ahmed Tinubu is settling in as the new president of Nigeria. Tinubu can take advantage of this moment and establish Africa’s most populous nation as an economic powerhouse—and an African superpower in partnership with the multilateral system to advance the continent’s geopolitical interests and development agenda.
Tinubu is inheriting a country burdened by concurrent security and economic challenges. Nigerians expect Tinubu to unify the country and address economic hardship caused in part by the removal of unsustainable subsidy regimes that constrain the government’s ability to finance growth and development. Tinubu has made initial efforts already. For example, the Nigerian government spent $10 billion in 2022 on just the petroleum subsidy, and another $2.41 billion in the first five months of 2023. Now with Tinubu having removed the subsidy and also having implemented foreign-exchange reforms, Nigeria is expected to save $5.10 billion in the second half of 2023, which could go toward the government’s financing of growth and development projects.
Meanwhile, at this inflection point for African leadership on the global stage, Tinubu has been elected chairman of the Economic Community of West African States (ECOWAS). There is currently a grave need for leadership among and better coordination between African countries, as shown by dissonance between African countries on their visions for a new global financial architecture during the recently concluded Summit for a New Global Financing Pact and bilateral deals by African Union members. For example, Senegal and the International Partners’ Group—including France, Germany, the European Union, the United Kingdom, and Canada—signed a 2.5-billion-euro clean-energy agreement, while Zambia negotiated a $6.3 billion debt restructuring plan with its creditors. While these deals will offer relief to Senegal and Zambia, they are mere palliatives that distract from united African positions and fall short of systemic recommendations from the Africa High-Level Working Group on the Global Financial Architecture, including structural reforms that lower financing costs and availability, overhaul the Group of Twenty (G20) Common Framework, and amplify African voices in global forums. Tinubu should lead the coordination of a united African movement on the global stage that pushes wealthy countries to support African debt relief and new financing for climate action.
Domestic challenges
The Nigerian government’s social contract with the country’s citizens is broken and made harder to repair by economic-inclusion and inequality challenges that often manifest in bouts of insecurity and banditry.
The Tinubu administration certainly did not create these conditions, but it must now address them with economic and security measures. The administration has responded with new security measures and bold economic policies, including the removal of the fuel subsidy; it has also signed the Student Loan Act, a much-needed mechanism for increasing access to higher education, and suspended the Central Bank of Nigeria (CBN) governor, a step taken to depoliticize the office. Newly installed Acting Governor of the CBN Folashodun Shonubi ended the practice of using multiple exchange rates and replaced it with a liberalized exchange rate regime. The arbitrage between the black-market and official foreign-exchange rates, in the previous regime, fueled rent-seeking uneconomic profits of round-tripping, where banks divert foreign exchange obtained from the CBN at a lower official rate to the parallel market for higher profits.
But there’s plenty more Tinubu must do. First, to help maintain the public’s support, the administration needs to clearly communicate that it faces a tradeoff in addressing Nigeria’s two major economic challenges: high inflation and high unemployment. Any attempts to address either will exacerbate the other in the short run. Even so, the Tinubu administration should prioritize economic growth and job creation, especially as there are endogenous and exogenous inflationary pressures that economic tools at the disposal of the president will simply lack the scope to address.
Exogenous inflationary pressures are driven primarily by two concurrent events. First, while the World Bank expects global commodity prices to fall in 2023, food prices will be at the second-highest level since 1975. A projected 2023 crude oil average price of eighty-four dollars a barrel is expected to inflate the price of goods and services; in addition, the strength of the US dollar increases the cost of most internationally traded commodities. That doesn’t bode well for an import-dependent economy such as Nigeria. Endogenously, the removal of the petrol subsidy has increased the costs of goods and services, and the liberalization of the foreign exchange market has prompted Nigeria’s currency to rapidly devalue. Yet, Tinubu’s economic reforms are needed to reduce Nigeria’s estimated debt service-to-revenue ratio—73.5 percent in 2023—and its debt-to-GDP ratio, which is projected to reach 37.1 percent this year.
To its credit, the Tinubu administration is also balancing economic reforms with increased social programs. The Nigerian Senate approved the administration’s request to borrow $800 million from the World Bank to mitigate inflationary pressures from the subsidy removal. The administration has further declared affordable food and clean water as national-security imperatives. However, debt-funded measures are only temporary, and the administration needs to increase internally generated revenue (but not necessarily increase taxes) and invest in improved infrastructure to drive economic growth and job creation—even if increased liquidity and purchasing power exacerbate short-term inflation. To this end, the administration must improve the ease of paying taxes in Nigeria; in a ranking of countries according to the ease of paying taxes there, Nigeria currently stands at 159 out of 189 countries. Accordingly, Taiwo Oyedele, a former partner at PWC who now heads the Presidential Committee on Fiscal Policy and Tax Reforms, must bring coherence to Nigeria’s often conflicting tax laws and fiscal policy and harmonize taxes and revenue administration to improve the ease of doing business which should grow the tax base and increase the tax collection rates. The alternative would be a worsening economy and increased emigration of talented young Nigerians.
Investments in infrastructure should prioritize the implementation of the recently signed 2023 Electricity Act, which authorizes states, corporations, and individuals to generate, transmit, and distribute electricity, encouraging private-sector investment. Currently, Nigeria generates an inadequate four thousand megawatts of electricity, even though its population of more than 210 million people needs an estimated 30,000 megawatts of electricity. Reliable electricity supply is a precondition for industrialization, increased productivity, and improved quality of life. Overall, the administration should implement a bottom-up regional industrialization framework to move the 80 percent of workers who are employed in informal sectors or sectors with low productivity to the formal sector.
More broadly, the administration should focus on fostering better economic integration among Nigeria’s six geopolitical zones. The Nigerian National Economic Council (NEC)—a presidential economic planning advisory group composed of the vice president and state governors, among others—can help create such integration. Nigeria’s constitution requires principal political officeholders to reflect the “federal character”—or diverse tribal, religious, and regional differences—of its six geopolitical zones. But the diversity, equity, and inclusion intent of federal character has devolved into a political arrangement to distribute national resources and patronage. The NEC should reappropriate the six geopolitical zones as regional economic development clusters that leverage regional comparative advantages into productive, rather than distributive, economic activity.
Furthermore, the Tinubu administration should reorganize the country’s chronically underfunded tertiary education system. It should do that by creating entrepreneurship and green-technology innovation centers that gather universities and polytechnic colleges to develop solutions to the country’s challenges and, ultimately, bolster Nigeria’s economic competitiveness. This will generate additional well-thought-out and intentional solutions for tackling domestic challenges. For example, Nigeria is reported to spend $22 billion annually to fuel private electricity generators to satisfy the country’s energy demands, but has only 2 percent solar-power adoption. The federal government has introduced a $550-million off-grid solar electrification program, which should partner with polytechnics to develop domestic solution for powering homes and small businesses with clean energy—but that’s just one solution; Nigeria needs more.
Global expectations
The Tinubu administration will also need to prove that Nigeria can be a leader on the global stage. The administration should start by intentionally engaging with Nigeria’s highly educated diaspora, many of whom represent or lead organizations that can become natural conduits to international markets, capital, and foreign direct investment.
Of the countries in Africa, Nigeria has the largest economy and population. Coupled with Tinubu’s position as chair of ECOWAS, this heightens expectations for the Nigerian president to shape an African consensus on a host of issues, including the defense of a rules-based international order that reflects African equity and strategic interests. These are the prerequisites if Nigeria is to successfully lead the advancement of African interests in the G20—there are proposals for African Union membership in that forum—and other international forums such as the International Monetary Fund, the World Bank, and United Nations. Regional challenges remain, not only domestically, but also with the recent coup in Niger and ECOWAS’s response under Tinubu. What is clear is that Tinubu faces a myriad of challenges and that the world is closely watching how his leadership will seek to address and confront them on the world stage.
Inclusive domestic economic policy and a well-prepared foreign policy agenda are critical for Nigeria’s international engagement. The international order is demonstrably replete with opportunities for the Nigerian government to deliver for its citizens and the African continent. Tinubu must seize the opportunity.
O. Felix Obi is a member of the Executive Office of the US president’s Trade Advisory Committee on Africa at the Office of the US Trade Representative. He is also chair of the Economic & Trade Development Taskforce (Africa Commission) at the Maryland Governor’s Office of Community Initiatives.
The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.
Further reading
Wed, Mar 1, 2023
Experts react: As the ruling party’s Tinubu wins a contested election, what’s next for Nigeria?
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Image: Bola Tinubu, President of Nigeria, arrives for the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. The aim of the two-day climate and finance summit was to set up concrete measures to help poor and developing countries whose predicaments have been worsened by the devastating effects of the COVID-19 pandemic and the war in Ukraine better tackle poverty and climate change. Lewis Joly/Pool via REUTERS